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Government Involvement in SME Finance, Current Situation and Theoretical Background

Author

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  • Iichiro Uesugi

    (Hitotsubashi University)

Abstract

It has been pointed out that SME policies in Japan are more comprehensive and detailed than in other countries. In addition, large-scale financial support measures are invoked in response to shocks such as financial crises and the COVID-19 pandemic. We focus on government involvement in SME finance which constitutes a major part of SME policies. Then we provide an overview of the current situation and the theoretical background that justifies the need for such involvement. Specifically, we examine credit guarantees and government financial institutions, play an important role in extending loans to SMEs. We use a simple theoretical model to evaluate which of these does a better job of enhancing social welfare through lending and investment. The results show that credit guarantees are associated with higher social welfare than direct lending by government-affiliated financial institutions. However, the model's predictions are inconsistent in some respects with the data on how firms actually use these support measures. This suggests the need for more detailed empirical analysis of credit guarantees and direct lending by government financial institutions, respectively.

Suggested Citation

  • Iichiro Uesugi, 2025. "Government Involvement in SME Finance, Current Situation and Theoretical Background," Advances in Japanese Business and Economics,, Springer.
    • Handle: RePEc:spr:advchp:978-981-96-3193-3_5
    DOI: 10.1007/978-981-96-3193-3_5
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