In Japan, 'Good' Bank Shines Amid Scandal-Torn Industry

Tucked away in a quiet neighborhood far from the office towers of Tokyo's business district is an organization that offers Japan's troubled financial industry a shot at redemption.

The sign next to the door says "Citizen's Bank," and the people inside match entrepreneurs with credit unions willing to lend money to people with not much more than a good idea. Run by two brothers who are refugees from life in corporate Japan, Citizen's Bank is more an organization with a mission than a financial institution trying to make a profit.

"We fund socially meaningful businesses," explains Akira Kataoka, whose brother Masaru founded the bank in 1989. Admittedly, Citizen's Bank is off to a small start. In seven years, about 70 loans worth $5 million have been extended, which doesn't exactly make the institution a player in Japanese financial circles.

But its zero-default record is one few Japanese lenders can match, since many carry huge amounts of bad loans stemming from a collapse in land prices since the late 1980s. This April, Citizen's Bank concluded an agreement with 32 Tokyo credit unions, which makes as much as $290 million available for loans.

The borrowers say the rewards of working with Citizen's Bank go beyond low interest rates. "I learned for the first time the delight of helping people," says Tokuko Shiraiwa, a onetime restaurateur who now prepares 100 meals a day for elderly people in her part of Tokyo. "I never experienced that in a regular business."

The Bank is affiliated with Women's World Banking, a US-based group that promotes lending to women, but it also has something in common with Bangladesh's Grameen Bank. That institution pioneered "micro credit" - giving women small loans for self-employment ventures.

Micro lenders are now at work in many developing countries and a few developed ones. They have found that the women scrupulously pay off debts and create businesses that enrich the community in more than monetary ways.

Of course, the scale isn't quite the same. Where a woman in a poor country might need a loan of just a few dollars, borrowers in Japan need a little more - sometimes as much as $100,000. But then Japan is the home of the $4 cup of coffee and exorbitant office rents.

Most of Citizen's Bank's borrowers are women, but not all. The organizers say the most important criterion is the nature of the business idea - it has be a project that will help people or society. Citizen's Bank concentrates on funding environmentally conscious projects and businesses that improve the social welfare.

"The bank's objectives match the needs of society," says Mariko Tamura, author of a book on women entrepreneurs. "That's one reason why it has been successful and will continue to be successful."

The institution isn't a bank in the traditional sense. It doesn't take deposits and the loans come from the participating credit unions.

"Our association supports the program in an effort to improve our image, which has been hurt by recent financial scandals," says Hideo Yagi, secretary general of the Tokyo Credit Union Association. He says the success of Eitai Credit Union, the original participant, convinced other institutions that it was smart to loan money to Citizen's Bank entrepreneurs.

For the credit unions, earning goodwill has a cost. They must make loans at a reduced interest rate - these days about 3 percent - which cuts into profits. And there's no collateral. Instead, Citizen's Bank asks applicants to submit detailed plans and trains them in business practices.

This system derives partly from principle and partly from necessity, since women applicants tend not to hold property that could serve as collateral, even if they are taken seriously by mainstream financial institutions. Kazuyo Kihara, a Citizen's Bank borrower, first asked several banks and credit unions for a loan. "Japanese banks will not lend money to women," she says. "They don't consider them reliable."

Ms. Kihara, a longtime real estate saleswoman, founded her own agency in 1991 in order to serve single women and elderly people seeking housing, who she says are often ignored by realtors in Japan.

Ms. Shiraiwa, the meals-on-wheels operator, got the idea for her project in 1989, when she answered a call by local government officials looking for people to prepare one meal a week for elderly neighbors.

The people seeking meals far outnumbered those willing to provide them, and Shiraiwa started to think about how to meet the demand. "My motto is to try to do what other people don't," she says. At the same time, an Eitai Credit Union representative, doing door-to-door sales work, told her about the institution's plan to support socially responsible business ideas. Shiraiwa's loan application was approved in two days.

She paid back her first loan of $30,000 in four years instead of the allotted five and in 1994 borrowed the same amount for expansion.

Another borrower is Kazuji Mizoguchi. The pride of his small fleet of vehicles is a custom-fitted Chevrolet van that allows disabled people to travel in spacious comfort rather than in the back of a taxi, and Mr. Mizoguchi charges about a third as much for the ride. Sometimes he accepts only what people can afford.

As a result, he says his enterprise is only "barely successful," despite years of operation and annual government grants. "This way of doing business is more of a voluntary service."