In a bustling mid-sized city in India, a
young man grapples with the age-old question of how to earn a living – and
improve his station in life.
While he can read and write, office jobs
are hard to come by. He could find a salaried job, but this would mean getting
involved in the types of manual labour that leave little opportunity for
progression. Launching his own small business requires only modest start-up
capital, but with a monthly income of just $150, most banks are unwilling to
lend to him.
This man could be any one of millions of
young, entrepreneurially-minded workers in India, or indeed the rest of a
least-developed world. They are ready and willing to earn their own money but
lack what economists call “financial
inclusion“. Essentially, it means they are too poor to be a customer of a
bank, let alone access a line of credit at reasonable interest rates.
The solution to their quest could lie in
social bonds, a new form of financing that investors are embracing as a way to
improve the world, whilst making good returns at the same time. Social bonds
allow lenders companies like Shriram Transport
Finance Company (STFC) to raise money to put towards projects that improve
livelihoods. That could mean into areas such as education, housing, healthcare
and employment. The “doing good” aspect of the projects means that the
companies can sometimes access funds at more competitive rates than the market
would otherwise allow. 
STFC is an Indian corporation that finances
commercial vehicles, extending credit to allow drivers to become
owner/operators of their own fleet of vehicles. Its successful issuance in the
US market of $500
million from investors in the form of a social bond demonstrates there is
appetite to support this kind of development. The proceeds will be spent on
allowing even more would-be trucking entrepreneurs to own their own vehicles
and make a decent living. 
For big investors such as pension funds and
insurers, allowing Environmental Social and Governance (ESG) criteria to guide
their investments means money can flow into projects that improve the world,
rather than the corporate bottom line. 
While social bonds may be the youngest of
the sustainable bonds family, this new type of financing is experiencing remarkable
traction of its own, enabling STFC CEO & Managing Director, Umesh Revankar,
to help truck owners dream big. 
| First international public social bond issuance from India BNP Paribas was a joint bookrunner, joint lead manager and joint social structuring advisor on India’s first international social bond, supporting Shriram Transport Finance Company (STFC) to issue a $500 million, 3.5-year bond in January 2020. |
This article was also published in The Business Times under the title “The heart of finance: Social bonds as a way to improve the world”.
