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This book records the first success stories of a new form of financial intermediation, the hometown investment fund, that has become a national strategy in Japan, partly to meet the need to finance small and medium-sized enterprises (SMEs) after the devastating earthquake and tsunami in March 2011.

The hometown investment fund has three main advantages. First, it contributes to financial market stability by lowering information asymmetry. Individual households and firms have direct access to information about the borrowing firms, mainly SMEs, that they lend to. Second, it is a stable source of risk capital. The fund is project driven. Firms and households decide to invest by getting to know the borrowers and their projects. In this way the fund distributes risk but not so that it renders risk intractable, which was the problem with the “originate and distribute” model. Third, it contributes to economic recovery by connecting firms and households with SMEs that are worthy of their support. It also creates employment opportunities, at the SMEs as well as for the pool of retirees from financial institutions who can help assess the projects.

Introduction of the hometown investment fund has huge global implications. The world is seeking a method of financial intermediation that minimizes information asymmetry, distributes risk without making it opaque, and contributes to economic recovery. Funds similar to Japan’s hometown investment fund can succeed in all three ways. After all, the majority of the world’s businesses are SMEs. The first chapter explains the theory behind this method, and the following chapters relate success stories from Japan and other parts of Asia. This book should encourage policymakers, economists, lenders, and borrowers, especially in developing countries, to adopt this new form of financial intermediation, thus contributing to global economic stability.

Inhaltsverzeichnis

Frontmatter

Chapter 1. The Background of Hometown Investment Trust Funds

Abstract
This chapter will, first of all, describe how the flow of funds in Japan functions. Second, it explains how Hometown Investment Trust (HIT) funds can fund businesses that are likely to grow in future and are capable of making a social contribution, but entail risks. HIT funds have recently begun to grow, and we will make the case for the urgent need to foster such funds. There are two main reasons why this is important. First, as BIS capital adequacy requirements become more stringent worldwide, banks find it more difficult to provide funding to high-risk businesses and projects. Second, Japan’s public finances are in dire straits. Local businesses outside the main urban centres used to be supported by subsidies from the centre to local regions in the form of national tax revenues allocated to local governments, national treasury disbursements, and government loan and investment funds. Under today’s expanding fiscal deficits, however, issuance of deficit-financing bonds to provide for local regions has reached a limit, and the need to use private-sector funds to finance regional projects has become urgent (Yoshino and Mizoguchi, Financial policy review, Ministry of Finance of Japan, 2013; McNelis and Yoshino, Advs Complex Syst 15:1250057, 2012).
The second half of this chapter will describe the flow of funds in Asia. Chapter 5 of this book will discuss concrete examples in Asia, where the financial systems also rely heavily on indirect financing via banks, so that the supply of funds to risk sectors is very likely to taper off. It is necessary to create mechanisms to supply various kinds of funds, including HIT funds that finance new corporations, businesses and environmental programs.
Naoyuki Yoshino

Chapter 2. Supply of Risk Capital for Regional Development in Japan

Abstract
In this chapter, we indicate the limits of the present form of financial intermediation, and show how funds such as the Hometown Investment Trust (HIT) funds can point the way to the future. As Japan’s domestic financial system has transitioned from a multi-layered to a single-layered form, it has become clear that excessive reliance has been placed on indirect financing, which has reached its functional limit in financial intermediation. Despite over 10 years of discussions in various public–private forums, there has unfortunately been no significant change in the financial structure itself (Akai, Ann Soc Econ Stud Securities 45, 2007a). Nevertheless, the direct–indirect responses to the international financial crisis of 2008 have given rise to several fascinating public–private initiatives for supporting local economies.
Atsuo Akai

Chapter 3. Hometown Investment Trust Funds in Japan

Abstract
Keeping with the theme of “Hometown Investment Trust (HIT) funds in Japan,” in this chapter we focus mainly on the initiatives of our company, Music Securities.
We provide some examples of micro-investment corresponding to HIT funds (small investments aimed at regional development) and our “Securité Disaster Area Support Funds” to recover from natural catastrophes.
Masami Komatsu

Chapter 4. Hometown Investment Trust Funds for Regional Development

Abstract
Based on the perspectives summarised in Chap.​ 2, this chapter considers two fields which hold even greater promise for the utilization of HIT schemes. Specifically, this refers to the utilization of HIT schemes related to (1) “regional development that utilizes local industry and attracts new business start-ups” as part of earthquake disaster reconstruction, and (2) the Kokusyu (Sake and Shochu) Project, which government bodies are promoting cooperatively from the perspective of “locally generated global marketing.”
Norifumi Sugimoto

Chapter 5. HIT as a Form of Microfinance in Asia

Abstract
In Chaps. 3 and 4, we discussed the achievements and potential of Hometown Investment Trust (HIT) Funds in Japan. This chapter takes a look at the application of HIT-type funds as a form of microfinance in other parts of Asia.
Microfinance: The Microfinance Market. Microfinance is the collective name for financial services provided on a small scale. These services include not just loans, but also insurance, savings, and remittances. The services are mainly directed to the poorer segment of the population in developing countries. The institutions that engage in these services locally are referred to as microfinance institutions (MFI). The Microfinance Investment Funds for Millennium Development Goals that are managed by Music Securities, Inc., is a fund for the purpose of financing this kind of MFIs.
Yuka Morita

Chapter 6. Concluding Remarks and the Way Forward

Abstract
This book is about Hometown Investment Trust (HIT) funds and other similar funds as a new form of financial intermediation. So far, we have discussed the funds’ background, characteristics, achievements in Japan as well as some other Asian countries. We argued that HIT is more conducive to stability and more suitable for promoting recovery than the more traditional forms of financial intermediation. In this final chapter we take a step back, place HIT in the overall context and attempt to shed light on the way forward.
Shuhei Shiozawa

Backmatter

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