New role for philanthropy in post-earthquake Japan

Ken ito

Traditionally, Japanese society has had a government that was effective in meeting the country’s economic and social development needs and low expectations of the civil society sector. According to a 2008 report, non-profit organizations contributed only 0.2 per cent of total GDP in Japan, which reflects the general perception that the government should be responsible for social welfare. Charitable donations were treated like tips at restaurants to show courtesy.

According to the same 2008 research, Japan’s philanthropic donations totalled an estimated US$8 billion, of which half came from corporate donors. Average individual giving per household was estimated at $30 per year, which is low compared to other developed countries. As a result, charitable foundations were underdeveloped in Japan. Total grants made by 820 foundations amounted to approximately $1 billion per year, accounting for only between 8 and 10 per cent of the total charitable market.

Earthquake creates seismic shock in philanthropy

The Great East Japan Earthquake in March 2011, however, marked a turning point for many parts of Japanese society, including its philanthropy sector. In particular, people changed their views of social innovation. This resulted in the rapid development of strategic philanthropy and impact investing

Annual donations soared to $12 billion in 2013, not including another $6 billion for earthquake relief and recovery from 2011 to 2012. At the same time, the government’s financial deficit was increasing, mainly due to rising social security costs for Japan’s ageing population: more than 30 per cent of the population will be over 65 in 2050. Under these circumstances, the concept of strategic philanthropy is attracting more attention as a source of social innovation since people realize they need innovations to increase the productivity of social services. In short, new social challenges and the government’s inability to continue to provide for the welfare of all its citizens have enhanced the role of philanthropy and transformed the position of non-profits and other social enterprises from performing a complementary role in public services to being the main provider of innovative ideas and business models.

Strategic philanthropy and corporate engagement

This change was accompanied by the growth of strategic philanthropy. Social Venture Partners (SVP) Tokyo, an affiliate organization of SVP in the US, was established in 2003 as an experimental model of venture philanthropy in Japan. SVP Tokyo officially joined the SVP network in 2006 and has since provided accumulated grants of more than $600,000, as well as professional management resources, to support its 24 investee organizations. The SVP model has been replicated in different institutions, including the corporate volunteer programme at Mitsubishi UFJ Research and Consulting.

Another example is Social Investment Partners (SIP), a social investment intermediary formed by a group of private equity professionals in 2012. They launched the Japan Venture Philanthropy Fund (JVPF) with an initial $1 million, with support from the Asian Venture Philanthropy Network. The significance of this fund is its cross-sectoral aspect, as the fund was set up as a joint venture between SIP and the Nippon Foundation, the largest private foundation in Japan, along with pro bono support from professional service firms such as Bain & Co, Clifford Chance and others.

Active corporate engagement plays a huge role in the Japanese charitable market, with half of all donations provided directly from corporations to non-profits. Corporations were also early adopters of innovation in philanthropy. Panasonic, the electronics giant, started its grant programme, NPO Support Fund, in 2001 and has since provided more than $26 million, with a focus on building management capacity and strategy, finance and marketing. Since 2002, NEC has been nurturing social entrepreneurship with its pioneering incubation programme, NEC Social Entrepreneur School. It has supported 34 social start-ups in partnership with ETIC, a major non-profit intermediary focused on start-ups by young people. In recent years, other companies and local governments, such as Kao and the Yokohama City Government, have come together to form an incubation platform as they see the social impact resulting from the successful growth of social entrepreneurs who started their business through a corporate-sponsored incubation model.

Impact investing in Japan

The discussion on impact investing started slowly in Japan. Loan provision to non-profits was initiated by a grassroots financial intermediary called NPO Bank in the mid-1990s, although the size of this activity has stayed small: $27 million in accumulated loans to a total of 13 organizations as of 2013. The movement was motivated by the fact that commercial banks and credit unions did not provide financial services to non-profits until the late 2000s. The citizen-led financial initiative eventually influenced government financial institutions, including the Japan Finance Corporation, which has to date provided more than $400 million in loans to non-profits and social enterprises.

Around the world, the philanthropy sector is being inundated by information technology, and Japan is no exception. Among 28 crowdfunding platforms operating in Japan, Music Securities Company is known as a pioneer and the largest player in the industry since 2000. Music Securities provides an online platform for investments in various projects ranging from agriculture to renewable energy. The platform enables micro-investors to invest as little as $100 in social enterprises. In its 15-year history, it has raised more than $44 million to invest in 169 projects. The non-financial returns, too, incentivize investors to put their money in the fund. For example, investors receive local food products as a return on their investment in agro-ventures that revitalize the local economy. A similar micro-investment scheme is operating in the field of international development. ARUN (‘dawn’ in the Khmer language) was established in 2009 to provide loans and equity investments in social enterprises in Cambodia and India. The fund was formed as a partnership with more than 100 partners who contributed a minimum of $5,000.

Role of impact investing in earthquake recovery

The first ten years of experience accumulated in developing strategic philanthropy since the early 2000s was fully reflected in the recovery efforts after the Great East Japan Earthquake in March 2011. Three impact investing funds were set up in response to the disaster. Mitsubishi Corporation committed more than $100 million to earthquake recovery and allocated $15 million of that sum to its impact investing programme to support small and medium-sized enterprises in the Tohoku area. The Tohoku Kyoeki Fund, a disaster recovery impact fund set up by Civic Force, provided $5 million in equity and advisory services to its investees. Mercy Corp, a US non-profit, launched the Tomodachi Fund with local credit unions to provide interest-free loans to socially oriented businesses.

The successful implementation of these impact investing initiatives has created public confidence at a time when people were starting to question if donations to large government-affiliated charities really helped the victims of the earthquake and tsunami in their long-term recovery.

Government approach to philanthropy in Japan

To develop the charitable market further, the government is implementing a set of policy measures as traditional subsidies or grant programmes which directly support the non-profit sector do not achieve strategic philanthropists’ and impact investors’ goal of non-profit sector development. They are not usually the result of a coherent strategy, nor is their impact carefully assessed.

The Japanese taxation system underwent a major revision in 2011 and tax benefits for donors were increased. Planned giving was legalized under new laws that enable donors to avoid high inheritance taxes and save up to 50 per cent on bequests of over $3 million.

In 2012, the cabinet approved the decision to set up a dormant account fund (a fund that derives from dormant bank accounts); the plan is to start its operation in 2015. The fund, which it is estimated will have an annual inflow of more than $400 million, is under discussion, and civil society is calling for the formation of the Japanese version of Big Society Capital in the UK to be the wholesaler of social finance.

In the search for effective social finance products, the implementation of a social impact bond is also being discussed in a government committee. The Nippon Foundation has agreed with local governments to conduct a few pilot projects in 2015, assuming that it will receive investment once the dormant account fund is launched. Although there are still challenges and uncertainties, a major transformation is under way in Japanese society from government-led solutions to social issues to more market-based approaches to social innovation.

Ken Ito is a lecturer at the Graduate School of Media and Governance at Keio University (Japan) and AVPN regional head for East Asia. Email

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This article is based on The Frontline of Social Finance in Japan, published by the Nippon Foundation. The English version will be published in January 2015.

Featured image: Wikimedia Commons File:US Navy 110315-N-2653B-144 Vehicles and debris line a canal in the downtown area of Ofunato, Japan.jpg – Wikimedia Commons

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