Page 57 - Banking Finance May 2024

ARTICLE

Development (NABARD) has issued India's first 'AAA' rated development. By directing funds towards these
Indian Rupee denominated Social Bonds aggregating Rs. initiatives, social bonds contribute to positive social
1,040.50 crore at a coupon rate of 7.63 per cent in the year impact and help meet unmet societal needs.
of 2023. The bonds (redeemable, taxable, non-convertible, For issuers, social bonds expand the pool of available
non-priority sector, unsecured, social securities of face value financing options by tapping into investors interested
Rs. 1 lakh each) of five-years tenure were issued privately in socially responsible investing. This diversification of
to eligible institutional investors. funding sources can reduce dependency on traditional
financing channels and enhance access to capital for
Key Characteristics of Social Bonds projects with social objectives.
The proceeds from social bonds are
earmarked for projects that aim to
address social issues such as
affordable housing, healthcare,
education, job creation, or
community development.
Issuers of social bonds typically
provide detailed information about
the projects being financed, including
their social impact metrics, and
reporting standards to ensure
transparency to investors.
In some cases, social bonds may be
certified or verified by independent
third-party organizations to validate
their social or environmental credentials. This Social bonds attract investors who prioritize
certification process helps build credibility and trust environmental, social, and governance (ESG) factors in
among investors. their investment decisions. By investing in social bonds,
these investors can align their financial goals with their
Social bonds have gained popularity in recent years as
investors increasingly seek opportunities to align their values and impact objectives.
investment portfolios with their values and impact goals. Issuers of social bonds can enhance their reputation and
credibility by demonstrating a commitment to
Like traditional bonds, social bonds offer financial
addressing social challenges and promoting sustainable
returns to investors in the form of periodic interest development.
payments and repayment of the principal amount upon
Transparent reporting on the use of proceeds and the
maturity.
social impact of funded projects can help build trust
among investors, stakeholders, and the broader
Benefits of Social Bonds community.

The emergence and growth of social bonds in the financial
While social bonds may initially require investment in
market offer several benefits, both for issuers and investors, impact measurement and reporting infrastructure, over
as well as for society as a whole. Some of these benefits the long term, they can help lower the cost of capital
include: for issuers by attracting a broader investor base and
Social bonds provide a mechanism for raising capital reducing perceived risks associated with social and
specifically for projects aimed at addressing pressing environmental factors. This can result in favourable
social issues, such as poverty alleviation, healthcare financing terms and lower borrowing costs for future
access, education, affordable housing, and community bond issuances.

50 | 2024 | MAY | BANKING FINANCE