executive impact

Social lending takes root in Japan

By Taro Fujimoto

Global financial markets are going through one upheaval after another, from the subprime crisis to a series of bankruptcies and buy-outs. What is an investor to do? How about lending your money to those you can truly trust? That is the concept of social lending or peer-to-peer lending without the participation of a financial institution.

The concept, which originated in the United Kingdom, was launched in Japan on Oct 15 by maneo Inc. It is Japan’s first social lending service, providing an online social network to bring borrowers and lenders together.

Heading the venture company is CEO Tadatoshi Senoo. Born in Kagoshima Prefecture, he obtained a BA in economics from Hitotsubashi University. In 1997, he joined the Bank of Tokyo Mitsubishi Ltd as a salesman in the corporate finance department. The bank posted him to Thailand from 2001 to 2003.

Leaving the bank in 2007, Senoo launched maneo Inc together with an American friend after spending about one year on legal preparations to become a money-trading business organization. There are currently 11 staff.

Japan Today reporter Taro Fujimoto visits Senoo at his office in Kasumigaseki to hear more about the social lending service.

What does the company offer?

Our company provides an online social network for individual borrowers and lenders where they can find each other. Borrowers auction their conditions, including interest rate, and lenders who offer the best conditions can lend money to them. Lenders can consider whether it is a good investment from disclosed information about borrowers. But both sides cannot reveal personal information and we do not allow them to physically meet each other as a safety measure.

How does the system work?

In legal terms, our company lends money to borrowers and lenders invest on pecuniary claim to us as a fund. Although this system is theoretically complicated, the process for borrowers and lenders is very simple.

What made you launch the service?

I joined the Bank of Tokyo-Mitsubishi Ltd after graduating from university. I became a father at that time because I had married my wife when we were students. I realized that people need money for what I call “life events,” such as marriage, childbirth and enrolling at school. As a banker, I felt the process to borrow money was complicated, which I didn’t like. I thought the market system cannot help a lot of people in terms of money, and social lending would provide a new social infrastructure.

My co-founder Jeffery Char, who was my client at the bank, introduced the idea to me. Since I knew Japan traditionally had a similar social lending culture, I wanted to realize it on the Internet.

How do you screen borrowers and lenders?

We carefully screen applications from borrowers and lenders as well as send identification confirmation cards to them the same way other financial companies do.

Who are your target users?

We mainly target male users in their 20s to 40s as borrowers. They need money for the life events I mentioned before because conventional banks do not provide loans for these events.

As lenders, we target those who are in their 40s to 50s and have extra money to invest. We expect those lenders will invest their money, small or big, to support borrowers with a similar sense of social values as well as for a return on their investment. However, we do not allow lenders to invest by borrowing money from others. Lenders invest only their own money.

How much is the maximum amount of loan and what is the maximum pay-back period?

The maximum amount of money lenders can invest per borrower is 200,000 yen, and the minimum is 20,000 yen. The maximum loan in total for a borrower is 2 million yen. The maximum pay-back period is 36 months. But 200,000 yen will be available only for the really best borrowers in terms of our screening conditions. I think it will not be so easy to borrow the maximum amount.

One of the conditions for borrowers is at least 3 million yen annual income. Why did you set this number?

You may think 3 million yen as annual income is not a strict condition. According to several surveys, 48% of borrowers at consumer finance companies earn less than 3 million yen. So, 3 million yen can be a sort of borderline to distinguish borrowers who are capable of paying back.

Your service provides no security. It sounds very risky for lenders.

Yes, we can’t rule out the possibility of some unrecoverable loans to some extent. We basically request lenders to make their decisions about who to invest in through the disclosed personal information of borrowers. We do screen borrowers and confirm their identification.

I think the typical pay-back rate among Japanese is relatively higher because they don’t move from city to city so often. So, I believe even if our company does not offer security and loan warranty to lenders, it would not be a big deal.

What if loans become uncollectable debts?

We don’t deny potential debts by borrowers. However, what is important for us is to realize diversified investment by multiple lenders to borrowers to reduce risks for individual lenders, and whether we can provide a system for that purpose to users.

What is the ideal use of your service?

The ideal usage of our service is that several lenders invest in a borrower with a small amount of money. Since it is “social” lending, I hope many lenders will support individual borrowers.

What do you think about other social lending services which are coming to Japan?

U.K.-based social lending service Zopa and U.S.-based Propser are now preparing to launch their services in Japan, which means we’ll have competition. I think no Japanese service will launch social lending services in Japan right away, except for us.

The competition will be over how many registered users the three major companies can secure. I expect the service royalty to be good in this business. This is also a very similar situation to conventional social network services, such as mixi and Facebook. I guess “three” is a pretty good number of major companies for the Japanese market.

Do you have any plans to collaborate with mixi users?

Maybe it would be good to do so in terms of increasing user numbers. However, we have to be careful about whether their users would be our potential users as borrowers or lenders from a long-term viewpoint because their current average user age is very young, which is not our main target.

Do you have any plans to target foreign borrowers and lenders in Japan?

Those who live in Japan can make use of our service. We hope we can provide our service in multiple languages, such as English and Chinese, in the future.

Do you think the subprime problem will affect the launch of your service?

I think the subprime problem is a chance for us. Unlike subprime which is complex of complicated financial products, social lending is so much simpler and transparent. Lenders know what they are investing in. The reason for the risk and return in social lending is very clear and simple to understand, which makes lenders (investors) feel more secure.

What is a critical issue for you?

To increase “good quality borrowers” who have a clear purpose for borrowing, a strong will and a plan to pay back their loans. Without these good borrowers, our service will not attract lenders.

What are your future prospects?

Whatever happens to the financial market, I think the movement from saving to investment will not stop among Japanese people. People have to protect their lives somehow on their own. Although we will target 30 billion yen in outstanding loans over the next two years, I want my company to be a flexible organization ran by a small number of talented staff because I support the idea of small government.

What is a typical day for you?

In the lead-up to our official launch, I have been very busy. I wake up at 7 a.m. and come to the office around 9 a.m. I have to work on many business deals at the same time, such as internal meetings, system engineering, legal matters, etc. I leave the office around 1 or 2 a.m. and get home in Chiba Prefecture around 3 a.m.

What is your management style?

I try to communicate with our staff as much as possible because I want to understand their workload. It is important to find out even tiny problems right away in order to solve them quickly. I think this is an important point in building an organization.

How do you spend weekends?

I have a 14-year-old daughter and 8-year-old son. I basically didn’t have any holidays in the past three months as we prepared to launch the company. But I tried to attend their school events whenever I could. If I have time, I would like to practice golf which all of our family enjoy together. For more information on maneo Inc, visit: https://www.maneo.jp/

© Japan Today

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I like your idea, but as a bank you need 100% trust: = for a few percentage points of interest provide insurance to these loans = also another source of profit.

Ex: 10% guaranteed loan: you pay the investor 7% and keep the 3% or for uninsured the investor gets the whole 10% minus your fee etc..

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What's the typical return on lending?

I like Badsey's idea - you need to offer an option of insurance against default.

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In many Asian countries and some Caribbean island communities, you can purchase items on debt. What the retailer does is keep a book of who owes him what... Not sure if this qualifies as social lending though...

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Excellent article and indepth interview on something that could really help Japanese borrowers and investers in a time of fiscal decline.

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I wake up at 7 a.m. and come to the office around 9 a.m... I leave the office around 1 or 2 a.m. and get home in Chiba Prefecture around 3 a.m.

The guy gets less than 4 hours sleep?

JT, someone might want to fix the am's and pm's in the article. If this really is his regular schedule, his investors might want to be a little concerned about this CEOs ability to make decisions.

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"How about lending your money to those you can truly trust?" Based on this pitch, I assumed this was an article about lending to friends and family. But in reality, it's just a Craigslist to help people rip each other off easier. Why would you "truly trust" complete strangers trolling for loans?

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