Pioneering Sustainable and Inclusive Finance

A growing field of innovative financial instruments is unlocking funding for green, sustainable, and inclusive development. In the quest to address pressing global challenges and get back on track to meet the Sustainable Development Goals, innovative financial instruments are imperative. Creative options like investing in sustainability, sustainability-linked, and gender bonds can increase access to finance for projects that align with green, social, and sustainability goals in a resource-constrained world.  

“The loan has enabled me to progress,” explains Tanzanian entrepreneur, Grace Patrick Kimaro. “I’ve had many achievements and been able to pay for my children’s education thanks to running my own business.”  

Sustainability, sustainability-linked, and gender bonds—like the NMB Bank’s Jasiri Bond that helped Grace Patrick Kimaro grow her small business—are a type of financial instrument designed to encourage the issuer to achieve certain social or green objectives. Issuers apply the proceeds from the bond to fund certain types of businesses or projects—improving sustainability outcomes, such as improving women’s access to employment opportunities or reducing GHG emissions.   

Despite growing investor appetite, a gap remains in the availability of these financial instruments, especially in new markets. The World Bank Group, through the International Development Association (IDA) and its Private Sector Window (PSW), is helping to establish sustainability, sustainability-linked, and gender bonds in local currency as credible capital market solutions to finance green, sustainable, and inclusive investments.  

IDA is the part of the World Bank Group that helps the world’s low-income countries. The PSW is an innovative tool that allows IDA to work closely with the Bank Group’s private sector arms—the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA)—to leverage resources and help mobilize sustainable private sector investment in the poorest and most fragile markets. With support from the IDA PSW, IFC is expanding the use of sustainability, sustainability-linked, and gender bonds into some of the most challenging markets—simultaneously reducing the pressure on the scarce public resources available to finance sustainable infrastructure and climate resilience and promoting environmentally friendly, sustainable, and inclusive investments.  

Rwanda’s Trailblazing Sustainability-Linked Bond 

In September 2023, the Development Bank of Rwanda made history by issuing a sustainability-linked bond—the first of its kind in East Africa and the first issued by a national development bank globally. Supported by IDA, the bond's key performance indicators are aimed at improving the environmental, social, and governance systems of partner financial institutions; increasing financing for women-led small and medium-sized enterprises; and financing more affordable housing. Issuing the bond in local currency further reduces foreign exchange risks and bolsters Rwanda’s local capital markets. 

Not only does the Development Bank of Rwanda’s sustainability-linked bond promote sustainable development goals, but it also supports the growth of the local financial market by attracting domestic investment and setting a powerful example for other potential issuers in the region. 

Tanzania: Expanding Green and Gender Finance 

With support from the IDA PSW, IFC has invested in NMB Bank’s local currency sustainability bonds to help expand financing for green, social, and sustainability projects in Tanzania. Proceeds from the sustainability bonds issued by NMB Bank finance a range of projects that help protect the environment and decrease greenhouse gas emissions.  

The bonds from NMB Bank, aligned with the Social Bond Principles of the International Capital Markets Association, were issued in both Tanzanian shillings and U.S. dollars, raising $159 million. The proceeds from these bonds are allocated to a range of projects aimed at environmental protection and social responsibility, including renewable energy, energy efficiency, sustainable water management, green buildings, clean transport, and affordable housing. The bonds allow NMB Bank to increase the number of loans extended to micro-, small-, and medium-sized enterprises by almost 50 percent by 2027 by targeting small businesses participating in qualifying green and social projects. Further, at least 3,200 new jobs over four years are expected to be created by projects and businesses funded by bond proceeds. 

With the support of the PSW, IFC has also invested in sub-Saharan Africa's first Gender Bond, issued by NMB Bank. The bond will finance over 2,000 women-owned small- and medium-sized enterprises in Tanzania—just like Grace Patrick Kimaro’s business—creating jobs and enhancing sustainable economic growth. The bond bridges critical funding gaps, as approximately 75 percent of women-owned businesses in the country don’t have access to the finance that they need. 

Improving Digital Infrastructure in Senegal 

In Senegal, local currency denominated financing to Sonatel, a leading mobile network operator in West Africa, is helping to improve digital infrastructure, and connect even the most rural areas. IFC, with support from the PSW, provided anchor investments in two bonds issued by a securitization vehicle of Sonatel. Proceeds from the bonds, the first securitization in West Africa's telecommunications sector, support Sonatel's expansion of 4G coverage and fiber connectivity in rural parts of Senegal, increase bandwidth, and improve digital infrastructure, supporting job creation, including in the digital economy. The investments provide a replicable and scalable model to stimulate economic growth and advance digital technologies, which support efficiency, digital access, and productivity across the continent.  

Lessons for the Future  

The experiences of Rwanda, Tanzania, and Senegal offer valuable lessons for the global market. These examples demonstrate how innovative financial instruments can align financing with sustainability and social goals, illustrating the potential for such instruments to drive significant improvements in environmental, social, and governance practices and support broader economic and social development objectives. 

To scale these innovations, donors and development finance institutions can play a critical role in fostering these initiatives. By leveraging successful models and addressing existing challenges, we can unlock the full potential of sustainable finance and advance inclusive and long-term economic growth.