The National Bank for Agriculture and Rural Development (NABARD) issued its first social bond in September 2023, with an issue size of Rs 1,040.50 crore. The bonds were issued at 7.63 per cent coupon rate to eligible institutional investors and later listed on BSE Ltd. These have a five-year holding period with annual coupon payments. The issue was oversubscribed 2.86 times. The funds raised will be used for drinking water projects under the Jal Jeevan Mission in Telangana. CRISIL Ltd and ICRA Ltd rated these bonds ‘AAA’. So, these have negligible risk in terms of default. Let’s find out more about social bonds.
What Are Social Bonds?
- Social bonds are specific types of bonds issued to raise funds for projects likely to have a positive impact on society. That is why they are also called social impact bonds.
- The way these bonds operate is similar to how traditional bonds work, where investors pool in money and a return is paid out.
- What differentiates social bonds is their explicit focus on using funds for social causes.
- The projects funded by social bonds address various social issues such as healthcare, education, affordable housing, poverty alleviation, and other social improvement activities.
Where Are The Funds Used?
- Funds may be used to alleviate poverty by creating jobs, providing vocational training, and supporting small enterprises.
- Social bonds may finance healthcare facilities, and programs that enhance healthcare accessibility, particularly in remote areas.
- Money may be allocated to build schools, provide scholarships, and educational resources.
- Similarly, these bonds can be used to fund affordable housing, to build infrastructure, including roads, water supply systems, sanitation facilities, or to bolster disaster preparedness etc.
The Social Bond Market
- The Covid-19 pandemic helped the social bond market grow but recently it has seen a decline.
- These bonds saw generous investments in 2020 and 2021. According to the International Capital Market Association (ICMA) data, before Covid-19, the size of the social bond market was $21.7 billion. By the year 2020, it rose to $147 billion.
- In 2021, it grew 10 times as compared to the pre-pandemic level of 2019, reaching a value of $210.7 billion. However, in 2022, social bond issuance saw the highest decline of 39 per cent among the sustainable bond category, as per the World Bank report 2023.