First-ever housing bond launched
Thousands of low and middle-income urban and rural families in Bangladesh, often underserved by commercial banks, are expected to be able to take out affordable housing loans through the International Finance Corporation's investment in the country's first housing bond to be issued by Brac Bank.
The IFC will make a subscription of up to $50 million-equivalent Bangladeshi taka denominated, five-year senior bond by Brac Bank, in order to fund and expand the Bangladeshi lender's affordable housing finance programme, said the private sector lending arm of the World Bank Group in a press release yesterday.
The move is expected to create thousands of new jobs in construction and related industries.
It's estimated that about 80 per cent of people in Bangladesh's cities live in rented properties all their lives, mostly due to a lack of mortgage finance. Home mortgages only account for 3 per cent of the loan market in Bangladesh, below the average of 4.9 per cent in South Asia and 8.9 per cent in emerging markets.
This is because most financial institutions focus on providing housing finance to higher-income people, while access to formal housing loans for low and middle-income segments is very limited. This causes a surplus in premium housing and a shortage of both housing finance and housing units for low and middle-income people.
"We, along with the IFC, recognise that far too many low and middle-income earners simply can't access the funds they need to buy a home. Now people of semi-urban areas can also fulfil their dream of owning a house with our affordable home mortgage facilities," said Selim R F Hussain, managing director of Brac Bank, in the press release.
As an investor in the bond, the IFC will help deepen the country's long-term bond market which remains underdeveloped, according to the press release.
The investment was supported by the Joint Capital Markets Programme (J-CAP), a World Bank Group initiative to develop debt capital markets. The IFC's work upstream with J-CAP efforts involved supporting Brac Bank in structuring and laying the groundwork for the bond in Bangladesh.
The investment is also supported by the local currency facility of the International Development Association's Private Sector Window through a US dollar/BDT cross-currency swap to facilitate local currency lending.
"This innovative deal marks an important milestone in the development of the domestic long-term bond market and offers multiple benefits for Bangladesh, with first and foremost helping to tackle the acute need of low and middle-income people to obtain affordable housing finance," said Allen Forlemu, regional industry director of financial institutions group at the IFC for Asia and the Pacific.
"It is also the first time that a foreign investor plans to invest in an onshore local currency bond to be issued by a local private institution to finance housing. It then demonstrates opportunities for new foreign and local investors to invest in such thematic bonds in the domestic corporate bond market."