Case Study
Rwanda Issues First-Ever Sustainability-Linked Bond (SLB)
Backed by World Bank’s Innovative Financial Structure
The Development Bank of Rwanda issued its
inaugural SLB through an innovative credit
enhancement mechanism structured andfunded by the World Bank. This sets a scalable
precedent for mobilizing private capital by derisking investor funds while releasing IDA
resources for other projects.
This is the first time a development bank has issued an
SLB globally, the first SLB in the Eastern Africa region,and the first time the Development Bank of Rwanda(BRD) has issued a bond.

Background

According to the United Nations, Africa needs 1.3 trillion
dollars annually to achieve its Sustainable Development
Goals (SDGs) by 2030. That is a formidable task, giventhat concessional financing sources are becoming evermore scarce. Rwanda has incorporated its commitment
to the SDGs in its national development agenda, Vision
2050.
The Development Bank of Rwanda (BRD) has been along-standing partner and has played a crucial role infinancing key development sectors in Rwanda. However,in addition to the borrowings from development
financial institutions and its own capital, BRD requires
mobilizing funding in larger volumes and at attractive
conditions to continue to grow its lending capacity in asustainable manner. In a bid to diversify their funding
sources and mobilize private capital, BRD decided toenter for the first time into the domestic capital market
with the collaboration of the World Bank as a part of theAccess to Finance for Recovery and Resilience Project.

Project and Financial Objectives•••

Help BRD launch its Sustainability-Linked bondissuance program ($24 million first tranche of thebank’s $120 million Medium Term Note (MTN)
program) in alignment with BRD’s strategy andRwanda’s sustainable development goals.
Minimize the overall lending cost to the final
beneficiaries.
Contribute to domestic capital market development.

BRD’s inaugural sustainability-linked bond launch at Rwanda's stockexchange. Photo: BRD

Financial Solution

The World Bank supported BRD with the issuance of thefirst-ever Sustainability-Linked Bond in East Africa.
Unlike other types of sustainable bonds (green, social, orsustainability bonds), the proceeds of sustainabilitylinked bonds are not earmarked for particular projects.
Instead, SLBs reward borrowers with lower interest
repayments for meeting specific key performanceindicators (KPIs) related to sustainable development.
For BRD’s SLB, the key performance indicators include (i)improving environmental, social, and governance (ESG)systems and practices of Participating Financial
Institutions from 0 to 75 percent, (ii) increasing funding
to women-led projects from 15 to 30 percent of thebank’s portfolio, and (iii) financing 13,000 affordable
housing units by 2028. Depending on the number oftargets BRD meets, the coupon payments will decrease
between 0 and 40 basis points
One of the most innovative features of BRD’s
sustainability-linked bond is the credit enhancement
mechanism to decrease the cost of borrowing. To
enhance BRD’s credibility in the market, BRD funded anescrow account ($10 million for the initial issuance), set
up at the National Bank of Rwanda to be used ascollateral in the event of a default by BRD, and to beinvested into risk-free government of Rwanda bonds toreduce the overall cost of the structure. This account isfunded via a loan from the Government of Rwandawhich was financed by the World Bank lending
operation.

Bond Structure and Transaction Details

OutcomeThe bond allowed BRD to diversify its funding
away from government resources. The bond wasoversubscribed drawing demand from 100+
different investors. The credit enhancement andthe SLB features were well received by theinvestors, allowing BRD to provide end borrowers
with new lending at a rate that is half - through thecredit-enhancement, the reinvestment yield andthe coupon step-down - of what it would havebeen if BRD passed through the14 percent terms
from a plain vanilla issuance.
Issued in Rwandan Franc, the bond also reducesrisks due to foreign exchange fluctuations. As thisis the first sustainability-linked bond issuance inRwanda, it contributes to domestic market
development, paving the way for other potential
issuers, including the government itself, andcorporations.
The approach used in Rwanda has the potential to
be scaled up and replicated in other low-income
countries, pushing the World Bank and otherMultilateral Development Banks towards moreinnovative impactful financing solutions.

World Bank’s Role
The World Bank’s Finance, Competitiveness &Innovation Global Practice and Treasury worked
together to:

Project Team
Leyla Castillo, Task Team Leader
Brice Gakombe, Bryan Gurhy,
Fiona Stewart, James Seward,
Laurent Damblat••••••Structure and fund the innovative credit
enhancement mechanism,
Provide technical assistance for defining andcalibrating the key performance indicators,
Support preparation of the SLB framework,
Support the selection of financial and legal advisors
Review key transaction documents, including theinvestor presentation, pricing supplement, andcollateral agreement.
Reach out to potential international investors forinterest

SLB Key Facts
Issue date

October 27, 2023

AmountRWF 30bn ($24 million equivalent)

Tenor

7 years

Coupon/Yield

12.85%

Scenarios

Step-down

1 KPI achieved

0 bps

2 KPIs achieved

20 bps3 KPIs achieved

40 bpsFinance, Competitiveness and Innovation
Global PracticeNiraj Verma, Practice Manager
Long Term Finance Unit
 nverma@worldbank.org

World Bank Treasury
Miguel Navarro-Martin, Manager
Financial Products & Client Solutions
 mnavarromartin@worldbank.org