KARACHI: The subscription for Pakistan’s first gender bond, which will help a microfinance provider raise Rs2.5 billion for onward lending, will be complete in the next “four to six weeks”.

Speaking to a group of reporters on Tuesday, InfraZamin Pakistan CEO Maheen Rahman said the privately placed bond will subsequently be listed on the Pakistan Stock Exchange within 180 days.

InfraZamin, which is a credit guarantee provider backed by international development financial institutions, has joined hands with microfinance player Kashf Foundation to bring the country’s first gender bond to institutional capital market investors.

Kashf will use the funds for lending exclusively to women for the development of micro-infrastructure such as rural area school construction, flood rehabilitation of damaged homes and expansion of women-led micro-businesses.

A bond must fulfil certain global standards to be categorised as a gender bond. Only a handful of gender bonds had been floated internationally, Ms Rahman said, adding that the Pakistani bond will “probably” be the first of its kind in South Asia as well as the Middle East.

Kashf Foundation will extend Rs2.5bn loans exclusively to women

The instrument carries an InfraZamin credit guarantee of 100 per cent of the principal amount and a partial guarantee for the interest instalments. The bond is priced at three-month Karachi Interbank Offered Rate (Kibor) plus a 1.5-percentage-point spread. The InfraZamin guarantee is irrevocable and unconditional, which means it’ll pay all amounts covered by the guarantee facility in any credit event.

The long-term rating of Kashf is ‘A-’, which means its debt instrument without a credit guarantee wouldn’t be subscribed to by many institutional investors like mutual funds. Even if the microfinance provider was able to find institutional subscribers for its bond without a credit guarantee, the interest rate would be significantly higher given its less-than-perfect credit rating.

“We spent almost a year doing due diligence and only then decided to extend a guarantee. We’re an ‘AAA-rated entity, and our guarantee means investors don’t have to worry about any default risk,” she said.

The bond proceeds will help Kashf, which already has 700,000 active women clients, support 30,000 women from low-income households to develop micro-infrastructure.

Recent amendments to regulations by the Securities and Exchange Commission of Pakistan have also facilitated credit risk mitigation by allowing an 85pc exemption to non-banking finance companies for exposures against InfraZamin’s guarantees.

This is the second transaction by InfraZamin, which received its licence to operate in 2021. Earlier, it helped an internet company obtain a loan of Rs2.1bn from Habib Bank Ltd by extending a guarantee for Rs1.5bn.

Ms Rahman said about seven to 10 mutual funds, in addition to a few pension funds and insurance companies, have shown interest in subscribing to the gender bond.

Arif Habib Ltd has served as the “arranger” for this bond.

Published in Dawn, July 5th, 2023