On the development of rotating credit associations in Japan

In this article we study the development of an important informal financial intermediary in Japan, the rotating savings and credit association (RoSCA) called the mujin-kō or tanomoshi-ko. The mujin have survived vived until the post-World War II period. That they have survived from the premodern period suggests that these institutions may serve an economically useful purpose. As we will show, although small, the mujin have traditionally provided funds to small- and medium-sized firms in the local sectors of the Japanese economy. In 1915, the Japanese Ministry of Finance (MOF) passed the first laws to regulate the mujin. Soon after World War II, the government reorganized the mujin as mutual (sogo) banks, and the banks started to accept deposits. Only a few years ago, these mutual banks were reorganized into so-called second-tier regional banks.2 In the early 1990s, these regional banks were especially hard hit by the bad loan problems when Japan's asset price bubble burst. This article is organized as follows. In Sections II-IV, we describe the origins, the development, and the workings of the mujin. In Section V, we describe how the theory of RoSCAs can be applied to the mujin. In Section VI, we provide some evidence that lower income people made more extensive use of the mujin than higher income people. Section VII concludes.