Japan with its cash rich investor base and an aging population is an ideal place for SIB projects to be funded. Today’s story is a fascinating discussion of the topic…
More private Japanese investors are buying bonds to support causes such as economic growth in developing countries and helping curb global warming, attracted by high yields and the idea of contributing to society.
The bonds are issued by financial institutions such as the World Bank and the Asian Development Bank to raise capital for projects that alleviate poverty and address environmental problems. The bond-issuing organizations invest the funds into corporations and governments of developing nations, and pay interest to investors twice a year until maturity, at which investors are paid the principal.
While subject to default risk, there have been no such cases just yet. Furthermore, the social impact bond model guarantees that the bond-issuing organization repays investors in the case of a default.
Dutch financial giant Rabobank Nederland issued Agri Bonds – aimed at supporting agriculture in developing countries -. Twice this year to Japanese investors, raising 39.6 billion yen Rabobank has supported various efforts in the past, including lending to cocoa farmers in the Ivory Coast to improve soil and product quality.
Meanwhile, the International Finance Facility for Immunization (IFFIm), established for the purpose of providing vaccines to children in developing countries, issued 12.9 billion yen worth of bonds to Japanese investors this past March. Vaccine projects do not generate profits, and donations from the British and French governments cover the principal and interest.
Social impact bonds became available to private Japanese investors in 2008, starting at a minimum of around 1 million yen. This year 104.1 billion yen worth of such bonds have been issued thus far, while sales reached 116.9 billion yen and 107.8 billion yen in 2012 and 2011, respectively.
According to Sayaka Ikegami of the sales department at Daiwa Securities Group, which has sold some 65 percent of social impact bonds issued in Japan, most of the investors have been middle-aged or the elderly. “We hope that younger investors will take an interest in these bonds, “she said.
Foreign currency bonds – which many social impact bonds are -. Can result in a yen-base loss of principal for investors if the yen grows stronger after purchase The currency values of emerging nations have been inclined to drop, and yet social impact bonds are growing in popularity. As for the reason, Ikegami explains, “Many investors are predicting that in the mid-to long-term, the economies of newly developing countries will strengthen, weakening the yen.”