The bond will provide loans to women-focused social enterprises in Southeast Asia.
DBS Bank has closed the ‘world’s first’ social sustainability bond, to be listed on a stock exchange. Developed in partnership with Singapore-based Impact Investment Exchange, it will provide loans to women-focused social enterprises and microfinance institutions in Cambodia, the Philippines and Vietnam.
The bond size has been finalised at $8 million, with a tenor of four years and a target coupon rate of 5.65% that will be paid to impact investors who buy the Women’s Livelihood Bond. This includes accredited and institutional clients of DBS and ANZ in Asia, Australia, Europe and the United States.
‘The infrastructure for social capital markets is now taking off. This transaction brings us one step closer to a day when our financial markets consider social and environmental impact on an equal footing with financial returns,’ said Durreen Shahnaz, founder of IIX, said in a press release.
The bond will provide working capital to a group of enterprises and microfinance institutions whose activities benefit women through improved access to credit, market linkages, and affordable goods and services, to scale their operations and impact.
Once the bond has been sold to an investor, the special purpose vehicle will disburse the loans to the underlying borrowers, which will use the proceeds to scale their organisations.
The participating institutions are expected to mitigate credit risk through a 50% guarantee of the principal amount by USAID. The Australian Department of Foreign Affairs and Trade is subsidising USAID’s guarantee by $900,000, while IIX is providing a $500,000 first loss feature.
Based on IIX’s impact assessments on the underlying borrowers, the bond is projected to generate over $2 of social value for every $1 invested.
IIX will evaluate the development impact of its investments by looking at how they scale, and how effectively they deploy the money they raise.
‘The impact assessment for the bond was done upfront by IIX during the social due diligence process and will continue to be conducted on a semi-annual basis throughout the lifetime of the bond,’ IIX said in an emailed statement.
It is currently in talks with the Singapore Exchange to list the bond. IIX intends to replicate the bond across the globe and expects such future bonds to be listed on its Impact Exchange, a platform operated by the Social Exchange of Mauritius in cooperation with IIX, regulated by the Financial Services Commission, Mauritius.
‘Singapore is well-placed to become a regional hub for impact investing, leveraging the infrastructure and eco-system it has built as a leading hub for tech start-ups and tapping on the region’s unique intersection of wealth and socio-environmental needs,’ Tan Su Shan, DBS group head of consumer banking and wealth management said in a press release.