Impact investment. The Japanese Tokumei-Kumiai crowdfunding model by Lima Fintech Forum

Impact investment -The Japanese Tokumei-kumiai crowdfunding model-

Music Securities, Inc. Akiko Sygiyama, Chief Communication Oficer.

This presentation is prepared for Lima Fintech Forum 2018. The information contained herein does not constitute offer to sell funds or the solicitation of investments.

The first case in Peru: Abaco Small Farmers Empowerment Fund

       

Operator: ABACO(Cooperativa de Ahorro y Cre‘dito ABACO) Partner: Multilateral Investment Fund of Inter-American Development Bank Purpose: Support Abaco’s financing for local NGOs and small farmers in rural area Fund structure: “Tokumei Kumiai” (Annonymous partnership) agreement Replacement period:(2014-Apr-15)-(2015-Apr-30) Operating period:(2015-Jul-01) –(2018-Jun-30) Amount raised: 340,324PEN (14,280,000 JPN in 2015) Number of Investors: 186 (mostly Japanese)

The first case in Peru: Abaco Small Farmers Empowerment Fund

Investors

This is the first fund created through partnership between Multilateral Investment Fund of InterAmerican Development Bank (IDB) and Music Securities, Inc.

Distribution Tokumei Kumiai

Music Securities “Securite”

Capital Contribution

Small farmers

Loan Repayment

Microfinance Institutions, NGOs, etc.

Loan

Operator

Repayment

Small Farmers Empowerment Fund

Support(technical assistance and subordinated loan)

IDB/MIF

融資事例︓ パジャーレス（豆の一種）生産者のケース

Screen Shot of “Securite” Website 【Track Record】 Total Offering Amount: 7.9 billion (JPY) Number of Business Owners: 532 Number of Funds: 801 Redeemed Funds: 284 Size of fundraising per one fund: - From 1 million to 100 million (JPY) - Ave. 12 million (JPY) - Minimum Investment 10K to 50K (JPY) Purpose for funds: Cost of goods, Promotion cost, Equipment, etc. Source of dividend: Sales

Scheme

Legal 2Framework: TK Agreement Individuals

Entrepreneurs Silent Partnership Agreement

Business Operators

Investors ※

Money flow

Business operators pay a pre-agreed ratio of sales from their business as dividend to the investors. Unlike bank loans, no obligation to repay principal and no monthly repayment. The formation rules as well as the rights and obligations of the parties of a Tokumei Kumiai (a Japanese “silent partnership”) are provided in Articles 535 to 542 of the Commercial Code of Japan. ©Music Securities, Inc. All rights reserved.

Cooperation With Local Financial Institutions, etc.

Loans Subsidy Support/advice for management

Regional Financial Institutions Local Authorities Chambers of Commerce

Introduce local MSMEs and provide information

On behalf of MSMEs, MS originates, sells and manages funds

MSMEs Can get more funds Can get more loans Can get more customers

MS helps fundraising and attracting individual investors (customers)

Our Investors Investors: Around 80,000 (most of them are individuals) By age

22% Under 20s

30s

By gender

27% 40s

22% 50s

25%

65%

35%

Over 60s

Male

Female

Our Approach • Limited funding sources available for MSMEs

Problems

• Bank loan and investment from venture capital do not match MSMEs’ needs • MSMEs tend to be excluded from access to finance

• No principal guarantee • No need for personal guarantee by owner MSMEs’ Needs

• Business result based repayment (distribution) • Owner’s independence without shareholders’ intervention

• Funds through Tokumei Kumiai (Silent Partnership Agreement) • Funds deriving from households’ financial assets Our solution

• Regulated collective investment scheme

Impact Investment and SDGs

Our Message  Our web-based Impact Investment Fund scheme is a powerful tool to empower MSMEs and we believe this could be applied in Peru and other countries.  We are happy to help MSMEs in your country by fundraising for them or by sharing our experience and know-how to localize our scheme.  This year we will conduct a feasibility survey on Peruvian crowdfunding market and regulatory environment for further business development. We are open and your opinions and advises are highly appreciated.

Appendix

Case Study: Sake Funds

LOCAL

 Local products such as sake want to boost their recognition across Japan and overseas  Sake fans support sake brewing  Investors receive “special” sake gifts  Many investor visit sake breweries in rural areas

• 70+ funds • JPY 690+ million raised

Case Study: Disaster Relief Funds No return for investors is necessary

LOCAL

Investors can receive returns according to the business performance. This motivates MSMEs to find their way to full recover from disaster

 1 unit = 5,000JPY donation + 5,000JPY investment + 500JPY commission fee = 10,500JPY (about 105 USD)  Long-term (up to 10 years)

Case Study: Direct-Trading

GLOBAL

 Mr Maruyama started coffee shop in Nagano in 1991  He found that coffee growers have “cash flow” problem due to fluctuating coffee price and limited access to finance  For Mr Maruyama to engage in direct-trading, our scheme was suitable, allowing him to pay to coffee growers before he gets cash arising from sale of the coffee purchased  We set up 11 funds and raised around 200 million JPY

Case Study: Direct-Trading

GLOBAL

Good impact on coffee growers in Latin America in terms of cash flow This is a good sign for families of the coffee growers and the local economy Our scheme allows Japanese individual investors to make a contribution to the development of Latin America ©Music Securities, Inc. All rights reserved.

CEO, Masami Komatsu (right) and the president of Maruyama coffee, Keita Maruyama (left) were on the cover of “Forbes Japan” in August, 2017.

Case Study: Microfinance Funds in Asia

GLOBAL

• 7 Funds (5 Cambodia and 2 Vietnam) • JPY 240 million raised • 124.58% (CambodiaONE)

 Investors who support microfinance care about poverty alleviation in developing countries  Investors can go on a field visit to meet MFIs and their clients ©Music Securities, Inc. All rights reserved.

History of Music Securities 2000: Start of business and the first music fund 2007: Junmai Sake Fund for Shinkame Shuzo (introduced by DBJ) 2008: Registered with the Financial Services Agency of Japan as “Financial Instruments Business Operator “ 2009: Launched Impact Investment Platform “Securite” Integrated several services/categories such as music and sake into one web-based platform to manage account & customer information in one system. This extended business opportunities for a wide range of industries and customers. 2011 April: Launched Disaster Area Support Funds Utilizing the experience and function of “Securite”, introduced an unique financial scheme based on half-donation and half-investment to support business owners in the disaster area of the Great East Japan Earthquake. 2016: Launched Kumamoto Earthquake Disaster Area Support Funds ©Music Securities, Inc. All rights reserved.

Company Information Company Name

Music Securities, Inc.

Head Office

Otemachi Bldg.3F, 1-6-1 Otemachi, Chiyoda-ku Tokyo

Regional HQ/Branches

Western Japan HQ︓Grand Front Osaka Tower A-13F, 4-20 Ofukacho, Kita-ku, Osaka-shi Hokkaido Branch︓Hokkaido Bldg. 4-1 Kita Nijo Nishi, Chuo-ku, Sapporo, Hokaido Local Subsidiary: Osaka Securities, Inc.

Number of Employees

Approx. 40

Established

26 November 2001 (Started in December 2000)

Capital

JPY 454,765,300（Capital Reserve︓JPY 445,531,700）

Business Units

Securitization Dept.︓Operation of Impact Investment Platform “securite”, promotion and sales Label Dept.︓Music Label, Rights Management, Artist Management

Registration

Type II Financial Instruments Business Operator, No. 1791, Kanto Local Finance Bureau

Membership

Type II Financial Instruments Firms Association

CEO

Masami Komatsu

Directors

Tatsuya Asaka, Akiko Sugiyama, Taichi Watanabe, Tomoaki Kageyama

Auditors

Ritsu Matsushita, Kenichi Iyama

Principal Stockholders

Masami Komatsu, FinTech Business Innovation LPS, Mobile Internet Capital, FINTECH GLOBAL TRADING, THE SAIKYO BANK, Shigagin Lease Capital, iSGS, Dentsu, Sparx Asset Management, SMBC Venture Capital, Development Bank of Japan, Shizuoka Capital, Iyo Capital, Oita Venture Capital, Recruit Incubation Partners, Shigagin Lease Capital, Hiroshima Venture Capital

Correspondent Financial Institution Audit Firm

Link For further details, please take a look at “Hometown Investment Trust Funds” written in English and Japanese [Book in English] Hometown Investment Trust Funds http://www.springer.com/us/book/9784431543084 [Book in Japanese] ふるさと投資ファンド

―意欲のある中⼩企業が資⾦を得る仕組み