Asset Based Lending (ABL) in Japan : The Implications of Establishing Inventory and Accounts Receivable as Collateral

摘要

Asset Based Lending (ABL) is a lending technology that uses business assets, such asinventory and accounts receivable, to secure a loan. ABL is an established form of lending in the US, but was only recently introduced to Japan. Like all secured lenders, ABL lenders have the right to repossess and liquidate collateral. I argue that when business assets such as inventory and accounts receivable become collateral there is an additional role. This paper demonstrates through a case study that ABL increasesthe frequency of contact between lenders and borrowers. Because of this frequent contactwith the borrower prior to and after the loan is made, ABL facilitates the lender in generating information about the creditworthiness of the borrower. Furthermore, because the value of the collateral used in ABL is directly linked with the business of the borrower, properly monitoring the collateral helps the lender manage the credit risk. This is why ABL is an important lending technology for Japanese banks. This paper articulates the unique characteristics of ABL and the implications they have for Japanu27s lending market by (1) discussing the role of collateral by reviewing related literature, (2)presenting a case study conducted with a Japanese regional bank, (3) comparing how regulators treat ABL in Japan and the US, and (4) concluding with policy recommendations to furtherpromote ABL.