Union Bank of the Philippines (UnionBank) on July 23 announced it is issuing its first social bond to assist micro, small and medium-sized enterprises (MSMEs) impacted by Covid-19, with an investment from the International Finance Corporation (IFC).
A member of the World Bank group, IFC is investing US$150 million in the seven-year social bond, which will be issued under UnionBank’s new sustainable finance framework. It is IFC’s first Covid-19 response social bond investment in Asia and only the second social bond of its kind in the Philippines. It also marks UnionBank’s longest-term US dollar-denominated bond to date.
Proceeds from the bond are expected to finance over 2,000 loans to MSMEs, which have been disproportionately impacted by Covid-19. IFC’s investment will also help UnionBank boost financing for MSMEs through its supply chain financing platform using digital technologies.
“Our goal in issuing this bond is to support the recovery of MSMEs from the Covid-19 pandemic,” says UnionBank CFO Jose Emmanuel Hilado. “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.”
MSMEs in the Philippines account for over 90% of businesses and over 60% of jobs pre-pandemic, but MSME loans only account for 6% of the total bank loans in the country. This makes increasing access to MSME financing critical to fostering a resilient and inclusive recovery.
IFC vice-president for Asia-Pacific Alfonso Garcia Mora says the use of social bonds to generate financing to meet the needs of vulnerable underserved people, including small businesses, in the wake of Covid-19 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,” he adds.
With social bonds targeting projects that aim to achieve positive social outcomes, the issuance can also pave the way to open the social bond market in the Philippines, replicating IFC’s success opening the market for green bonds in the country and deepening capital markets for thematic bonds.
The bond is aligned with International Capital Market Association (ICMA) Social Bond Principles and the Asean Social Bond Standards, as confirmed by a second-party opinion provided by Sustainalytics.
As of the end of financial year 2020, IFC had issued 53 social bonds in public and private markets in 11 different currencies. It has more than doubled its issuances of social bonds during the year amid the pandemic. Since 2017, IFC social bonds have supported 153 eligible projects totalling US$4.3 billion, reaching 2.6 million farmers, feeding three million people and treating 1.6 million malnourished children.
