Formation and Development of Industrial Cooperatives—Self-Circulating Micro-Credit

Japanese government enacted the Industrial Cooperative Act in 1900. Cooperative institutions in Japan were modeled on the cooperative movement that had arisen in Europe. In modern Japan, cooperatives’ financial function was most selected and the ability of cooperatives to provide residents in the country’s regions with opportunities to access small-amount financing is believed to have contributed to the development of regional economies and the agricultural sector. However, that in contemporary developing countries, there is not necessarily a sufficient supply of small credit in rural areas. For ordinary urban companies, such as banks, it is difficult to develop and maintain a credit market in rural regions due to an asymmetry of information, higher transaction costs and greater default risk. In prewar Japan, a developing country at the time, how then were the small-scale yet essential funding needs of small business entities in regional economies satisfied? How then were industrial cooperatives established in regional societies? How were they managed in order to achieve growth? How did they satisfy the demand for funds in regional economies? This chapter examines these questions by checking a case of a local industrial cooperative, in Kanō village, which was established in 1903 and succeed to develop their financial power.