Using Financial Innovation to Accelerate Development
What are IIX Sustainability Bonds?
IIX is committed to developing and implementing an innovative new financial instrument, the ‘IIX Sustainability Bond’ (ISB), structured as a pooled fixed income investment vehicle to support Social Enterprises (SEs) and MFIs to scale their high-impact, revenue-generating programs. ISBs seek to attract new private sector capital to address key development challenges that transform the lives of underserved, economically disadvantaged or marginalized communities. By investing in ISBs, impact investors will have the opportunity to make a direct and tangible impact on the lives of the end beneficiaries. As a publicly traded product listed on the Impact Exchange, the WLB will also allow liquidity based on investor demand. In addition, the product will have transparent financial and social results that will provide a high level of assurance to investors.
Women’s Livelihood Bond (WLB) is the first instrument in the series of IIX’s Sustainability Bonds. The WLB is a $20 million debt security which aims to raise capital for a pool of high-impact SEs and MFIs that will empower over half a million women across Asia to transition from subsistence to sustainable livelihoods.
Why do ISB’s Play an Important Role in Linking Development with Finance?
ISBs effectively address two fundamental challenges in the space:
- Access to Capital for High Impact Organizations: : With access to growth capital via the ISBs, MFIs and SEs will be able to invest in expansion and create scalable and sustainable impact. Sources of impact investment capital currently consist mainly of wealthy individuals, family offices, venture funds and foundations (which combined control less than 5% of global assets1). The ISBs will help connect high impact SEs and MFIs to mainstream investors, such as family offices, corporations, pension funds, and insurance companies, who control 95% of global assets (or $140 trillion2).
- Attraction of Large Pools of Capital via New Funding Routes: ISBs successfully unlock untapped sources of private capital that can be redirected towards achieving development outcomes. ISBs use an innovative financial structure to introduce a new product to address an existing problem (limited sources of mission-oriented capital), and attracts new participants to the impact investing market (primarily from the private-sector).
How do IIX Sustainability Bonds Work?
Organizations with similar financial needs and repayment abilities will be pooled as collective borrowers through a Special Purpose Vehicle (SPV), entering into a formal contract with investors to repay the loan at maturity, with interest paid at fixed intervals over the bond duration. In addition, ISBs allow organizations (underlying issuers) to be pooled together and raise large amounts of capital which they cannot otherwise do in isolation.
IIX Sustainability Bond Mechanism
1“From the Margins to the Mainstream Assessment of the Impact Investment Sector and Opportunities to Engage Mainstream Investors”, World Economic Forum, September 2012
2Allianz estimates about $150 trillion of financial assets globally. http://www.cnbc.com/id/101058356