A market for connecting companies who want their risk to be underwritten and those looking to underwrite risk and gain income
The strength of eGuarantee lies in our unique finance business model.
While eGuarantee underwrites risk from a range of companies, we subdivide this risk and securitize it for funds and financial institutions. eGuarantee is a mechanism akin to a market where companies who want to have their risk underwritten come together with those who want to underwrite risk and increase their income, and the number of participants is increasing every year. This has led to us having the largest guarantee obligations in Japan.
eGuarantee provides credit risk hedging for business-to-business transactions, whereby we provide guarantees against defaults in which payments are not made by the deadline, to companies who want their risk to be underwritten. And for companies who want to underwrite risk to increase their income, we securitize risk by diversifying and subdividing it in order to have it underwritten.
In the process of guaranteeing the corporate credit risk of 300,000 companies annually and exceeding one trillion yen in guarantee obligations, eGuarantee obtains a vast amount of information on companies, leading to us possessing one of the largest troves of corporate data in Japan. Converting this information into statistics and leveraging it has given us excellent assessment and analysis capabilities.
And companies looking to underwrite risk to gain income are attracted to eGuarantee on the back of these excellent assessment and analysis capabilities, making the securitization of risk possible. Risk is subdivided and diversified in this process of securitization, which makes the underwriting of large amounts of risk possible, as well as low-cost risk underwriting. This is one of the major strengths of our services.
eGuarantee has in place a network that enables proper risk assessment and risk diversification, and has taken a form akin to a market for credit risk where risk sellers and buyers gather to trade risk at the right price.
One of the largest troves of big data on business-to-business transactions in Japan
eGuarantee, which handles more than one trillion yen in risk on an obligation basis , has a mechanism which brings in information from many companies in the course of providing guarantees. In addition to being able to see the transaction information and late payment information of the roughly 200,000 companies for which we currently provide guarantees, this situation also allows us to see late payment information over the course of the previous year for approximately 300,000 companies annually. We also assess around 30,000 companies per month, and every day accumulate a broad range of unique information, including information on payment status, information on companies who are in a transactional relationship, payment conditions, and fluctuation in these areas.
Furthermore, whenever we assess a company or receive information from a client, the volume of big data that we possess grows, with more than 2.6 million data items being added to it per day. We combine this information and use data mining techniques to turn it into statistics, analyze the record of bankruptcies of similar companies to calculate the probability of a bankruptcy, and use this in our calculation of the level of risk.
Going beyond our own management resources to develop and expand business together with powerful partners
eGuarantee does not hold on to the risk that it underwrites; it securitizes the risk for funds and other entities, and in the process of creating contacts with client companies who want to hedge their risk, we use not only our own sales network but also work with partners to build an expanded network. Our partners include influential local banks, securities companies, and credit unions, and through them we have the opportunity to present products in the form of guarantees to more than 10,000 companies annually. And even if these companies do not use our services immediately, they become potential clients who may go on to use them several years later.
Many partners have built strong bonds with their client companies by proposing services that can contribute to the main business of each individual client, and eGuarantee is made use of in some of these proposals.
How did eGuarantee make this business a reality?
How did eGuarantee make this business a reality, and why didn’t it exist before? We get lots of questions like this. The answer to this lies in three changes in society that have taken place since the year 2000: financial liberalization, computerization, and globalization. The role of financial businesses other than banks was clarified at this time by the Financial Instruments and Exchange Act and other regulations, creating an environment that allowed new entrants to enter the field of finance in Japan. Risk hedging with overseas investors became possible in addition to domestic investors, meaning it became possible to hedge and underwrite risk that domestic financial institutions could not handle themselves as long as a sufficient explanation of the risk could be provided. And more than anything, the advancement of IT has made the gathering of big data and its analysis with mining techniques possible with a system investment of several hundred million yen. These things facilitate real-time dynamic assessment without collateral and became the seed for a new finance.
Our area of business goes beyond guaranteeing sales credit
eGuarantee’s is in the business of managing and securitizing credit risk from companies. We are not a sales credit guarantee company, as is often said. While our greatest source of profit is guaranteeing sales credit, we started out by providing guarantees for financial credit, and we continue to underwrite a diverse range of credit risks.
Going forward, in addition to the field of business-to-business transactions that has a total risk of 240 trillion yen in business-to-business credit, we also hope to branch out and offer our services in other fields. These include the field of loans and other indirect financing, which has a total of 400 trillion yen, in addition to the field of direct financing, which has a total of 18 trillion yen and that we hope to enter by providing hedging services for the risk of bankruptcy in corporate bonds, stocks, and other assets. The business of taking on such broad-based risk, in many cases, sees the capacity to underwrite it limited by the strength of the company. With regards to this point, we believe that the function of securitization can be a technique to lower this restriction. With a view to doing business overseas in addition to our business in Japan, we are also looking at fields other than business-to-business credit and will go forward with the aim of expanding our operations.