Social Impact Bonds
-Possibilities for Diversification of Financial Resources for Local Governments
Akane Enatsu, Nomura Institute of Capital Markets Research
Summary
Social impact bonds (SIBs) are a mechanism to solve social issues by entrusting the operation of highly public projects traditionally handled by the government to private organizations and raising funds for their operation from private investors.
SIBs were created as a new means of raising financial resources in the 21st century, and have been fully introduced in Japan since FY2017, with some success. Looking ahead to the future of local government finances, SIBs may increasingly be used by local governments as a means of financing social security-related projects.
For SIBs to be an effective tool for Japanese local governments, it is necessary to address the following issues: (1) linking SIBs to individual social issues, (2) appropriate selection and standardization of evaluation indicators, (3) risk management, (4) consideration of local fiscal measures, and (5) securing the project scale.
Although the history of SIBs in Japan has only just begun, they have potential as a means for local governments to properly provide administrative services while maintaining and improving quality within limited financial resources, and future trends will be closely watched.
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