Municipal bonds used by Polish rural municipalities as an example of external financing for investments

Purpose: The main purpose of this paper was to show extra-budgetary sources of financing for municipal investments, with particular focus on municipal bonds which prove to be highly advantageous compared to loans or credits. When it comes to investment risks, the legal public status of local government units makes municipal bonds one of the lowest-risk securities. Design/methodology/approach: The study was carried out in 2017. The basic research tool was a survey questionnaire administered to 606 rural municipalities from the Rural Municipalities Association. 132 surveys were sent back by rural municipalities located across all voivodeships (the response rate was ca. 22%). Findings: It follows from the study that the municipalities use credits, loans and Union grants as the basic source of extra-budgetary financing. Over 60% of municipalities surveyed do not issue municipal bonds because they lack the relevant knowledge and are concerned over excessive debt. This seems to be primarily caused by the municipal authorities’ cautiousness and reluctance to rely on instruments they poorly know. Research limitations/implications: (if applicable) If research is reported on in the paper this section must be completed and should include suggestions for future research and any identified limitations in the research process. Practical implications: This research is in line with the proposition of the Rural Municipalities Association to establish the National Rural Development Fund whose operational instruments could include municipal bonds. Originality/value The paper is addressed to local government units. The paper shows the true reasons why rural municipalities were not interested in issuing and selling municipal bonds.