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NABARD lists first Social Impact Bond

  • Category
    Economy
  • Published
    7th Oct, 2023

Context:

The National Bank for Agriculture and Rural Development (NABARD) announced the listing of its ‘Social Bonds’ on the Bombay Stock Exchange (BSE).

About the move:

  • The National Bank for Agriculture and Rural Development (NABARD) has listed the country’s first social impact bond to the tune of Rs.1, 000 crore.
  • The social bonds issued by NABARD have received ‘AAA’ ratings from CRISIL and ICRA, and they will be listed on the BSE (Bombay Stock Exchange).
  • NABARD recently introduced a Sustainability Bond Framework, aimed at financing and refinancing green and social projects.
  • The money will be used to support Telangana's Jal Jeevan Mission.

What are Social Bonds?

  • Social bonds are fixed-income securities whose proceeds are typically earmarked to finance or re-finance new and existing social impact projects, especially for identified target populations such as low-income groups, unemployed, or vulnerable.
  • A social impact bond (SIB) is a contract with the public sector or governing authority, whereby it pays for better social outcomes in certain areas and passes on part of the savings achieved to investors.
  • A social impact bond is not a bond, per se, since repayment and return on investment (ROI) are contingent upon the achievement of desired social outcomes.
  • Investing in social impact bonds has risen in recent years as a way for investors to give back to the community, as well as a way for companies to expand their social responsibility.

Need of such bonds:

  • The Environmental, Social and Governance Criteria are three central factors that measure the sustainability and ethical impact of the company. It is to duty of the company to take care of the three central factors. The three central factors are as follows:
  • Environmental factors such as greenhouse gas emission, resource depletion, pollution, deforestation, climate change.
  • Social factors such as working conditions, health, safety, employee relations and conflict.
  • Governance factors such as tax strategy, donations and political lobbying, executive remuneration, bribery, corruption and structure.

Key Features of Social Impact Bonds:

  • They operate over a fixed period of time.
  • They do not provide fixed rate of return.
  • The outcome of Social Impact bonds is completely dependent on success of social outcome.
  • They are not affected by variables such as reinvestment risk, interest rate risk or market risk.
  • They are subjected to inflation risk.
  • It is hard to determine the success of Social Impact Bonds as they are based on social impacts.

Bombay Stock exchange (BSE)

  • The Bombay Stock Exchange (BSE) is one of the oldest stock exchanges in Asia, founded in 1875.
  • BSE is known for its benchmark stock market index, the Sensex, which tracks the performance of 30 large and well-established companies listed on the exchange.
  • BSE lists a wide range of financial instruments, including equities, mutual funds, bonds, and derivatives, making it a versatile platform for investors.
  • BSE plays a crucial role in regulating and supervising the securities market in India, ensuring fair practices and investor protection.

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