IFC, BRAC Bank partner to launch housing bond

International Finance Corporation (IFC) will make a subscription of up to $50 million-equivalent Bangladeshi taka (BDT) denominated, five-year senior bond by BRAC Bank to fund and expand its affordable housing finance program.

The move, the first of its kind in the country, is expected to create thousands of new jobs in construction and related industries, according to a statement published by BRAC Bank.

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 IFC’s investment in the country’s first housing bond to be issued by BRAC Bank.

It’s estimated about 80 per cent of people in Bangladesh’s cities live in rented properties all their lives, primarily due to a lack of mortgage finance. Home mortgages only account for three 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.

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 minimal. This causes a surplus in premium housing and a shortage of housing finance and housing units for low and middle-income people.

“This marks a new strategic priority for BRAC Bank, since our establishment in 2001, with our goal to improve access to finance for underserved small and medium enterprises. We, along with IFC, recognize that far too many low and middle-income earners cannot 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 BRAC Bank Managing Director and CEO Selim R. F. Hussain.

As an investor in Bangladesh’s first-ever privately placed housing bond issuance, IFC will help deepen the country’s long-term bond market, which remains underdeveloped.

The project was supported by the Joint Capital Markets Program (J-CAP), a World Bank Group initiative to develop debt capital markets. IFC’s work upstream with J-CAP efforts involved supporting BRAC Bank in structuring and laying the groundwork for Bangladesh’s first-ever housing finance bond.

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, first and foremost helping to tackle the acute need of low and middle-income people to obtain affordable housing finance.”

It is also the first time a foreign investor plans to invest in an onshore local currency bond 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,” said Allen Forlemu, IFC Regional Industry Director, Financial Institutions Group, Asia and Pacific.

Through this initiative, IFC and BRAC Bank jointly aim to demonstrate a commercially viable lending product that caters to the housing finance needs of households belonging to low and middle-income households, promotes inclusive development and creates thousands of new jobs.