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II Systematic Finance (Systematic Funds)
II Systematic Finance (Systematic Funds)
II Systematic Finance (Systematic Funds)
II Systematic Finance (Systematic Funds)
II Systematic Finance (Systematic Funds)
II Systematic Finance (Systematic Funds)
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II Systematic Finance (Systematic Funds)


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  • 1. To table of contents II Systematic Finance (Systematic Funds) 1 Outline of Systematic Funds (1) Contents of Systematic Finance There are various institutions for financing agriculture, such as private ones including the financial institutions affiliated with agricultural cooperatives, and government ones including the Agriculture, Forestry and Fisheries Finance Corporation. The financial activities carried out by these institutions include policy finance. The policy finance is exercised by national and local governments in accordance with laws, government decrees, regulations or bylaws in order to promote agricultural policy. Specifically, they provide the public financial funds for farmers or subsidize the interest of loans extended by private financial institutions. This finance system is called “systematic finance,” and the funds used the systematic finance are called “systematic funds.” Major functions of systematic finance Function Contents 1 Policy promoting function ・ To promote specific investment in line with policy, and mitigate the impact of economic fluctuations 2 Quality supplement function (1)Profit supplement function ・ To provide low interest loans for projects with low- (2)Long-term support function profit ・ To provide long-term loans for projects which require a (3)Risk covering function long gestation period or a long payback period (4)Credit strengthening function ・ To provide funds to high-risk projects ・ To provide funds to farmers with small-scale business and unstable management bases 3 Quality supplement function ・ To correct the imbalance of funds in industries, regions and seasons ・ To supplement large scale investments (2) Roles of Systematic Finance As described above, general finance is not suitable to provide funds for agricultural projects. In order to overcome the difficulties of agricultural finance, systematic finance is established. Through the systematic finance, funds are supplied to the projects required for promoting agricultural policy. This financial system is as an effective measure to promote agricultural policy as the subsidy project is. 1
  • 2. Additionally, this system is favorable for farmers in terms of interest rates and payback periods. Characteristics of subsidies and systematic finance Subsidies Systematic Finance 1 Policy is strongly promoted under the 1 Policy is promoted, paying regard to farmers’ guidance of administrative organizations. decision. 2 In general, financial burden is heavy 2 In general, financial burden is light but is long-running 3 Mainly invested in social capital such as 3 Invested for building up private capital for improvement of infrastructure, and in individual farming business, while important issues including structural policy supplementing subsidies including providing funds from unexpended appropriation. (3) Types of Systematic Finance Major types of funds used for agricultural systematic finance are as follows: 1) Agriculture, Forestry and Fisheries Finance Corporation Fund Systematic fund for providing long-term and low-interest loans for the projects, which are closely related to agricultural policy and for which private financial institutions cannot provide funds, including the projects concerning improvement or acquisition of farmlands. 2) Agricultural Modernization Fund Systematic fund for providing medium-long term and low-interest loans for the projects which promote improvement and modernization of farmers’ capital equipment. This fund is financed by private financial institutions including institutions which are affiliated with agricultural cooperatives. 3) Agricultural Improvement Fund Systematic fund for providing loans without interest for projects which promote development of innovative and model farm management. This fund is financed by public funds. Major Characteristics of Agricultural Systematic Finance Agriculture, Forestry and Type Agricultural Modernization Agricultural Improvement Fisheries Finance Corporation s Fund Fund Fund Fund for Treasury Investment and Funds from private financial Public funds Source Funds Loan Program, etc.* institutions, including the institutions affiliated with agricultural cooperatives 2
  • 3. Agriculture, Forestry and Fisheries Financial institutions affiliated Prefectural government Loans Institutions Terms of Financial Finance Corporation with agricultural cooperative, etc. Long term (15-30 years), low interest Medium-long term (5-20 Short-medium term (5-12 rate years), low interest rate years), no interest Projects which are closely related to Projects for improving and Projects which require agricultural policy and cannot be modernizing farmers’ capital incentive guidance and Target Projects covered by general finance, such as equipment, such as cannot be covered by other an agricultural infrastructure modernization of machinery funds, such as introduction of improvement project and a farm and facilities (relation with the innovative and model management improvement project policy is not so close) technology [Established in [Established in 1953] [Established in 1961] 1956] * Agriculture, Forestry and Fisheries Finance Corporation Fund is financed by institutional bonds for treasury investment and short-term debt from the financial market, or treasury loans. 2 System of Major Systematic Funds (1) Agriculture, Forestry and Fisheries Finance Corporation Fund ・ This fund is disbursed from government investments, treasury loans, bonds (issued from 2001) and collection. As for the loans financed from this fund, the loan rates are lower than the borrowing rates. In order to make up for the deficit, a subsidy has been disbursed from the national government since 1965. ・ The loan business is carried out in two ways. One is direct loans from the Agriculture, Forestry and Fisheries Corporation, and the other is entrusted loans via entrusted financial institutions, such as Norinchukin Bank, Credit Federations of Agricultural Cooperatives and city banks. ・ The entrusted loans consist of consignment loans (partial trust) and agency loans (full trust). For the consignment loans, the loan decisions are made by Agriculture, Forestry and Fisheries Corporation, and for the agency loans, the corporation entrusts all the loan related business, including the loan decisions, to the agencies. ・ In some cases, the entrusted financial institution, Credit Federation of Agricultural Cooperatives, does not extend the loan to a farmer directly, but provides the loan using a “sublet system.” Specifically, the federation provides the loan to an agricultural cooperative first, and then the cooperative extends it to the farmer. Flow of Agriculture, Forestry and Fisheries Finance Corporation Fund 3
  • 4. Prefectural Agriculture Credit Foundation Association Branch Offices of General Account Agriculture, Forestry a n d loan Main Office of Agriculture, Forestry and Fisheries Of National F is h e rie s C o rp o ra tio n Government /Direct Loans Financing Debt Guarantee (Agricultural Cooperatives) loan Borrowers (Farmers, etc.) Industrial Investment Borrowers Special Account Corporation Agricultural Cooperatives, etc.) Entrusted Financial Institutions loan (Credit Federations of sublet /Entrusted Loans Special Account for Treasury Loans Borrowing loan Financial Market F u n d fo r tre a su ry in v e s tm e n ts a n d lo a n s Source fund raising Fund operation (2) Agricultural Modernization Fund ・ Agricultural Modernization Fund is financed by private financial institutions such as the institutions affiliated with agricultural cooperatives and city banks. Prefectural governments subsidize the interest, and the national government provides financial aid for interest subsidies or subsidizes the interest directly. ・ The loan interest and the subsidy rates are altered in accordance with the monetary conditions. As of May , 2002, the loan interest rate is 1.7% or less and the interest subsidy rate is 1.25% when financial institutions, including agricultural cooperatives, provide the loans to farmers. ・ In order to facilitate the flow of this fund, the Agricultural Credit Guarantee Insurance System has been established. Through the system, a debt guarantee is given to a borrower by the Prefectural Agriculture Credit Foundation Association, when agricultural cooperatives or other institutions extend the fund to the farmer. Flow of Agricultural Modernization Fund 4
  • 5. 1) Flow of Agricultural Modernization Fund Financial Institutions agricultural cooperatives, banks, etc. debt guarantee interest subsidy Prefectural Credit Federations of Agricultural Cooperatives Norinchukin Bank Hokkaido Agriculture Credit Foundation Hokkaido Association loan Governments Association Borrowers financial aid guaranteed farmers, agricultural to interest insurance cooperatives, etc. subsidy Agriculture, Forestry National and Fisheries Credit Government Foundation loan Financial Institutions loan insurance Norinchukin Bank interest subsidy debt guarantee, etc. loan interest subsidy, etc. 2) System of Interest Payment (when farmers borrow funds from agricultural cooperatives) Standard rate 2.5% National 0.625% Interest Subsidy Government 1.25% Hokkaido 0.625% Government Loan (end) rate Farmers 1.0% Note: The standard rate, loan rate and subsidy rate fluctuate according to changes in other interest rates. 5
  • 6. (3) Agriculture Improvement Fund ・ This fund is disbursed from the agricultural improvement special account of each prefecture. The national government loans 2/3 of the amount without interest. Some of the redemption money is pooled into the special account of the national government and redistributed as loans in order to adjust financial conditions on a nationwide scale. Flow of Agriculture Improvement Fund General Account (National Government) Source fund raising transfer Special Account for Agricultural Prefectural Management Structure General Account Strengthening Measures loan redemption (2/3) Special Account for Prefectural transfer (1/3) Loaner Agriculture Improvement Fund loan redemption Borrowers Farmers, etc to chapter 3 6