Hometown Investment Trust Funds: Finance for Start-up Businesses

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1 Hometown Investment Trust Funds: Finance for Start-up Businesses Naoyuki YOSHINO Dean Asian Development Bank Institute Professor Emeritus, Keio University, Japan Farhad Taghizadeh-Hesary Assistant Professor, Waseda University 1

2 Barriers for SMEs in Accessing Financial Institutions, Collateral, Higher interest rate, long term process Source: ADB OECD study on enhancing financial accessibility for SMEs: Lessons from recent crises. Mandaluyong City, Philippines: Asian Development Bank,

3 Start up businesses and farmers Hometown Investment Trust Funds : Springer A Stable Way to Supply Risk Capital Yoshino, Naoyuki; Kaji Sahoko (Eds.) 2013, Japan, Cambodia Vietnam, Peru, Mongolia Access to Digital Technology, Internet 3

4 Start ups Internet On-line trade Farmers Innovators Internet Company Advertize Consumers FSA:Registration 4

5 Roof top Solar Fund 300 $/ per person 5

6 Vegetables Fund. Soup Fund Each investor, 100 US Dollar 200 US Dollar Total 52,500 $ Total 32,000 $ 6

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8 TRUST is important 1, Regular meetings with producers (every quarter) 2, Look for good products and advertise by internet 3, Give advise to innovators 4, Order the products though internet 5, Payment and Delivery 6, Reputation 7, Trust of community, Trust by customers 8

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11 Solar Power projects in Japan 1/14/

12 Various Private Financial Investors in Asia 1, Banks --- Safer projects Brown field (infrastructure) Invest into operation period Securitization after certain period of time Privatized projects by the government 2, Insurance and Pension funds (Brown fields) Long term projects (10 years years) 3, Revenue Bonds (floating interest rate) uncertain income streams 4, Equity Investments Construction period and Green fields

13 Injection of Increased tax revenues from the spillover effect into energy projects in order to increase the rate of return for private investors Spill over effects of electricity supply Non-affected region Spillover Effect and increase of sales & property tax revenue Non-affected region Source: Yoshino and Taghizadeh-Hesary (2017)

14 Spillover Effects of Infrastructure Investment Electricity Supply

15 Injection of Increased Tax revenues Increase of tax revenues by spillover effects user charges 1/14/

16 Injection of fraction of tax revenues as subsidy Toll revenue from Highways Injection of subsidies Sub(t) Return to private investors Increase in tax revenues by spillover effect (T(t-1)) Private funds Source: Yoshino and Nakahigashi (2016)

17 The Southern Tagalog Arterial Road (STAR Highway), Philippines, Manila Tax Revenues in three cities Yoshino and Pontines (2015) ADBI Discussion paper 549 Construction 17 Operation period

18 Government Financing (Externality Effects) 1, Measure the negative external effects of CO 2 and NOX 2, Levy Tax on CO 2 and NOX Transfer subsidies to renewable energy 3, Provide subsidy to renewable energy projects Injection of tax revenues to investors in renewables R&D (renewable energy sector) 1/14/

19 Financing Scheme for Renewable Energy Projects Using HITs and Carbon Tax 1/14/2018 HIT = Hometown Investment Trust Fund. Source: Authors. Subsidies From TAX on CO2 Spillover Tax revenues 19

20 Infrastructure Revenue Bond Regional Development Agency issues Revenue Bond (user charges) plus (Spillover effects) 60% 40% Private Investors Government

21 Equity and Bond Investment in infrastructure infrastructure development company issues bond And equities (Spillover effects) 70% 30% Issue bonds to Investors Equity Investors

22 Macroeconomic Effect of Infrastructure Investment Spillover Effects Estimated from a Macroeconomic Translog Production Function Direct effect Indirect effect (K p ) Indirect effect (L) % returned Increment 43.8% 41.5% 39.0% 39.1%

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