November 12, 2015


'White Paper on Local Use of Local Money': Ideas and Activities of the Community Youth Bank Momo

Keywords: Money Newsletter 

JFS Newsletter No.158 (October 2015)

The term "nonprofit organization" (NPO) has become increasingly popular in Japan in recent years. Japan for Sustainability (JFS), also an NPO, provides information through its website, and shares information with the world on various initiatives in Japan, with the aim of producing a happier, more sustainable future. Many NPOs actually provide goods and services that governments and companies have difficulty providing goods and services that are meaningful and important for society.

There are many NPOs in Japan deeply rooted in their local communities. Examples include those that provide health care services -- such as medical treatment, social services, and nursing care, as well as programs to preserve the natural environment -- with a view to protecting the livelihoods of local citizens and the environment. The number of NPOs is increasing significantly in Japan, and it appears they will likely play a more significant role in our society in the future.

Meanwhile, since many NPOs are engaged in less profitable work (that's why profit-making companies don't assume these tasks), they face big challenges in obtaining money to fund their activities. The revenues of NPOs are based not only on charges for use of their services and membership fees but also on donations; however, donations alone are not very common in Japan as compared to western countries, partly because of the fact that Japanese NPOs face great difficulties in earning revenue. (Data show that the total amount of donations by individuals in Japan is just one percent of that in the United States. Even considering the difference in population, this is a huge gap.).

In response to this problem, the Community Youth Bank Momo, located in Nagoya City in central Japan, issued a report entitled "2014 White Paper on the Local Use of Local Money: How Local Financial Institutions Can Support NPOs " (only in Japanese) in December 2014, highlighting to readers that they have the option of obtaining financing from local financial institutions. The Community Youth Bank Momo was established in 2005 as a financing system by and for local citizens (often referred to as an NPO bank). It advances funds, based on money invested, for projects of NPOs and other entities working to solve regional problems.

NPOs Are Good Borrowers

The white paper first draws attention to the decrease in loans to deposits ratios at credit unions in Japan. The ratio was 70 percent in 1998, but dropped to about 50 percent in 2014. (Accordingly, the ratio of loans on the national debt, etc., has increased.) Credit unions are financial institutions based in local communities. That is why the decrease in the loans to deposits ratio means that local money is not being used in local communities.

Why has the ratio declined at credit unions? One reason is that the number of small- and medium-sized enterprises (SMEs) and microenterprises is decreasing, which consequently reduces the number of promising borrowers. In order to increase their lending, financial institutions need to find enterprises that hold great promise and have potential for growth.

So next, what are the most promising sectors? In Japan, with a rapidly aging population, healthcare services in medical, social services, nursing care, and other fields could be potential candidates, and there are many NPOs providing these services in any region. This means that such NPOs could be good borrowers from regional financial institutions.

There is more good news for regional financial institutions. Although loans from financial institutions to NPOs are not so common at the moment, some institutions do actively finance them, and they report that the loan default ratio for NPOs is lower than for typical corporations.

Filling the Gap between Financial Institutions and NPOs

At the moment, however, neither financial institutions nor NPOs are aware that NPOs are potential borrowers. The "Local Use of Locally Produced Money White Paper" has helped to raise awareness about this potential. In addition, the Community Youth Bank Momo, which published the report, is carrying out other actions.

One such action is the creation of "Reading Circles" for the White Paper. They have been held not only in home base Nagoya, but also in Tokyo and eight other prefectures (as of September 8, 2015). The Reading Circles provide an opportunity for participants to receive an explanation about the White Paper and discuss the potential for transactions between NPOs and regional financial institutions, each from their respective standpoints. Each Reading Circle session has produced some dynamic discussions.

Another action is the Pro Bono Project, mentioned in the White Paper. Officials from regional financial institutions provide NPOs with a half-year of pro bono support (professional skills and expertise provided on a voluntary basis). In the project, the achievements of each NPO's activities are converted into a monetary measure and evaluated quantitatively using the Social Return on Investment (SROI) method.

This project provides opportunities for regional financial institutions to gain a better understanding of NPO activities and recognize that they are indeed potential borrowers. For NPOs, at the same time, it provides a valuable opportunity to better understand the thinking of financial institutions.

Current and Future Activities of the Community Youth Bank Momo

Immediately after the White Paper was published, it received a great deal of attention; it was mentioned in the newspaper editorial columns of Asahi Shimbun, Nikkei, and other national papers, for example. Furthermore, in May 2015, Momo received an award in the domestic category of the Nikkei Social Initiative Awards, presented by Nikkei Inc. to social business operators for solving various social issues using the methods of business.

Now, let's look at some of the issues on the radar of the Community Youth Bank Momo, selected from their website.

First of all, Momo considers "the centralization of money and banking" to be a problem. Have you ever thought about how the money you deposit into your bank account through an ATM (automated teller machine) is used? In the centralized money and banking system, Momo points out, the money deposited to our bank accounts through ATM terminals, which we use so often in our daily life, is sucked up into the centralized system, and the way the money is used is determined with no relation whatsoever to the lives of people in local communities.

For instance, many large borrowers of megabanks are large corporations operating in urban cities. In other words, it is not so common that money gathered into the centralized system is used for local SMEs and retailers or environment and social services businesses operated by citizens. The situation where many large national chain retailers are establishing their outlets in suburban areas in Japan, prompting the depopulation of many city centers, results partly from citizens' actions through consumption and saving.

Secondly, due to "the globalization of the economy," the system is set up to pursue the lowest price on products, by sacrificing the environment, with the result that products often produced based on exploitation of developing countries are now more available in developed country markets. Consumers, however, cannot easily learn if the products they buy are such products or not. As the economy becomes more globalized, producers and consumers are more decoupled, and it is getting more difficult for consumers to know the consequences of their consumption behaviors and actions.

Masaki Kimura, president of the Community Youth Bank Momo, says that the organization is aiming to put into practice the concept of "intraregional fund circulation" as its challenge for the next decade. This is a concept of establishing a regional "ecosystem" of support for NPOs with the participation of local financial institutions as core players, thereby generating a circulation of funds for NPOs and further creating new demand and employment within a community.

JFS has communicated the importance of circulating money within communities through our "Local Well-Being" Project and other activities. What we pay particular attention to now are the "plugging the leaks" theory and "local multiplier effects." These concepts explain in an easy-to-understand manner that money can ultimately have much greater value than its initial face value if it is circulated from people to people within one community, through consumption, and in the form of compensation, without flowing out of the community.

JFS "Local Well-Being" Project

As JFS has much in common with the Community Youth Bank Momo in terms of our perception of issues that need to be addressed, so we very much look forward to following its future initiatives.

Written by Naoko Niitsu

See also:
Lecture by Masaki Kimura, representative director of the Community Youth Bank Momo.