Bank of Japan Offers Interest-Free Loans to SMEs Hit Hard by COVID-19

▲Haruhiko Kuroda, Governor of the Bank of Japan [Image source=EPA Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] The Bank of Japan, Japan's central bank, announced on the 22nd that it will introduce a system allowing small and medium-sized enterprises (SMEs) and sole proprietors struggling due to the novel coronavirus infection (COVID-19) to borrow money without interest or collateral, according to the Nihon Keizai Shimbun.

According to the report, the Bank of Japan held an extraordinary monetary policy meeting on the same day and announced that it will introduce a new funding support system for SMEs and sole proprietors starting in June.

Originally, the Bank of Japan had a regular meeting scheduled for June, but it decided to hold an earlier extraordinary meeting to support government policies by introducing an interest-free loan system for SMEs.

The core of this system is that the Bank of Japan will supply liquidity without interest to financial institutions that lend money to SMEs, in line with the Japanese government's policy of effectively interest-free and unsecured loans.

The Bank of Japan plans to lend up to 100 billion yen (approximately 1.15 trillion won) per company without interest to financial institutions supporting SMEs.

Additionally, the Bank of Japan will pay an annual interest rate of 0.1% on the balance equivalent to the loan amount among the funds deposited by financial institutions. This is to enable financial institutions to earn interest income corresponding to the scale of their loans and actively facilitate funding for SMEs and others.

Meanwhile, the Bank of Japan decided to maintain its current monetary easing measures, guiding the short-term policy rate at -0.1% and the long-term rate at 0%. This extraordinary monetary policy meeting is the first in 8 years and 6 months since November 2011, when measures to address the European debt crisis were discussed.

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