Micro, small and medium enterprises (MSMEs) are among the most important drivers of economic growth in developing countries, and play a crucial role in poverty reduction.

As such, bridging the MSME financing gap is crucial. In developing countries, the financing gap – simply, the amount of money needed to maintain operations that is not currently provided by cash or debt – is estimated at US$5 trillion, 1.3x the current level of MSME lending.

Women-owned businesses comprise 23% of MSMEs and account for 32% of the MSME financing gap, according to SME Financing Forum. Among the regions, Asia accounts for the largest MSME finance gap.

Closing this substantial financing gap requires the efforts not only of the public sector but also of microfinance institutions, which provide lending to low-income or underprivileged groups.

Several microfinance institutions in Asia have launched gender bonds, which are primarily aimed at supporting the advancement, empowerment and equality of women, with small ticket sizes.

In July 2023, Kashf Foundation, a non-banking microfinance institution in Pakistan, issued a gender equality bond amounting to 2.5 billion rupees (US$8.9 million). It was the first-ever gender bond out of South Asia, which aimed to provide capital to MSMEs run by women from the low-income stratum.

Also last year, ASA Philippines Foundation, a non-profit microfinance organization, issued the country’s first-ever gender bond with the proceeds totalling 5 billion pesos (US$90 million) to be deployed as loans to qualified female micro entrepreneurs.

The debt issuance was guided by the Asian Development Bank (ADB) and made under the social bond framework of the Securities and Exchange Commission Philippines. Specifically, the bond proceeds will be used to support social projects for women in marginalized communities, including those with disabilities, migrants and under-educated populations.

The Philippine microfinance NGO has tapped the bond market several times since 2017, but the latest fund raising represents the firm’s first gender bond issuance and its largest bond issuance.

“We are focusing 100% on women, and a total of 2.4 million borrowers are all ladies,” says Kamrul Hasan Tarafder, president and CEO at ASA Philippines Foundation, in an interview with The Asset.

Since this is the first gender bond issuance in the country, it took some time to get regulatory approval. “They (regulators) couldn’t believe at the beginning that an NGO would be promoting a bond that was actually unheard of. However, by the time they realized what ASA is, what ASA’s size is, and assessed our performance over the last 19 years, they were actually stunned,” says Tarafder. The bond issuance drew enthusiastic response from both domestic and international investors, resulting in 3x oversubscription.

Apart from debt financing, ASA has also launched the “Capital Build-UP” programme to encourage underprivileged Filipino households to save money. Under the scheme, customers deposit a minimum amount of 60 pesos a week, which are collected by ASA staff right at their doorsteps, with their savings earning a 7% interest.

The scheme not only encourages poor people to save, but also enables participants to access loans in the future when they start their own micro business or for household use. So far, 45% of ASA’s portfolio comprises clients’ deposits, Tarafder says.

Although gender bonds are still in the early stages of development in Asia’s emerging economies, more issuances of this type are expected in the future. The same is true of social bonds. Tarafder reveals that ASA has put in place a pipeline of social bonds, which it hopes to launch by 2025.