Wednesday, Feb. 2, 2000
Staff writer Major consumer finance companies, despite their soaring profits and superb risk assessment skills, still lack one thing: a positive image. Hiroki Jinnai, president of top consumer moneylender Promise Co., is well aware of that weakness. And it is exactly why he wants the firm's planned joint venture with Sanwa Bank to reflect more of the bank's image and not that of his company. "I think there are disadvantages in putting the image of Promise first," Jinnai said in a recent interview with The Japan Times. Promise, the nation's third largest consumer moneylender, made a joint announcement with Sanwa Bank and Sanwa-affiliated credit loan company Aplus Co. in December that the firms would jointly set up a new consumer loan firm to target individuals with an annual salary of between 5 million yen and 8 million yen -- slightly higher than Promise's core clientele, whose annual income averages between 2 million yen and 5 million yen. Sanwa Bank will own 50 percent of the venture, Promise 40 percent and Aplus the remainder. The new firm, to be set up in April, plans to offer loans with an interest rate of 15 percent to 18 percent, which is lower than the rate Promise charges but higher than Sanwa's. By law, banks are not allowed to charge more than 15 percent, while consumer loan companies can charge up to 40.004 percent. Starting on June 1, however, the ceiling will be reduced to 29.2 percent. "Banks have never charged more than 15 percent, while consumer finance companies have charged more than 20 percent (on consumer loans,)" Jinnai said. "No one has captured a group of customers who borrow loans with interest rates of 15 to 18 percent. We would like to fill that void." While Jinnai refuses to disclose the loan products the new firm will sell when it begins operations by the end of this year, he said he is hopeful that the joint venture will succeed by riding on Sanwa's brand image. For Sanwa, the joint venture will be beneficial as well, bank officials told a news conference in December. The new unit will offer the major city bank a chance to enter the lucrative consumer loan industry, a niche that many banks have shied away from, presumably for fear of being associated with the likes of loan sharks. One of the factors behind the bad image of consumer moneylenders is the excessive lending they carried out in the 1980s. The industry has been blamed for "sara-kin hell," or salaried-man finance hell -- the practice of overlending that led to a surge in personal bankruptcies. But Jinnai claims that modern-day consumer finance companies operate with morality. They have also acquired expertise in using statistics to set appropriate credit levels for each customer, they claim. For example, when a person applies for a loan, the firm checks the applicant's credit history in detail. The loan firm first calls up an in-house database to see if the applicant has previously borrowed money from the firm and, if so, checks the person's data. The in-house credit evaluation system classifies borrowers into 352 groups by taking into account such factors as the area in which they live, the composition of their family, their housing and the kind of health insurance they hold. The entries are detailed and also indicate whether the borrower rents or owns a house, who holds the title on the properties, and whether the loans on it have been paid. The applicant's job security is also checked, with the number of years at his or her current workplace being used to evaluate risk. The firm then calls up an industry-wide database that lists the applicant's credit history with other consumer finance firms. Eventually, the applicant is put into one of 1,760 risk groups. It is this degree of expertise that banks crave. Banks, which have traditionally had a heavy reliance on collateral, still lag behind consumer financiers in credit evaluation skills. They are also inexperienced in offering small-scale loans like consumer finance companies do. But times have changed. Banks, with many of their corporate clients turning to capital markets to raise funds, are increasingly shifting their attention to retail customers. A similar joint venture plan announced in September by Sakura Bank, midsize consumer moneylender Sanyo Shinpan Finance Co., Nippon Life Insurance Co. and am/pm Japan Co., signals that more banks might follow the path beaten by Sakura and Sanwa. A sophisticated customer database is apparently the key to the new company's success. There are currently four such databases, including one operated by consumer financiers, one by the banking industry and another by credit loan companies. The consumer finance industry version -- which is capable of updating all credit information on a real-time basis -- is the most advanced. But it remains uncertain whether the Promise-Sanwa venture will have access to any of the credit information accumulated by the consumer finance industry. "There is a voice in our industry that says the fruit of our labors should not be given to outsiders," Jinnai said. "In that case, we will just have to build a good database on our own."