NABARD lists first social impact bond

NABARD lists first social impact bond

Why in news ?

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

About the bond :

  • 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).

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.

Need of such bonds:

  • 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:

  • 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.

Source – Indian express

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