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Philanthropic bond is on the anvil in India

KOLKATA: A bond raised from philanthropic investors who are ready to accept low returns with the objective of promoting social welfare has typically been a western concept, but not anymore, as such a plan is also on the cards in India.

A government-run development financial institution is looking to float this idea and is currently busy “testing the waters".

Western markets used to experiment with such creative financing when they found government funds drying up. For instance, University of Canterbury experimented with $50 million bond in 2009 with philanthropic option for constructing a new building for Biological Science.

If such experiments succeed in India, philanthropy may shape the contours of a new market in Asia's third largest economy.

Small Industries Development Bank of India (Sidbi) is working on such a plan and may soon unveil a Rs 300-crore womens livelihood bond with 3 per cent coupon. The tenure of the bonds will be for five years.

"Many investors have shown interest, and we are targeting high net-worth individuals for the success of it," said SP Singh, general manager at Sidbi. "There are investors who are ready to invest for a social cause with a small return," he explained.

World Bank and UN Women – a United Nations organisation dedicated to gender equality — are providing technical assistance to Sidbi in this initiative.

"We are now testing the market," Singh said. “This will be the first attempt in India to attract private investment for philanthropic purpose,” he said.

Sidbi, it is learnt, is exploring whether corporate social responsibility funds can be part of this initiative. The investment would be attractive despite low returns if the government provides tax breaks on such investment. However, it is not certain at this juncture whether tax breaks will be available or not.

The development financial institution has initiated discussions with wealth managers to market the concept.

Creative financing is making inroads in India. A couple of months back, organisations such as British Asian Trust and UBS Optimus Foundation jointly announced a $11-million development impact bond for improving quality of education in India. Such bonds pave the way for result-based financing whereby investors pay only for successful students.

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