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Alternative Lending in Japan
Koichiro (Kay) Okamoto Chief Executive Officer Yayoi Co., Ltd.
April 12th, 2016
© 2016 Yayoi Co., Ltd. All rights reserved.
Japan is the 3rd largest economy in the world
$17,968B (GDP, 2015*)
$4,116B (GDP, 2015*)
US Japan
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$11,384B (GDP, 2015*)
China
* Gross Domestic Products, current prices in USD, estimates by IMF (2015/10)
© 2016 Yayoi Co., Ltd. All rights reserved.
Does it have a 3rd largest alternative lending market?
> $30B (New origination
in 2015*)
$0.54B (Cumulative origination
to date***)
US Japan
3
$151B (New origination
in 2015**)
China
* Estimate by LendAcademy at LendIt USA 2015 ** Figure by Wangdaizhijia.com *** Figures from 7 alternative lending companies (Maneo, SBI Social Lending, CrowdBank. Lucky Bank, Aqush, CrowdCredit and OwnersBook)
Converted to USD in 2015 average FX rate at JPY121.05 = USD1
© 2016 Yayoi Co., Ltd. All rights reserved.
Lending market itself is quite sizable
Consumer Business
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Lending by banks in USD billions (converted from JPY at constant rate of JPY121.05 = USD1) Source: Bank of Japan
0.0
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© 2016 Yayoi Co., Ltd. All rights reserved.
Why hasn’t alternative lending taken off in Japan?
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Competition from traditional lending Legal constraints
© 2016 Yayoi Co., Ltd. All rights reserved.
Consumer lending business is extremely competitive■ Traditional banks are proactively attracting consumer borrowers with relatively
low rates
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ORIX Bank @ APR 3.0%~ BTMU @ APR 4.6%~
© 2016 Yayoi Co., Ltd. All rights reserved.
Small businesses find it not so difficult to borrow money■ Government agencies (especially Japan Finance Corporation) often provide
“easy” money
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Source: Small and Medium Enterprise Agency, “Small Business Whitepaper 2015”
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Product/business development (N=1,614)
Capital investment (N=3,714)
Working capital (N=3,762)
Difficult Neither Easy
© 2016 Yayoi Co., Ltd. All rights reserved.
There are two major legal constraints
■ P2P Lenders may be deemed as professional lenders and subject to Money Lending Business Act ◆ MLBA requires professional lenders to be
registered (in effect, have a license) ◆ It is not realistic for individual P2P lenders
to obtain license
■ Interest Rate Restriction Act caps interest rate (APR) to 15%~20% ◆ Caps are tiered* ◆ APR 15% for principal equal to or more
than JPY1,000,000 ($8,300) ■ Any kind of commissions and fees
are deemed as interest**
Money Lending Business Act Interest Rate Restriction Act
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* APR 20% for principal less than JPY100,000, APR 18% for principal less than JPY1,000,000 and APR 15% for principal equal to or more than JPY1,000,000 ** Except for expenses for concluding the contract and fulfilling the obligation
© 2016 Yayoi Co., Ltd. All rights reserved.
They make both P2P and Online (BS) lending difficult
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Money Lending Business Act
■ P2P Lenders may be deemed as professional lenders
Interest Rate Restriction Act
■ Interest rate is strictly limited to APR 15%
P2P Lending Online (BS) Lending
■ P2P Lenders cannot be “lenders” ■ Interest rate cap makes it difficult
to accommodate higher-risk borrowers
■ Interest rate cap makes it difficult to set interest rate that matches the lender’s risk ◆ e.g., 2% for the 1st month
© 2016 Yayoi Co., Ltd. All rights reserved.
There are possible workarounds but with issues■ There may be workarounds for Money Lending Business Act ◆ Offer as a bond/note (lenders will be bond/note investors): no example exists ◆ Trust (lenders will be beneficiaries of trusts) : no example exists ◆ Anonymous partnership (lenders will be limited partners of anonymous partnership(s))
• “Tokumei Kumiai” or “TK” • All current P2P lenders adopt this approach
■ Current approach, anonymous partnership (“TK”), significantly hinders the growth of alternative lending market in Japan ◆ Due to limitations of TK, borrowers are hand-picked ◆ From lenders’ standpoint, there are limited lending opportunities and it is not possible to
diversify their lending portfolio ■ As far as we can tell, there is no workaround for Interest Rate Restriction Act
10
© 2016 Yayoi Co., Ltd. All rights reserved.
Yayoi is now a part of ORIX Group
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ORIX Corporation (TSE: 8591, NYSE: IX) ■ Diversified Financial Services ■ Revenue of JPY2,174.3B* and >30,000 employees
Yayoi Co., Ltd. ■ Accounting Software and Service Provider
Misoca Inc. ■ Cloud Invoicing Start-up
Acquired 99.9% of Yayoi’s outstanding shares in Dec. 2014
Acquired 100.0% of Misoca’s outstanding shares in Feb. 2016
* FY15
© 2016 Yayoi Co., Ltd. All rights reserved.
Yayoi is a dominant market leader for Japanese SBs
Others 8.8%
BizSoft 4.5%
BSL 8.2%
Sorimachi 15.8%
Yayoi 62.7%
Others 7.1%
CFSCI 7.7%
MF Cloud 9.8%
freee 24.9%
Yayoi 50.5%
Desktop application*(Accounting software)
Cloud application**(Accounting software for sole proprietors)
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* Retail market share based on POS data (2015/1 – 12) from market research company BCN ** Market survey by market research company MM Research Institute (Jan. 2016)
© 2016 Yayoi Co., Ltd. All rights reserved.
Help Japanese small businesses to grow
Combining group capabilities
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Technology (Accounting)
Technology (Business
transaction)
Finance
© 2016 Yayoi Co., Ltd. All rights reserved.
Yayoi owns key resources
■ Yayoi customers ◆ 1,450,000 registered users
• 1,400,000 desktop • 50,000 cloud
◆ 500,000 users with recurring contracts • 450,000 desktop • 50,000 cloud
■ Misoca customers ◆ 90,000 registered users
■ Accounting Data ◆ B/S and P/L
• Data can be collected through Yayoi drive, Yayoi’s cloud storage service
■ Transaction Data ◆ Banking and credit card transactions
• Data can be collected through Yayoi Smart Connect, which enables automatic bookkeeping
◆ Quotation, Order and Invoice transactions • Data can be collected through Misoca EDI
Customers Data
15
© 2016 Yayoi Co., Ltd. All rights reserved.
Yayoi has significant presence in small business market
Small 3,342,814 (86.5%)
Medium 510,120 (12.7%)
Large/mid-sized 10,596 (0.3%)
Corporations 1,688,268 (43.7%)
Sole proprietors 2,175,262 (56.3%)
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Medium businesses • <= 300 employees • <= 100 in wholesale and services • <= 50 in retail and food
Small businesses • <= 20 employees • <= 5 in wholesale, retail, food and services
Secondary industry & tertiary industry in private sector Source: Ministry of Internal Affairs and Communications, 2012
Yayoi # of registered users ■ 1,450,000 Yayoi # of users on contracts ■ 500.000
© 2016 Yayoi Co., Ltd. All rights reserved.
Yayoi’s customers: small but stable■ Revenue ◆ More than 33% are <10M yen, and more
than 50% are <30M yen
■ Years in business ◆ More than 50% are in business for at least
10 years, and more than 90% are in business for at least 2 years
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Source: Internal, Yayoi Support Service CS survey (N=9,316)
~3M yen12.2%
3~10 M yen25.4%
10~30M yen17.3%
30~50M yen6.5%
50~100M yen7.8%
100~200M yen7.2%
200~500M yen7.3%
500M~1B yen4.2%
1~2B yen2.4%
2~3B yen0.7%
3B yen~1.3%
Not certain7.7%
~6 months1.7%
~ 1 year2.4%
1~2 years5.3%
2~3 years6.4%
3~4 years5.6%
4~6 years8.7%
6~10 years10.9%
10~20 years20.4%
20~30 years11.4%
30 years~26.3%
Not certain1.0%
© 2016 Yayoi Co., Ltd. All rights reserved.
There are demands■ Not all small businesses have solid
relationships with banks■ Not all small businesses rely on bank
loans* ◆ Half of who do have some grumbles
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46%
10%
27%
22%
27%
68%
0%
20%
40%
60%
80%
100%
Corporation Sole proprietorSolid relationship with Banks Some Relationship with Banks
Limited relationship with Banks* Figures for short-term loans Source: Internal, Web survey to Yayoi registered customers (N=7,609)
49%
16%
36%
54%
15%30%
0%
20%
40%
60%
80%
100%
Corporation Sole proprietorBorrowed from banks Not borrowed from banks No need for loans
© 2016 Yayoi Co., Ltd. All rights reserved.
Creating new generation of alternative lending in Japan■ Yayoi, jointly with ORIX, plans to establish a new entity that offers alternative
lending to Japanese small businesses
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Trends in global market
Alternative lending that is tailored to Japanese market Market environment in Japan
Legal constraints in Japan ■ Focusing on small businesses ■ Potential collaboration with banks ■ Target launch within 1 year