Dhaka, Bangladesh (CU)_ The International Finance Corporation teams up with Brac Bank Limited to offer housing bonds worth US$ 50 million for the first time in Bangladesh in order to provide cost-effective housing loans to low and middle-income communities in urban and rural areas. According to a joint statement from the two organizations, “Thousands of low- and middle-income urban and rural families in Bangladesh, often underserved by commercial banks, are expected to take affordable housing loans through the IFC’s investment in the country’s first housing bond, to be issued by BRAC Bank”.
According to a news statement from IFC, for the first time in Bangladesh, the IFC will subscribe to a five-year, $50 million-equivalent Bangladeshi taka-denominated, senior bond issued by Brac Bank to support and extend its cost-effective housing financing program. It is anticipated that this initiative would generate thousands of new employment opportunities in construction and related businesses.
As an investor in Bangladesh’s first privately placed housing bond offering, the IFC will assist in building the nation’s undeveloped long-term bond market. According to reports, over 80% of city residents in Bangladesh do not own a house, owing to a lack of mortgage financing. Only three percent of the loan market in Bangladesh is comprised of home mortgages, which is lower than the average of 4.9% in South Asia and 8.9% in developing markets.
Majority of financial institutions offer home finance to those with higher incomes, whereas low- and middle-income groups have relatively limited access to formal housing loans. This results in an excess of luxury homes and a lack of both housing financing and housing units for low- and middle-income individuals. According to Selim R F Hussain, managing director and CEO of Brac Bank, “We, along with IFC, recognise that far too many low and middle-income earners simply cannot access the funds they need to buy a home. Now people of semi-urban areas can also fulfill their dream of owning a house with our affordable home mortgage facilities”.
The project was backed by the Joint Capital Markets Programme (J-CAP), an effort of the World Bank Group to promote debt capital markets. The IFC supported Brac Bank in structuring and setting the foundation for the bond in Bangladesh as part of its upstream engagement with J-CAP. In addition, the investment is backed by the local currency facility of the International Development Association’s Private Sector Window via a US dollar/BDT cross-currency exchange to allow local currency loans.
Allen Forlemu, IFC Regional Industry Director, Financial Institutions Group, Asia and Pacific, said, “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”. He added, “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.”
