While companies mostly procure funds through equity financing or bank loans, both methods do not function sufficiently in rural areas in Japan. It is difficult for rural projects to capture investments since many venture capitals invest heavily in Tokyo-based projects, while equity financing does not suit rural companies since many are not large enough to scale nation-wide and go public. As for loans, while startup support loans and loan security systems have been enhanced, regional financial institutions often hesitate to lend working capital in the following expansion stage.
In this way, opportunities to receive funds, especially high-risk funds, were restricted for small- and medium-sized enterprises (SMEs) and venture businesses in rural areas, as well as social businesses aiming to resolve regional or social issues. However, recent years have seen the emergence of various social finance methods which serve as new financing sources for resolving social issues, and companies have been procuring funds through crowdfunding, social impact investments, and Hometown Tax Donations among other methods to create new businesses or expand existing ones, thereby playing a role in resolving social and regional issues.
Meanwhile, much remains unknown about each social finance method, including their effective usage, demanding further research. The following questions are important from both practical and academic aspects: what kind of businesses are compatible with each financing method; and how effective is social finance relative to conventional financing methods in driving regional entrepreneurship and resolving regional issues. Let's discuss these in the classroom.