In Japan, pressure builds on COVID-19 loan borrowers as repayments loom

A single mother in her 40s with two children has been walking a financial tightrope since she lost her job at a restaurant in the summer of 2020 amid the coronavirus pandemic.

At that time, she took out a government loan worth ¥2 million, the maximum amount allowed under a special program for people who have lost their income or had it reduced due to the pandemic. She now works at another restaurant, but with one of her children in university, she has been forced to dip into her savings to make ends meet.

“I keep worrying about how I will be able to pay back my loans,” said the woman, who lives in the Tokyo metropolitan area. “There are times when voluntary bankruptcy crosses my mind.”

According to a Kyodo News survey, among those who have taken out such a government loan, about 5,000 people have proceeded to apply for voluntary bankruptcy.

Since the start of the pandemic, the government has repeatedly loosened conditions and extended the loan application period in order to more quickly provide financial assistance to those in need.

But with loan repayments slated to start as early as January next year, there may be more people who need to file for voluntary bankruptcy in the coming months.

Under the existing program, households exempt from residence tax will not need to repay the loan. Those exempt from repaying the loan would be making, for instance, about ¥1 million in annual income or less for a single-person household — a criteria not many people meet.

Some experts have urged the government to expand the criteria to cover more people. But officials at the Ministry of Health, Labor, and Welfare are hesitant, saying that local councils of social welfare (CSW), which oversee the administration of the loans, have already started doing the paperwork for repayments and said that it is too late to make any changes.

Unprecedented scale of loans

The government loan program has been used in the past in times of disaster and other emergencies, especially for the three fiscal years from April 2009, following the global financial crisis in 2008 and the Great East Japan Earthquake in March 2011.

In those fiscal years, loans were granted in around 210,000 cases for a total of about ¥70.7 billion.

However, during the coronavirus pandemic, loans were granted in 3.2 million cases between April 2020 and March this year, totaling an unprecedented ¥1.3 trillion. The government has decided to extend the deadline for applications through the end of August — the ninth extension — prompting a senior official of the National Council of Social Welfare to complain that the move is overkill.

Another problem is that borrowers aren’t getting the financial support needed to rebuild their lives long term.

This is partly because loan applications can be made via post, which is an easier way of applying. But it also means that there are cases in which loans are granted without an in-person interview.

“We are not able to check the living conditions of applicants. Once the applicant gets the money, that’s it. We cannot help them rebuild their lives,” an official at Shimane Prefecture’s CSW said.

Taxpayers’ burden

Data shows that even pre-pandemic borrowers have not necessarily been able to get back on their feet financially.

In fiscal 2018, the government had only regained about 20% of the amount it had loaned. And if most borrowers can’t repay the latest loans — a highly likely scenario — taxpayer money will be used to cover the loss.

If a borrower files for voluntary bankruptcy instead of repaying the loan, it will damage them both financially and psychologically.

They will need support with both financial planning to rebuild their lives and mental support. However, local CSWs are not allowed to contact the borrowers because they are the creditors, meaning those who have taken on the debt may be left out of the support network.

The CSWs also have too many borrowers to support. Much of their workload at present focuses on sending notifications concerning the repayment of loans and exemptions.

“We don’t have enough staff to provide consultation services,” a staff member from Okayama Prefecture’s CSW lamented.

People with low income have the option to file for public welfare assistance, but they normally don’t want to due to strict requirements, such as the maximum amount of savings allowed, and the stigma of being on welfare.

Experts and support groups are calling for a different system that would provide cash benefits before they need to rely on public welfare, as well as a beefed up counseling system for them.

The government has so far provided cash benefits to low-income households. On top of that, the government also decided in April to offer ¥50,000 per child for low-income households, but both are one-off measures.