22-D-1618

March 22, 2023
JCR So cial Fin an ce Frame wo rk Evalu ation b y Jap an Credit Ratin g Agen c y, Ltd .
Japan Credit Rating Agency, Ltd. (JCR) announces its evaluation of Social Finance Framework as follows.

JCR Assigns Social 1 (F)to Social Finance Framework of AIFUL Corporation
Issuer/Borrower:

AIFUL Corporation (Securities code: 8515)

Subject:

AIFUL GROUP Social Finance Framework< Evaluation Results of Social Finance Framework>
Overall Evaluation

Social 1 (F)Socialness evaluation (Use of Proceeds)s1 (F)

Management, Operation
and Transparency Evaluation

m1 (F)

Chapter 1: Overview of Evaluation
AIFUL Corporation (hereinafter referred to as “AIFUL” or “the Company”) is one of the leading consumer financecompanies and manages mainly a loan business as well as credit, guarantee and overseas businesses. AIFUL has LIFE
CARD or others under its umbrella and expands its businesses in Thailand and Indonesia through its overseas
subsidiaries.
The Company has not affiliated with any megabanks, has managed its own unique management and has diversified
its businesses since the former president, Yoshitaka Fukuda founded its company in 1967. In July, 2011, AIFUL
reorganized its group; e.g., a new company, LIFECARD took over the credit card business in its subsidiary, LIFE.
Although its business temporarily slimed down due in part to the impacts of revisions to the Money Lending Business
Act, the trade receivables have steadily increased and the operations have also expanded since the year ended March 31,
2016.
AIFUL calls oneself an IT finance group and focuses on design, digital promotion and data analyses. The Company
also emphasizes to diversify its business portfolio through diversifying its business and strengthening its overseas
operations. AIFUL sets its management indicators as follows: equity ratio – 20%, ROE – more than 10%, ROA – morethan 2% and operating assets – 10 percent growth. In the intermediate two-year plan announced in June 2022, AIFUL
goes forward with the initiatives for the IT finance group, and sets its targets for the year ending March 31, 2024, thefinal fiscal year, as follows: operating receivables – JPY 1,120.0 billion (JPY 887.4 billion for the year ended March 31,2022), operating revenue – JPY 157.0 billion (JPY 132.0 billion for the year ended March 31, 2022), ordinary profit –JPY 28.0 billion (JPY 12.2 billion for the year ended March 31, 2022), ROA – 2.4% (1.4% for the year ended March
31, 2022) and ROE – 12.4% (8.2% for the year ended March 31, 2022.)
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This evaluation target is a framework mapped out by AIFUL (hereinafter referred to as “the Framework”) for new
expenditures or refinancing to support small- and medium-sized enterprises (SMEs) and medical/nursing facilities andto provide financial services for individuals in emerging countries. JCR will evaluate whether the Framework complies
with Social Bond Principles (2021 edition),1 Social Loan Principles (2023 edition),2 Social Bond Guidelines 3 andSDGs goals. These principles or others are not regulations but principles or guidelines voluntarily published byInternational Capital Markets Association (“ICMA”), Loan Market Association (“LMA”) and the Financial Services
Agency, respectively, and these are not binding. However, JCR evaluates the Company by referring to these principles
and guidelines concerned as domestic and international uniform standards at this time.
The use of proceeds is beneficial to SMEs who needs proceeds to grow/continue their businesses as support for SMEs,
companies who need business proceeds to maintain/continue medical/nursing care services as support for medical/
nursing care facilities and individuals who find it difficult to do financing in countries where financial services are
immature as provision of financial services for individuals in emerging countries. JCR evaluates that these uses ofproceeds contribute to resolve social issues such as financial inclusion and are categorized as “access to essential services(finance)” in Social Bond Principles. JCR also evaluates that selection processes in projects, cash management systems
and reporting are appropriately in place and are highly transparent as well.
Based on the aforementioned, JCR assigned “s1(F)” for “Social Evaluation (Use of Proceeds),” “m1(F)” for“Management/Operation/Transparency Evaluation” and “Social 1(F)” for “JCR Social Finance Evaluation” for the
Framework based on JCR Social Finance Evaluation Methodologies. The Framework fully meets the standards for items
required by Social Bond Principles, Social Loan Principles and Social Bond Guidelines and is also consistent withspecific measures for SDGs goals and the government’s SDGs goals.

1

Social Bond Principles 2021 Edition by ICMA (International Capital Market Association)
Social Loan Principles 2023 https://www.lsta.org/content/social-loan-principles-slp/
Confirm conformity with Social Loan Principles since these are widely referenced globally at the present although these are not regulations thus notbinding and are only "principles" voluntarily published by Loan Market Association, Asia Pacific Loan Market Association and Loan Syndications
and Trading Association.
3
Social Bond Guideline established by the Financial Services Agency in October, 2021.
2

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Chapter 2: Current Status of Target Project in Each Evaluation Factor and JCR’s Evaluation
Evaluation Phase 1: Socialness Evaluation
JCR evaluated that 100% of the proceeds were used for social projects and assigned the highest rank of “s1 (F)” forPhase 1: Socialness Evaluation based on the current status described below and JCR’s evaluation on the subject.

(1) JCR’s Key Consideration in This Factor
In this section, JCR first confirms whether the proceeds are used for social projects that bring about clear social
benefits. Then, in cases where the use of proceeds is expected to have negative impacts on society and theenvironment, JCR confirms whether the impacts are fully examined by an internal specialized department or an
external third party, and whether necessary measures are taken for its avoidance and mitigation. Finally, JCR
confirms the consistency with Sustainable Development Goals (SDGs.)(2) Current Status of Evaluation Targets and JCR’s Evaluation<The Framework for Use of Proceeds>
Funds raised through social bonds and social loans will be used for new expenditures or refinancing with respect
to qualified social projects as described below through group companies. If the funds are to be used for refinancing,the expenditure must be executed within three years prior to the date of issuance of the social bond or the date of
execution of the social loan.
<Eligible Social Projects>
Project

SBP

Category

Category

SupportFinancingSupport for business funding for SMEs in need of funds for business growth and continuity

for smallfor SMEs＜Project＞

and

and

・Business loans of AG BUSINESS SUPPORT, which provides business financing support to SMEs

mediumemployment

・AG Capital’s growth-oriented funding support for medium-sized companies and startups

Enterprise

generation【Targets】

Eligible Social Project’s Outline and Project

SMEs in need of funds for business growth and continuity

Support forAccess to

Support for business funds for hospitals and nursing care facilities

medicalessential＜Project＞

andservices

・AG MEDICAL’s business funding support for healthcare and nursing care providers such as

nursing

hospitals and nursing care facilities

care【Targets】

facilities

People in need of medical and nursing care services or businesses in need of business financing tocontinue medical and nursing care services

ProvisionAccess to

Improvement of financial literacy by providing individuals with access to financial services inof financial

essential

emerging economies with immature financial services

services toservices＜Project＞

individuals

・Provision of access to financial services for people in the Kingdom of Thailand by A&A

in(AIRA&AIFUL)

emerging【Targets】

countries

Individuals with difficulty in raising funds in countries with immature financial services

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SDGs

<Evaluation by JCR to the Framework>
a. Social Benefits of the Project
Proceeds financed under the Framework will be used for businesses with the following social benefits:(1) Maintain and create employment through providing proceeds for SMEs
(2) Business financing support for hospitals/nursing facilities(3) Improving financial literacy in emerging countries where financial services are immature throughproviding access to financial services

Category 1 (Use of Proceeds): Support for SMEs
Category 1 (Use of Proceeds) refers to investments and loans for leading medium-sized firms/SMEs
made by AG BUSINESS SUPPORT CORPORATION and AG Capital, subsidiaries of AIFUL. The use ofproceeds are categorized as “financing for SMEs and employment generation” that covers “SMEs in needof proceeds for business growth and continuity” under the eligible social project category in the social
bond principles/guidelines.
“Eligible Criteria”: Support for business funding for SMEs in need of funds for business growth andcontinuity“Targets”: SMEs in need of proceeds to grow and continue their businesses“Business Overview”<Business loans provided by AG BUSINESS SUPPORT CORPORATION>
This loan is a lending instrument that uses business proceeds without collaterals/guarantors with amaximum loan amount of JPY 10 million for sole proprietorships or companies, which is a loan on deed withequal monthly payments with interests (with a maximum repayment period of five years) or lump sum
repayments (with a maximum repayment period of one year.) This loan is used for bridge finance such as
temporary interim finance when microenterprises/SMEs (80 percent or more of companies have annual
revenue of JPY 100 million or less) need substantial financing when expanding their businesses or at the endof a fiscal year.
<AG Capital>
AG Capital established its first fund in 1986, aiming to provide opportunities to invest in medium-sized/
ventures with high-growth potential. AG Capital also has established 21 funds to date with more than JPY
50 billion of a total amount of investments in capital. In particular, AG Capital mainly invests in leading
medium-sized/start-up in information/communications, distribution/services and environmental/healthcare
sectors as industrial targeting.

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Social Issues 1: Improvements in SMEs Business Conditions and Maintenance of Employment
Although business conditions in SMEs are uptrend, there are still small-sized companies who have
not recovered to the conditions prior to the outbreak of infectious diseases. Providing instruments thatflexibly meet the financing demands concern since in particular, financing support directly leads to themaintenance of employment for SMEs with high labor shares.
According to White Paper on Small and Medium Enterprises in Japan in 2022, the sentiment DI for SMEs
rapidly declined due to the stagnant economic and social activities caused by the outbreak of infectious
diseases in 2020, and the severe decline is worse than that of the Lehman crisis in the second quarter.
However, the sentiment DI subsequently rose for the two consecutive fiscal years. In 2021, the sentiment DI
repeatedly rose and again fell in the first quarter of 2022. Although medium-sized enterprises recovered to alevel that exceeds that before the coronavirus pandemic, small-sized companies are not fully recovered yet andtheir recoveries vary depending upon their corporate sizes.
Chart 1: Trends in sentiment DI by industry segment4

Cash flow conditions for SMEs are confirmed with Survey of Current Business in White Paper on Smalland Medium Enterprises in Japan. The financial condition DI for SMEs fell sharply in the second quarter of2020 due to a rapid decline in sales because of the coronavirus outbreak with which cash flow deteriorated but
it significantly recovered in the third quarter. However, the recovery has been slow since 2021, and inparticular small-sized firms are not recovered to the level before the outbreak of COVID-19.

4

Source: White Paper on Small and Medium Enterprises in Japan in 2022 (Japanese)
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Chart 2: Changes in financial condition DI by corporate size5

The labor share of SMEs by corporate size is higher than that of large enterprises, which accounts for 80%
or more of labor costs, indicating that cash flow management directly leads to the labor costs of employees.
Thus, cash flow management support for SMEs plays an important role in maintaining employment and is ofhigh social significance. It is necessary to continuously turn a virtuous cycle from expanding revenues toincreasing wages in order for SMEs to continue to grow as enterprises and expand their businesses, and theimportant is to make investments in order to increase the added value generated by the enterprises that serve as
the starting point.
Chart 3: Labor share by corporate Size

5

Source: White Paper on Small and Medium Enterprises in Japan in 2022 (Japanese)
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Social Issue 2: Importance of Fostering Start-up and Necessity of Financing

According to White Paper on Small and Medium Enterprises in Japan in 2022, a start-up rate inJapan remained low, 5.1% in 2018, compared to that, 9 - 12% in other developed countries. Comparing
to the amounts invested in ventures by VC or others (results in 2021), Japan ranked 11th with US 3.5
billion (JPY 455.0 billion) while the US ranked 1st with US 376.1 billion (roughly JPY 49 trillion), China
ranked 2nd with US 61.1 billion (approximately JPY 8 trillion) and India ranked 3rd with US 37.7 billion(nearly JPY 6.2 trillion.) Although the growth rate has more than doubled over FY 2019, the important
issues for the medium- to long term sustainable development in Japan hereafter6 is to promote
innovation through financial support for high-quality start-up.
As a survey7 by the Bank of Japan (“BOJ”) is shown, an investment amount in venture businesses,
including start-up is on the increase partly due to significant progress in digital transformation (DX) andclimate changes worldwide during the past decade or so. Unlisted companies with corporate values that are
more than JPY 100 billion (so-called “Unicorn”) started their businesses, albeit only still a few firms. Initialpublic offerings (“IPO”) by ventures or others also have continuously increased. IPO on Mothers, an emerging
market (roughly equivalent to the current Growth market) reached a record high in 2021.
Chart 4: Financing amount by ventures8

Chart 5: Number of Initial Public Offerings9

In a review by BOJ, the background to increasing investments by business companies is a recovery ininvestment capacities along with their improved business performance, an increase in a momentum toward
open innovations in recent years and introduction of the special incentive tax system for open innovation in
April 2020. The number of established specialized departments/Cooperate Venture Capital (“CVC”), an
investment subsidiary, which invest in ventures, and the amount/number of funds structured by businesscompanies or CVC have continuously risen. In particular, a research shows that the foundation of CVC who
invested in DX-related and tackling climate changes are aggressive furthermore.
Venture ecosystems whose efforts lag behind those of overseas, are also gradually formulated, which ispossibly contributing significantly to a capital inflow to venture businesses. The venture ecosystem refers to amechanism collaborating with various entities such as the infrastructures or systems that support to growventures at each stage, the government, universities and large corporations. Silicon Valley in the United States
is a representative example. Cases, evaluated by JCR, that do financing the following as use of proceeds are
increasing: office research bases as clusters of ventures, interaction bases with large corporations and6

Source: Nihon Keizai Shimbun, May, 2022, https://www.nikkei.com/article/DGKKZO60565180W2A500C2TB0000
Source: BOJ Review, Current Conditions and Challenges of Japanese Venture Business, June 2022
8
Source: BOJ Review, Current Conditions and Challenges in Japanese Venture Business, June 2022 (Japanese)
9
Source: BOJ Review, Current Conditions and Challenges in Japanese Venture Business, June 2022 (Japanese)7

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attracting supportive organizations in urban central areas conducted by major real estate developers. The
ecosystem's infrastructure is in place through providing offices for ventures in Shibuya that has been
incubation for start-up as well as providing offices for ventures or actively inviting accelerators to support
entrepreneurs in Nihonbashi and Marunouchi. A survey by BOJ shows in the “Global Start-up Ecosystem
Ranking,” which ranks cities that are easy for ventures to grow that Tokyo has steadily improved its
evaluation; e.g., it unranked in 2019, ranked 15th in 2020 and ranked 9th in 2021. On the other hand, Japanesefinancing amounts are still lower, taking the number of overseas unicorn companies and their financing
amounts into consideration.
Chart 6: International Comparison in Investment in Ventures101011Chart 7: International Comparison in the Numberof Unicorn Enterprises11

Source: Bank of Japan, Review by BOJ, Current Conditions and Challenges in Japanese Venture Business, June 2022 (Japanese)
Source: Bank of Japan, Review by BOJ, Current Conditions and Challenges in Japanese Venture Business, June 2022 (Japanese)
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Category 2 (Use of Proceeds) : Support for medical/nursing care facilities
Category 2 (Use of Proceeds) is to support business financing for hospitals/nursing care facilities by AG
Medical, a subsidiary of AIFUL. The use of proceeds is categorized as “essential services (medicalcare/finance)” that covers “people who need medical/nursing care services and enterprises in need ofbusiness financing to maintain and continue medical/nursing care services” under the eligible social
project category in the social bond principles/guidelines.
“Eligible Criteria”: Support for business funds for hospitals and nursing care facilities“Targets”: People in need of medical and nursing care services or businesses in need of business financing
to continue medical and nursing care services“Business Overview”<Medical loans secured by medical fee receivables and Nursing loans secured by nursing fee receivables>
This loan is a loan instrument that allows medical/nursing carecompanies such as hospitals and nursing care facilities to borrowbusiness financing with a maximum loan amount of JPY 1 billion
secured by medical fees and nursing care fees. Specifically, AG Medical
provides loans secured by receivables owed to payment organizationsof National Health Insurance Organization (Kokuho) or Health
Insurance Claims Review & Reimbursement Services (Shaho.)

Social issues: Lag in compensation in medical institutions/nursing care facilities and business conditions of
medical institutions or others
The portion of payments to medical institutions except for self pays by patients is paid by insurers ofhealth insurance societies, which they purchased or national health insurance society. On the other hand,payments from Health Insurance Claims Review & Reimbursement Services and Tokyo Metropolitan
National Health Insurance Organization are usually paid in two to three months, which may result in lags in
expenses incurred, which is required for operating medical institutions/nursing care facilities. As measures
to solve these lags to occur, the aforementioned Service and Organization use medical fees’ factoring services
and medical loans secured by medical fee receivables provided by AG Medical.
According to a survey by Welfare and Medical Care Organization, some medical institutions and nursing
care facilities have deficits by facility type as described in Chart 8. Collecting compensation as quickly as
possible seems to be very advantageous in particular for financially troubled facilities.

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Chart 8: Ratio of Facilities with Deficits such as Medical Institutions/Nursing Care Facilities (%)12
Medical corporation
Psychiatric hospital
Hospital receiving medical treatment
General hospital
Day-care facility
Social welfare service corporation
Long-term care health facility for the elderly
Group home for the elderly with dementia
0
2021

5

10 15 20 25 30 35 40 45 50

2020

JCR evaluates that the business is socially highly beneficial since the eligible criteria for this loan support
the cash flow management and business conditions of medical institutions or nursing care facilities, andfurthermore, these lead to maintaining stable employment of medical/nursing care workers and provide
patients with high-quality medical nursing care services.

Category 3 (Use of Proceeds) : Providing individuals in emerging countries with financial services
Category 3 (Use of Proceeds) is to provide financial services for individuals in emerging countries where
financial services are immature by A&A, a subsidiary of AIFUL. This use of proceeds is categorized as“essential services (finance)” that covers “individuals who have difficulties in financing in countries where
financial services are immature” under the eligible social project category in the social bondprinciples/guidelines.
“Eligible Criteria”: Improvement of financial literacy by providing individuals with access to financial
services in emerging economies with immature financial services“Targets”: Individuals with difficulty in raising funds in countries with immature financial services“Business Overview”: Credit card loans and nano-finance for consumers provided by A&A
A&A provides credit card loans for consumers in Thailand in which improving financial literacy is one of
the issues since Thai have been suffering from black-market finance for a long time. Household liabilities are
relatively high in Thailand, comparing to those in neighboring countries or developed countries, and thehousehold liabilities was 87% in the second quarter of 2022. According to a survey by JETRO, Thai Chamberof Commerce and Industry University (“UTCC”) announced in April 29, 2019 that its research targetedhouseholds with monthly income of 15,000 baht (approximately JPY 52,500, 1 baht is equivalent to nearly
JPY 3.5) or less and showed that the average household liabilities increased by 15.1% from 2018 toapproximately 158,000 baht (roughly JPY 553,000.) Approximately 86% of the respondents answered thatthey have no savings and borrow money to pay off their living expenses and loans, thus they have to be
cautious about consumption. The survey also revealed that 58.2% of their debts were borrowed from financial
institutions, whereas 41.8% of their debts were borrowed from unofficial loan sharks. Furthermore, the12Source: Prepared by JCR based on materials disclosed by the Welfare and Healthcare Organization.
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research indicated that low-income earners have extremely serious debts since approximately 80% of the
respondents went into defaults in the last 12 months. The Thai government deploys operations to support
farmers and low-income earners who tend to be multiple debtors and allows non-banks or others to use smaller
finance systems with interest rate ceilings and lending limits through which the government encourages thesepeople concerned to refinance their debts from loan sharks to those from formal financial institutions since itconsiders that debt burdens or problems over black-market financing exercise drags on its economy. In 2015,
the government started to operate “Nano-finance,” a small finance system deployable nationwide in order forthese debtors not to use black-market finance. The maximum loan amount is 0.1 million baht, and the
maximum interest rate is 36% per annum, higher than the statutory interest rate; however, the operations aremanaged with lower interest rates under administrative guidance, taking risks in financial institutions who lend
to low-income households without collateral into consideration. The government has also introduced “Picofinance” with the upper limit of 50,000 baht since 2016 and is taking measures to encourage those borrowers
to borrow money not from loan sharks but official financial providers. Considering the fact that some loan
sharks make loans with interest rate of 30 – 50% a day or a month, the government hopes that the financial
market for individuals will be healthier through Nano-finance or Pico-finance under administrative guidance.
A&A provides credit card loans for consumers and nano-finance under the Thai government regulations.
Attributes of the outstanding loans as of March 31, 2022 show that lending to households who has less averagemonthly income accounts for 70% or more in Thailand, and lending for youth and the middle-aged accounts
for 70%. Detailed credit lines are set depending upon borrowers’ incomes and their debt history, and 90% orless of the total limit is less than the lending limit defined by Nano-finance, and 70% or less of that is less thanthe lending limit defined by Pico-finance through which the government strives to prevent people from having
multiple debts. A&A also endeavors to realize sound finance inclusion in Thailand through transmitting
educational videos for improving financial literacy on its website.
Taking the aforementioned into consideration, JCR evaluates that the use of proceeds contributes to financial
inclusion based on developing sound financial markets and improving financial literacy in Thailand.

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b. Negative Impacts on Society and the Environment
AIFUL sets forth the following measures as initiatives to curb material adverse impacts on social and theenvironment in the Framework.
<The Framework on Initiatives to Reduce Negative Impacts on the Social Environment>
In order to prevent customers' cash flow from worsening and the occurrence of problems such as multiple debts,
AIFUL Group investigates customers' repayment ability based on data from Designated Credit Bureau and its own
credit system (including credit monitoring during the transaction period with customers) and tightens its credit
criteria.
AIFUL Group also considers “thorough compliance” to be of the utmost importance, and in order to prevent theoccurrence of misconduct incidents, such as violations of laws and regulations related to the money lending
business and installment sales or leaks of information, AIFUL has established Compliance Committee (four times ayear) as a direct advisory body to the Board of Directors. By collecting compliance-related information andimplementing measures to prevent violations of laws and regulations, AIFUL verifies and ascertains thecompliance system on a company-wide basis. Furthermore, AIFUL Group Compliance Committee (twice a year)
has been established for the purpose of sharing unified corporate ethics throughout the Group and establishing acompliance system for the entire Group. In April 2007, the Group strengthened its internal control functions andlegal compliance system by unifying the management of hotlines (internal reporting system), strengthening thefunctions to collect information on compliance and unifying the functions related to rewards and penalties. In
addition, the Group has formulated businesses rules equipped with a function for enlightenment of legal
compliance, strengthened the acquisition of legal knowledge and awareness of compliance with laws andregulations through internal education, strengthened the effectiveness of internal audits such as call monitoring andtook other measures. At the same time, AIFUL Group has put in place a system to review these measures asappropriate. To reinforce these activities, the Group has installed Three Lines Model. The first line is on-sitemonitoring through self-inspection and the establishment of a Compliance Office in business divisions. The secondline is internal control such as awareness-raising, education, and follow-ups by the Corporate Risk Management
Department, the division in charge of controlling compliance. The third line is corrective measures determinedbased on appropriateness and effectiveness as evaluated in internal audits of the entire Group, including groupcompanies and overseas subsidiaries, by the independent Group Internal Auditing Department.
The Group strives to “sever ties with antisocial forces,” to “partner with specialist organizations,” and to“respond to unreasonable demands in a resolute manner,” based on its Basic Policy on Antisocial Forces. To
prevent money laundering and financing of terrorism, the Group also carries out KYC (know your customer) in
response to the requests of international organizations such as the FATF (Financial Action Task Force), law
enforcement and supervisory authorities.
Based on the aforementioned, JCR evaluates that AIFUL has identified negative impacts on social and theenvironment and has taken the necessary avoidance/mitigation measures.

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c. Consistency with SDGs
i. Consistency with SDGs mapping of ICMAJCR evaluates that the use of proceeds in this loan will contribute to the following SDGs goals and targets
while referencing to SDGs mapping of ICMA.
Goal 3: Good Health and Well-being
Target 3.8. Achieve universal health coverage (“UHC”), including financial risk
protection, access to quality essential health-care services and access to safe, effective,
quality and affordable essential medicines and vaccines for all
Goal 8: Decent Work and Economic GrowthTarget 8.3. Promote development-oriented policies that support productive activities,
decent job creation, entrepreneurship, creativity and innovation, and encourage theformalization and growth of micro-, small- and medium sized enterprises, including
through access to financial services
Target 8.10. Strengthen the capacity of domestic financial institutions to encourage andexpand access to banking, insurance and financial services for all
Goal 9: Industry, Innovation and Infrastructure
Target 9.3. Increase the access of small-scale industrial and other enterprises, inparticular in developing countries, to financial services, including affordable credit,
and their integration into value chains and markets
Target 9.5. Enhance scientific research, upgrade the technological capabilities ofindustrial sectors in all countries, in particular developing countries, including, by2030, encouraging innovation and substantially, increasing the number of R&D
workers per 1 million people and public and private R&D spending

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ii. Consistency with SDGs Action Plans and Social Bond Guidelines
JCR confirmed that the projects subject to use of proceeds comply with the following items in the “social
issues under the SDGs Action Plan, etc.” exemplified in Social Bond Guidelines by Financial Services Agency.
(1) Financing for SMEs and maintenance and creation of employment
Social Issues under the SDGs Action Plan, etc.: Regional Revitalization/Development
Targets: SMEs in need of proceeds to grow and continue their businesses
Investments/loans to promote and support thegrowth of regional SMEs

Target

Maintenance and creation of employment
through providing SMEs with proceeds(2) Support for medical/nursing care facilities
Social Issues under the SDGs Action Plan, etc.:
Correspondence to an Aging Society, Achieving Good Health and Longevity
Targets: People who need medical/nursing care services, and companies in need of businessproceeds to maintain and continue medical/nursing care services
Investment and loans in the health and medical
sectors

TargetAccesses to essential services (medicalcare and finance)(3) Providing financial services for individuals in emerging countries*As the target business is overseas, no mapping is conducted with the Japanese SDGs Action Plan.

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Evaluation Phase 2: Management, Operation, and Transparency Evaluation
JCR evaluated that the management and operation systems have been well developed, that transparency isvery high and that it is promising that the projects will be implemented as planned and the proceeds will beadequately appropriated based on the current situation described below and JCR's evaluation of the subject.
In Phase 2, JCR evaluated the management, operation and transparency to be the highest level of “m1.”

1. Appropriateness and Transparency Concerning Selection Standards and Processes for Use of Proceeds(1) JCR's Key Consideration in This Factor

In this section, JCR confirms the objectives to be achieved through social finance, the appropriateness of social
project’s selection standards and processes, and whether a series of processes are properly disclosed tolenders/investors.
(2) Current Status of Evaluation Targets and JCR's Evaluation

a. Target
AIFUL Group sets forth “Financial Inclusion” as a goal on sustainability and its initiatives for financial inclusion
are as follows:

AIFUL Group’s Initiatives for Financial Inclusion
Japan's financial industry has been maturing, and over-competition has become an issue in its industry structure.
However, despite this industry structure, some people are unable to enjoy financial services under the current
framework of the financial industry. As a service provider to these customers, AIFUL Group has been working todevelop products based on the concept of financial inclusion.
In addition, based on its corporate philosophy of “Earn the trust of society through corporate activity based in
integrity,” the Group will contribute to development of domestic industries by supporting companies that take on
new challenges to achieve their future dreams. At the same time, the Group will contribute to society by providing
business support for the medical and welfare fields, which have become major social issues due to the aging of the
population.
For many customers beyond the attributes of debtors to enjoy the current financial services, it is necessary to create
a new system. AIFUL Group aims to “grow as an IT financial group by reforming its organization and systems in
response to changes in the business environment and utilizing digital technologies.” The Group will further expand
its business and provide financial services through the creation of a new system utilizing information technology.

Proceeds financed through social financing by AIFUL will be used for businesses on supporting SMEs andmedical/nursing care facilities and providing financial services for individuals in emerging countries. JCR
evaluates that eligible projects in the Framework will contribute to the achievement of financial inclusion.

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b. Selection criteria
The use of proceeds in the Framework is to support SMEs and medical/nursing care facilities and provide
financial services for individuals in emerging countries. As described in Evaluation Phase 1, JCR evaluates thatthe aforementioned use of proceeds has significant social benefits.
c. Process
Eligible projects in the Framework are drafted by Finance Department, and after confirming the consistency
with AIFUL Group's “Basic Sustainability Policy” and “AIFUL Compliance Code of Conduct,” the final decision
will be made by Executive Officers and Directors (including President and CEO) in charge of promoting
sustainability. When evaluating and selecting a specific eligible project, Finance Department selects it after
confirming the consistency with “Basic Sustainability Policy,” “AIFUL Compliance Code of Conduct” and various
laws and regulations and determining eligibility. Then, Executive Officers and Directors (including President andCEO) in charge of promoting sustainability will make the final decision. JCR evaluates that the management
appropriately involves the processes to select projects.
The goals, selection criteria and processes stipulated in the Framework are described in this Evaluation Report
and will be disclosed on AIFUL's website.
Based on the above, JCR evaluates that the process is properly in place and transparency to investors or others
is maintained.

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2. Adequacy and Transparency of Management of Proceeds(1) JCR’s Key Consideration in This Factor
It is usually assumed that how to manage proceeds varies widely depending upon borrowers/issuers. JCR confirms
whether the proceeds financed through social finance are surely appropriated to social projects and whether amechanism and internal system are in place to enable easy tracking and managing the appropriation status.
JCR also gives importance to whether proceeds are scheduled to be used for social finance at an early stage andto the evaluation of management/operation methods for unappropriated proceeds.
(2) Current Status of Evaluation Targets and JCR's Evaluation
Proceeds financed under the Framework will be promptly and fully appropriated to social-eligible projects as
refinancing through respective companies in AIFUL Group. Such appropriations will be made within a range notexceeding the borrowings in eligible-project-related Group and assets in eligible projects. Accordingly, there will be
no unappropriated proceeds. In cases where there are any unpredictable unappropriated proceeds due to prepayment
or others, the Company will appropriate these to the assets in the identical eligible project.
The proceeds are appropriated to social eligible projects through respective group companies who also manage
the proceeds. Finance Department in AIFUL regularly monitors the proceeds so that the amount equivalent toproceeds or greater is appropriated to eligible projects as long as the balance of proceeds remains available. Finance
Department tracks/controls the proceeds with a management table that shows an amount of proceeds received andits appropriation status, and the results are monthly reported in regular meetings in which AIFUL's managers andthose with higher positions participate. Furthermore, a complete set of vouchers on tracking/controlling proceeds,
including the aforementioned management table, is subject to audit internally and externally on a regular basis;
therefore, it is considered to be fully controlled.
JCR evaluates that proceeds managed by AIFUL are appropriate and its transparency is high with the following:(1) the plan to appropriate proceeds is appropriately mapped out based on the Framework under which the proceeds
concerned are certainly appropriated to social-eligible projects; (2) the said appropriation status is appropriately
tracked/controlled and its internal control is properly planned and (3) there will be no unappropriated proceeds.

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3. Reporting(1) JCR's Key Consideration in This Factor
JCR evaluates whether the system for disclosing information to lenders/investors before and after financing social
finance is planned in a detailed and effective manner in this section.
(2) Current Status of Evaluation Targets and JCR's Evaluation<The Framework on Reporting>< Funding Status Reporting >As long as there is an outstanding balance of funds raised in accordance with this framework, thefollowing benchmarks will be disclosed annually on our website.
■ Allocation amount for each business segment of qualified projects (including the ratio of new
expenditure and refinancing)■ Unallocated amount■ Funding balance
The Company will disclose in a timely manner any significant changes in funding conditions after theraised funds have been allocated.
<Impact Reporting>
As long as there is an outstanding balance of funds raised in accordance with this framework, thefollowing items related to social impact from qualified projects will be disclosed on our website on anannual basis to the extent that it is practicable to disclose:
Impact reporting items

Project
Category

OutputOutcome

ImpactSupport for Small

Number and amount of funding for

Approximate number of businesses andSupporting the growth of SMEs andand Medium

each category of services provided

employees receiving funding support forstartups from the perspective of financial

each category of services provided

inclusion and maintaining employment byEnterprise

improving the stability of management
Support for

Number and amount of funding for

Estimated number of beds or employees

Providing access to medical and nursing

medical andeach category of applicable facility

providing medical or nursing services

care services to those in need andnursing carethat have received financial support for

maintaining and improving medical andfacilities

each category of applicable facility

nursing care services

Provision of

Number and amount of funding for

Number and amount of financial

Improving financial literacy by providing

financial services toservices provided

services provided to young people (inindividuals with access to financial services

their 20s and 30s)

individuals inemerging countries<Evaluation of JCR to the Framework>a.

Reporting on appropriation of financing
AIFUL will explain the use of proceeds financed through social finance to lenders/investors in advance. Aslong as the balance of proceeds remains available based on the Framework, the Company will annually disclose
proceeds appropriated/unappropriated and outstanding proceeds on its website. In cases where there are any
significant changes after financing is appropriated, the details will be disclosed in a timely manner on its website.

b. Reporting on social benefits
AIFUL will annually disclose reporting on the proceeds financed in the Framework. Disclosure will be madeby dividing into an output, outcome and impact per social project, including support for SMEs and
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medical/nursing care facilities and provision of financial services for individuals in emerging countries. JCR
evaluates the reporting is appropriate since the detailed output and outcome to be disclosed are related to theachievement of targets set forth in the impacts.

JCR evaluates that reporting on the appropriation status of proceeds and social benefits will be properly disclosed
to lenders/investors.

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4. Organization’s Social Issues’ Initiatives(1) JCR's Key Consideration in This Factor
In this section, JCR evaluates whether the management of borrowers/issuers highly prioritizes social issues for
management and whether the financing policy for social finance and selection criteria/processes of social projects
are clearly set through establishing a department specializing in social issues or in collaboration with externalorganizations.
(2) Current Status of Evaluation Targets and JCR's Evaluation
In April 2021, AIFUL Group drew up VISION, MISSION and VALUE as shown in Chart 9 to crystallize its
corporate philosophy, “Earn the trust of society through corporate activity based in integrity.” In VALUE with its
key words, “sincerity,” “trust,” “effort” and “gratefulness,” AIFUL Group, as value to be provided to society,expressly states “We support consumption and economic activities of small business owners with our financial
system” in which concepts of financial inclusion are incorporated.

Chart 9: VISION/MISSION/VALUE in AIFUL Group(Source: AIFUL’s “Annual Report for the fiscal year ended March 31, 2022”)
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In “Basic Sustainability Policy” formulated in December 2021, AIFUL Group sets “creating products that meetsociety’s expectations” as a social priority issue, and then sets forth “Products development to meet the diverse
financial needs of customers” as one of the initiatives to resolve these issues. Measures that embody the
aforementioned are to support SMEs, which are social eligible projects in the Framework, and to provide financial
services for individuals in emerging countries. AIFUL also sets up “social contribution and coexisting with the local
community” as a prioritized social issue in the basic policy, and sets forth “loan secured by medical fee receivables”
as one of its initiatives to resolve these issues. Measures related to the above are supporting for medical/nursing carefacilities. In this way, promoting social eligible projects listed in the Framework will contribute to solve these social
issues held out by AIFUL.
In AIFUL, mainly Corporate Planning/Finance Departments promote sustainability as a structure to promotesustainability-related initiatives under supervision of Executive Officers and Directors (including President andCEO) in charge of promoting sustainability. However, the Company has neither conference body nor departments
specializing in sustainability, thus it is expected that the Company establishes them. JCR expects AIFUL to seek toenhance sustainability management further while having objectivities such as hearing the views of external
academics with expert insight on social issues.
JCR evaluates that the management in AIFUL highly prioritizes social issues for its organizational initiatives.

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Chart 10: Basic Sustainability Policy in AIFUL Group(Source: AIFUL)
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■Evaluation Results
Based on its JCR Social Finance Evaluation Methodology, JCR assigned “s1 (F)” for “Socialness Evaluation (Use ofProceeds) and “m1 (F)” for “Management, Operation and Transparency Evaluation.” As a result, JCR assigned “Social
1 (F)” for “JCR Social Loan Evaluation.” The Framework fully satisfies the standards for the items required in Social
Bond Principles, Social Loan Principles and Social Bond Guidelines, and it is consistent with concrete measures toward
SDGs targets and the government’s SDGs goals.

<JCR Social Finance Framework Evaluation Matrix>
Management, Operation and Transparency Evaluation

Social Evaluation

m1(F)

m2(F)

m3(F)

m4(F)

m5(F)

s1(F)

Social 1(F)Social 2(F)Social 3(F)Social 4(F)Social 5(F)s2(F)

Social 2(F)Social 2(F)Social 3(F)Social 4(F)Social 5(F)s3(F)

Social 3(F)Social 3(F)Social 4(F)Social 5(F)

N/A

s4(F)

Social 4(F)Social 4(F)Social 5(F)

N/A

N/A

s5(F)

Social 5(F)Social 5(F)

N/A

N/A

N/A

(Responsible analysts for this evaluation) Atsuko Kajiwara and Shintaro Arai

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Important Explanation on this Evaluation
1. Assumptions, Significance and Limitations of JCR Social Finance Framework Evaluation
JCR Social Finance Framework Evaluation, which is granted and assigned by Japan Credit Rating Agency, Ltd. (JCR), covers thepolicies set out in the Social Framework, and expresses the overall opinion of JCR at this time regarding the appropriateness ofSocial Project as defined by JCR and the extent of management, operation and transparency initiatives related to the use ofproceeds and other matters. Therefore, it is not intended to evaluate the effects of specific social contributions, management andoperation systems, and transparency of individual bonds and borrowings to be implemented based on these policies. In the eventthat an individual bond or individual borrowing based on the Framework is subject to a social finance evaluation, a separate
evaluation is required. In addition, JCR Social Framework Evaluation does not demonstrate social improvement effects ofindividual bonds or borrowings implemented under the Framework, and does not assume responsibility for social improvement
effects. In principle, JCR does not directly measure social improvement effects of proceeds financed under Social Framework
although JCR confirms items measured quantitatively and qualitatively by the issuer or a third party requested by the issuer.
2. Methodologies used to perform this evaluation
The methodologies used in this evaluation are described in “JCR Social Finance Evaluation” on the “Sustainable Finance/ESGs”
section of the JCR website (https://www.jcr.co.jp/en/.)
3. Relationship with Acts concerning Credit Rating Business
The act of granting and assigning an assessment of JCR Social Finance Framework is conducted by JCR as a related business anddiffers from the act related to the credit rating business.
4. Relationship with Credit Ratings
The evaluation is different from the Credit Rating and does not commit to provide a pre-determined credit rating or make available
for inspection
5. Third-Party Evaluation of JCR Social Finance Framework Evaluation
There are no capital or personnel relationships that may result in a conflict of interest between the evaluation parties and JCR.

■Points to consider

The information contained in this document was obtained by JCR from the issuer and accurate and reliable sources. However, such information may be mistaken forhuman, mechanical or other reasons. Therefore, JCR makes no representation or warranty, express or implied, as to the accuracy, result, accuracy, timeliness,completeness, marketability or fitness for any particular purpose of such information, and JCR assumes no responsibility for any errors, omissions or consequences ofusing such information. JCR shall not be liable for any loss of opportunity and extraordinary, indirect, incidental or consequential damages of any kind, including any
loss of money, which may result from any use of such information under any circumstances, whether contractual liability, tort liability, negligence or other causes of
liability, and whether such damage is foreseeable or unforeseeable. JCR Social Finance Framework Evaluation does not express any opinion on various risks (credit risk,
price fluctuation risk, market liquidity risk or others) related to proceeds, which is the target of the evaluation. JCR Social Finance Evaluation is a comprehensive opinionof JCR at the present time and does not represent facts nor does it make any recommendation regarding risk assessment or decisions on the purchase, sale or holding ofindividual bonds, commercial paper, etc. JCR Social Finance Framework Evaluation may be modified, suspended or withdrawn due to changes in information, lack of
information or other reasons. All rights pertaining to this document, including data from JCR Social Finance Framework Evaluation, are held by JCR. All or part of thisdocument, including data from JCR Social Finance Framework Evaluation, is prohibited from being reproduced, modified or otherwise altered without the permissionof JCR.
JCR Social Finance Framework Evaluation: the extent to which the proceeds financed based on the Framework are appropriated for social projects as defined by
JCR, and the degree to which the management, operation, and transparency of the use of proceeds are evaluated. Evaluations are performed on a 5-point scale, from top
to bottom, using evaluation symbols of the Social 1 (F), Social 2 (F), Social 3 (F), Social 4 (F) and Social 5 (F.)■Status of registration as an external evaluator of sustainable finance or others
・ Ministry of the Environment: Registered as a supporter for issuing Green Bond・ ICMA (registered as an observer of the International Capital Markets Association): Member of Social Bonds Working Group・ UNEP FI: Positive Impact Financial Principles: Members of Working Group■Status of registration as a credit rating agency, etc.
・ Credit Rating Agency: the Commissioner of Financial Services Agency (Credit Rating) No. 1
・ EU Certified Credit Rating Agency
・ NRSRO: JCR registered with the following four of the five credit rating classes of Nationally Recognized Statistical Rating Organization (“NRSRO”) as defined by
the U.S. Securities and Exchange Commission: (1) financial institutions, broker/dealers, (2) insurance companies, (3) general business corporations and (4)government and local governments. In cases where disclosure is required based on Section 17g-7(a) of the Securities and Exchange Commission rules, suchdisclosure is attached to a news release posted on the JCR's website (https://www.jcr.co.jp/en/.)■For further information, contact Information Service Department
Japan Credit Rating Agency, Ltd.
TEL:03-3544-7013 FAX:03-3544-7026
Jiji Press Building, 5-15-8 Ginza, Chuo-ku, Tokyo 104-0061, Japan
Tel. +81 3 3544 7013, Fax. +81 3 3544 7026

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