Rise in Gender Bonds - The Next Generation’s Tool for Social Impact Investing

Written by Aaditi Bhandari (W’27); Edited by Ella Gupta (W’27)

Recently gender bonds have gained traction for their revolutionary ability to serve as a financial instrument that can help reduce gender inequality. Gender lens bonds are an innovation of the 21st century which channel capital from financial markets towards gender-related initiatives. Acting as proceed bonds, which are bonds for social impact, they help to prioritize resources for enterprises that promote gender diversity.

Impact Investment Exchange (IIX) and Asian Development Bank (ADB) are two firms that have been instrumental in promoting the use of gender bonds. IIX issues women’s livelihood bonds, providing capital upfront to young female entrepreneurs, especially those from marginalized communities. Similarly, ADB issues these bonds to women owned enterprises but at the same interest rate as the local banks. This model raises the question of how impactful these bonds are because, although money has been set aside to help reduce the gender gap, the fact that the rates remain the same as local banks means it will be just as difficult for these communities to access these resources. Perhaps this explains the slow adoption of these bonds.

While gender lens bonds have been around since 2010, they have only recently gained popularity. What explains this slow investment? In short, high risks and long term, low returns. For micro-enterprises to scale into businesses that truly can provide returns, it may take years. Since the entrepreneurs often do not have well-developed skills, they require time and mentorship to learn how to grow the business and ensure they are financially profitable for investors. Further, investing in such bonds comes at a high risk because little research has been done on the trends and growth rates of such businesses. As a firm or investor you are investing in the entrepreneur and their potential, or the cause, rather than the monetary potential of the business. For profit-hungry investors these gender bonds simply then aren’t appealing.

What should we do? Invest or not? There are many questions which an investor can raise today regarding these gender lens bonds. Investment in research focused on the growth of such businesses is essential to ensure that these bonds are appealing. The interest rates charged by those who are responsible for issuing these bonds also need to be reconsidered and tailored to the financial situations of the enterprises at hand rather than universally implementing the market rates. Such changes are necessary if these bonds are to ever be effective. Nonetheless, they are still a step towards the right direction to reduce the gender gap. They are a financial instrument to closely watch!