World Bank-IFC investing $150M in UnionBank's first social bond

World Bank Group member International Finance Corp. (IFC) is pouring in more than a hundred million dollars worth of investment to Aboitiz-led Union Bank of the Philippines’ first social bond aimed at financing COVID-19 impacted micro, small and medium enterprises (MSMEs).

In a statement on Friday, the IFC said it is investing $150 million in a seven-year social bond to be issued by UnionBank, the country’s seventh-largest private-sector bank.

The bond, which will be issued under UnionBank’s new sustainable finance framework, will be the first social bond by the Aboitiz-led lender and its longest-term US dollar-denominated bond to date.

It is also the second social bond of its kind in the Philippines.

Tens of thousands of jobs are expected to be created over the next seven years through the new social bond, according to the IFC.

It said that proceeds from the bond are expected to finance over 2,000 loans to MSMEs, which have been impacted by the pandemic.

IFC said its investment will also help UnionBank boost financing for MSMEs through its supply chain financing platform, enabled using digital technologies. 

“Our goal in issuing this bond is to support the recovery of MSMEs from the COVID-19 pandemic” said Jose Emmanuel Hilado, chief financial officer of UnionBank. 

“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.

MSMEs account for over 90% of businesses in the country. The sector also accounts for over 60% of pre-pandemic jobs, but MSME loans only accounted for 6% of total bank loans in the country.

This makes increasing access to MSME financing critical to fostering a resilient and inclusive recovery, according to IFC.

“In the wake of the COVID-19 crisis, 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,” said Alfonso Garcia Mora, vice president for Asia and Pacific at IFC.

“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.

IFC said the issuance can also pave the way to open the social bond market in the Philippines, replicating the success of opening the market for green bonds in the country and deepening capital markets for thematic bonds.

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 environmental, social, and corporate governance (ESG) research and ratings company Sustainalytics, it said.

As of the end of fiscal year 2020, IFC said it had issued 53 social bonds in public and private markets in 11 different currencies.

Further, it said that since 2017, its 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. —LBG, GMA News