There is no one fixed definition but in general terms, a social bond is the one which is issued for the purpose of providing support to the underprivileged strata of society, or for any other purpose to improve the lot of the neglected ones, and the investors get the benefit only if the project is successful. As such, it is clear that the social bond is not a charitable investment nor is it some sort of donation but a commercially-oriented financial instrument.
So what is the spirit behind the social bond? It is to raise non-governmental funding to be deployed for socioeconomic causes or areas covered under the United Nations Development Programme sustainable development goals since there is always budgetary constraint to provide for such areas. It is seen that governments often look up to developmental agencies to chip in for socio-economic purposes. In some cases, it has been seen that governments provide a guarantee to pay back to investors provided the project for which the funds are raised embraces a certain degree of success.
The major issue with social bonds is that it is hard to find investors who are looking for some sort of yield from their investment. The size of social bonds is trivial compared with normal issuances since small money is diverted to buy them. Many organizations indulge in buying these bonds to fulfill their corporate social responsibility but such generosity is loaded with media coverage.
The phenomenon of social bonds is not very old; in fact it is not even as old as the story of Islamic banking. However, the concept behind it has been in practice in Islam since its dawn in 7th century AD. There is always the thought of helping the most vulnerable members of society in all Islamic teachings, particularly connected to dealing with trade, money and finance.
Most readers must know the institution of Zakat in Islam. Not only that every individual Muslim man and woman must take out a tiny part of his or her wealth which is 2.5% every lunar year but he or she is encouraged to pay over and above this threshold by way of voluntary charity which is called Sadaqah. On Zakat, a renowned Islamic economist and scholar had recently commented that if every Muslim takes it out conscientiously, soon there would be no poverty in the entire world. He based the assessment on the wealth held by Muslims all over the world besides God’s promise to reward the Zakat money by increasing the giver’s wealth manifold.
In addition to Zakat, Islam provides many other incentives to help the poor and downtrodden. In this connection, I would like to mention the anti-slavery approach where if a Muslim makes a mistake in fulfilling any religious duty, he or she can purify it by paying for the release of a male or female slave. This helped free scores of slaves since slavery was rampant in the Arab society at the time. However, if he or she cannot afford to make such a payment, there is an alternative to feed a certain number of poor people.
Apart from the necessity to pay in order to purify a worshipping act, there are many sayings of Prophet Mohammed wherein he has emphasized to take care of the most-needy participants of society. I would like to mention one, the gist of which is that he is not from among us who eats adequately but his neighbor sleeps hungry. And the definition of neighbor is not the one on your left or right or in front but from among the entire community. So you are required to scan for the hungry starting from the immediate neighborhood and going beyond until you find one.
Another glorious example is Qard Hasan or an interest-free loan which is provided to a financially constrained person and the return of which is voluntary for the receiver.
Coming back to social Sukuk, an example is the US$1.5 billion Sukuk that was issued in June 2020 by the IsDB and the proceeds were utilized for providing COVID-19-related relief to member Muslim countries under the social projects category. It helped the countries in managing the aftermath of the pandemic in healthcare and SME sectors and was issued in terms of the bank’s US$2.3 billion aid package.
The purpose of this educative series and the article is not to hurt any religious or commercial sentiments either consciously or even unwittingly.
Next week: More on social Sukuk.