IFC makes $150 million investment in UnionBank’s first social bonds

MANILA, Philippines — The International Finance Corp. (IFC) is investing $150 million in the first social bond to be issued by Aboitiz-led Union Bank of the Philippines to help micro, small and medium-sized enterprises (MSMEs) severely affected by the COVID-19 pandemic.

Jose Emmanuel Hilado, chief financial officer at UnionBank, said IFC’s investment would help the bank boost financing for MSMEs through its supply chain financing platform.

“Our goal in issuing this bond is to support the recovery of MSMEs from the COVID-19 pandemic. We are confident that we can achieve this through the use of IFC’s long-term funding and by leveraging our supply chain financial platform. It could not have come at a better time, as this market segment has been hit particularly hard by the current crisis,” Hilado said.

The seven-year bond to be issued under UnionBank’s new sustainable finance framework is the first social bond by the bank and is the longest-term US-dollar denominated bond to date.

This is also the second social bond of its kind in the Philippines. The bond is aligned with International Capital Markets Association (ICMA) social bond principles and the ASEAN Social Bond Standards, as confirmed by a second-party opinion provided by ESG research and ratings company Sustainalytics.

The bank intends to use the proceeds of the fund raising activity to finance over 2,000 loans to MSMEs and help smaller businesses recover from the impact of the COVID-19 pandemic.

The MSME sector accounts for over 90 percent of businesses and over 60 percent of jobs pre-pandemic. However, MSME loans only accounted for six percent of total bank loans in the country.

Increasing access to MSME financing is critical to fostering a resilient and inclusive recovery.

In the wake of the COVID-19 crisis, IFC vice president for Asia and Pacific Alfonso Garcia Mora said “the use of social bonds to generate financing to meet the needs of vulnerable underserved people, including small businesses, will be critical to helping spur the recovery.”

“This landmark deal marks IFC’s first COVID-19 response social bond investment in Asia and will help create jobs, strengthen and deepen the country’s capital markets, and contribute to the development of a more resilient, efficient and inclusive financial sector,” Mora said.

So far, the investment arm of the World Bank has issued 53 social bonds in public and private markets in 11 different currencies. Since 2017, IFC social bonds have supported 153 eligible projects totaling $4.3 billion, reaching 2.6 million farmers, feeding three million people, and treating 1.6 million malnourished children.

IFC is the largest global development institution focused on the private sector in emerging market and invested $22 billion in private companies and financial institutions in developing countries last year.