broke? sell a kidney, or an eyeball even!

Doug Henwood dhenwood at
Mon Nov 1 18:58:33 PST 1999

Financial Times - November 1, 1999

Japanese debtor told 'to sell a kidney' By Paul Abrahams in Tokyo

A former employee of Nichiei, a Japanese consumer finance company, was arrested over the weekend for allegedly telling a loan guarantor to raise money by selling body parts.

Japanese police said the employee had told the 62-year-old man he could earn ¥3m ($29,000) for his kidney and ¥1m for his eyeball to help finance a loan he had guaranteed to a now-bankrupt company.

The police reported that Eisuke Arai, a 25-year-old staff member, added: "You have two, don't you? Many of our borrowers have only one kidney ....I want you to sell your heart as well, but if you do that you'll die. So I'll bear with you if you sell everything up to that."

Kazuo Matsuda, president of Nichiei, said yesterday: "I can't even think that an employee of our company would do something like that."

The case, which police say is only the first step in a wide-sweeping investigation into the conduct of consumer finance companies, is a huge blow for the industry, a sector anxious to escape its "loan shark" reputation.

Consumer finance in Japan enjoys huge margins, benefiting from a cost of funding of about 2.3 per cent and an ability to charge interest rates of up to 40 per cent for loans without collateral. The average lending rate of Nichiei and two similar groups is 20.87 per cent, according to the Financial Supervisory Agency.

Nichiei's 35 per cent return on equity - astonishing by Japanese standards - has attracted many foreign investors.

More than a third of its shares are owned by overseas institutions, including Chase Manhattan, which holds 4.7 per cent of the group. The Kyoto-based Nichiei is planning to list in Frankfurt and is the largest of the so-called shoko consumer finance groups.

Last week, members of the Diet, the Japanese parliament, called for greater regulation of the industry after certain unsavoury debt collection methods were revealed. The default rate in Japan is extremely low. Before this incident was publicised most analysts claimed this was because Japanese were ashamed to admit bankruptcy. Such loans have become extremely popular because the traditional banks are shrinking their loan portfolios, leaving many individuals and small businesses with nowhere else to turn.

On Saturday, police also raided Nichiei's branches in Tokyo and Chiba to discover whether Mr Arai's behaviour was part of a pattern in the group's loan collection policy. He joined the company in 1997, was posted to the Tokyo branch in December that year as a loan collection officer and left the company in August 1998, according to police.

The man threatened by Mr Arai was one of two guarantors for a ¥11.5m loan taken out by the owner of a water purifier marketing company which went bankrupt in December 1997. He was responsible for ¥5.7m of the loan.

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