The World Bank, UN Women (an entity of the United Nations committed to promoting gender equality and women’s empowerment), and the Small Industries Development Bank of India (SIDBI), have joined forces. They have launched a five-year tenor Women’s Livelihood Bond (WLB) as an instrumental tool to empower rural women in the most impoverished regions of India.
This initiative aims at offering financial support to women wanting to establish or expand their enterprises by helping them overcome financial barriers which they often face in business landscapes. A key feature of these bonds is that they will be unsecured and unlisted.
Understanding Unlisted and Unsecured Bonds
Unlisted securities are instruments like shares, bonds or other securities that aren’t traded on a stock exchange but through the over-the-counter (OTC) market. This essentially means that these securities are outside the realm of regular regulated exchanges, making them less liquid but potentially more flexible.
In contrast, unsecured bonds also referred to as debentures, are bonds that are not backed by any specific physical assets or collateral like real estate. Instead, the issuer, in this case, the World Bank, UN Women, and SIDBI, pledge ‘full faith and credit’, promising that the bondholders will be repaid eventually.
The Functionality of Social Impact Bonds
Social impact bonds (SIB) are unique contracts with public sector entities or governing authorities where they agree to pay for improved social outcomes in certain sectors. The localities that benefit from these outcomes then share a part of the resultant savings with investors.
Contrary to their name, SIBs are not bonds in the traditional sense as repayment and returns on investment are contingent on the achievement of intended social outcomes. If targets are not met, investors neither receive a return nor a repayment of the principal.
The Placement and Returns on Women’s Livelihood Bonds
The WLBs will be privately placed with leading wealth managers and corporates in India. This ensures that only qualified investors who understand the risks associated with investing in unsecured, unlisted bonds are involved in the transaction. The proposed return on these bonds will be about 3% per annum.
TABLE: The Prayaas Fund: SIDBI’s Contribution to Women Entrepreneurship
| SIDBI’s Prayaas Fund |
|---|
| ₹1,000 crore social-impact fund |
| Provides funding support to women entrepreneurs |
Practical Benefits of the Bond to Women Entrepreneurs
The bond is set to enable individual women entrepreneurs in sectors such as food processing, agriculture, services, and small units to borrow an amount ranging from Rs 50,000 to Rs 3 lakh. The annual interest rate for this borrowing is projected to be around 13%-14% or less, depending on various factors.
SIDBI will play the role of a financial intermediary and channel funds raised through these bonds to women entrepreneurs via participating financial intermediaries including banks, NBFCs, or microfinance institutions. This adds another layer of security and management to the funds being allocated.