Industrial Finance during Japan's High-Growth Period:
Implications for Emerging and Developing Economies

During its high-growth period, Japan developed an industrial finance system to meet companies' strong demand for funds. The system had four main features: (1) indirect finance under the main bank system; (2) the supply of long-term funds by long-term credit banks; (3) fund allocation through policy-based finance and policy guidance; and (4) financial system stability under the "convoy system."

This system channeled household savings into large-scale corporate capital investment and promoted the upgrading of the industrial structure by allocating funds to priority industries. Long-term relationships between companies and banks also contributed to stable corporate management and employment. Together, these elements formed a key financial foundation for Japan's rapid economic growth.

However, as the economy matured and corporate funding needs changed, part of bank lending flowed into real estate and related transactions, becoming one of the factors that fueled the bubble economy and deepened the subsequent financial crisis. Long-term company-bank relationships also tended to delay the downsizing of unprofitable businesses, business restructuring, and industrial renewal.

As industrial policy gains importance in emerging and developing economies, it is essential to develop industrial finance that translates policy into actual capital investment and commercialization. Rather than transplanting Japan's experience wholesale, it is important to distinguish the following functions and build frameworks suited to each country's economic and financial conditions.

(1) Functions that remain important regardless of the times

It is necessary to ensure financial system stability and to secure a stable supply of long-term funds for developing industrial foundations, drawing on domestic financial institutions, government-affiliated financial institutions, multilateral development banks, foreign financial institutions, and other sources.

(2) Functions that should be adjusted to changing times

It is important to regularly review the outcomes in priority sectors and flexibly adjust the targets, and to develop diverse funding channels, including not only bank lending but also equity, corporate bonds, and venture capital.

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