Business Times

Social impact bonds mooted to help thousands of entrepreneurs

In the constant search for self-financing and cheap credit, a new kind of bond called ‘social impact bonds’ aimed at raising capital to provide cheap micro credit to thousands of small entrepreneurs and other needs in rural Sri Lanka has been mooted by a NGO professional.

Jeevan Thiagarajah, Executive Director of the Consortium of Humanitarian Agencies, in a proposal to the Ministry of Finance has suggested the creation of social impact bonds. He says under this the initial objective is to attract contributions of Rs.5, 000 from one million citizens who would receive annually 2 % interest on their investment which will be the initial capital of the fund.

As an incentive the government may consider permitting the investment made in this connection as a deduction from the assessable income in arriving at the taxable income of individuals. He suggested that this contribution be permitted for a maximum of five years. Corporates successful in floating IPO”s and other bonds could be invited to promote the issue.

The funds, he said, will be utilized to provide low cost credit to homes, micro credit and education grants
Providing low cost credit for homes - It is proposed to construct or assist in constructing homes at Rs. 400,000 per unit at 6 % interest per year. The objective is to provide low cost credit for homes builders in five years = Total value of investment loans (Rs 15 billion + Rs 4.4 billion -from repayments and interest payments). Some 48,559 houses in total at Rs 400,000 per borrower can be supported.

viding micro credit – The objective is to provide Rs 40,000 to low income families in five years at 6 % interest to be repaid in two years. Group borrowings will be entertained. Total investment = Rs 6 billion+ Rs 6 billion and 302,309 beneficiaries. A further incentive maybe for the fund is to earmark annual interest payments from borrowers to support local group lending by thrift and savings societies set up by borrowers.

Education grants – To be used to support post O/L and A/L students who need start-up capital to enter higher education educational skills streams which provide employable skills and knowledge. The objective is to provide grants for post O/L and A/L students from low income families for higher education in five years. This means Rs 7.5 billion for 125,000 students in five years.

Cost of administration per annum at 5 % = Rs 1.5 billion
A sum of Rs 100 million will be earmarked every year to support health insurance premiums to meet specialized outpatient health care for elders among poor, children below five years of age, families with more than two children below five for family cover and the disabled poor.

Operation of the loans -The loans in this connection could be disbursed by selected Samurdhi staff along with commercial banks. Management- A non-profit, public-private sector partnership as Trust Company. The Trust could be dissolved in 10-years.

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