Discouraged Borrowers in Japan

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The purpose of this study is to explore the behavior of the discouraged borrowers in credit markets and to examine the role of non-banks, especially that of money lenders (Kashikin-gyo) to fill the finance gap facing the discouraged borrowers in Japan. We employ the Kon-Storey model as an analytical framework to investigate the relationships between bank credit and non-bank loan to risky borrowers. Firstly, we reviewed the recent research following Kon-Storey to find conceptual development such as the "problem of access" (Beck-de la Torre) which includes discouragement of borrowers as "self-exclusion". Secondly, we have modified the original Kon-Storey model to show more precisely how money lender market variables (interest rate and loan supplied at equilibrium)respond to several parameter changes under the simplified assumption of uniformly distributed loan application cost among potential borrowers. We have found that the money lender loan changes oppositely to the bank credit change (ie. substitutability). Thirdly, we have built a dataset on Kashikin-gyo and have found that the rates of money lender loan change are negatively correlated with the rate of bank credit change in recent years in Japan, which is consistent with the theoretical prediction.