According to its Nationally Determined Contributions (NDCs) under the Paris Agreement, Rwanda needs around $11 billion by 2030 to achieve its mitigation and adaptation targets.

The Development Bank of Rwanda (BRD) plays a crucial role in financing development sectors in Rwanda. However, BRD's funding sources have been limited to its capital, sourced primarily from multilateral development banks, and other development financial institutions.

In a bid to diversify its funding sources and mobilise private capital, BRD decided to enter the domestic capital market for the first time and issue its inaugural bond as a sustainability-linked bond (SLB) in September 2023.

In addition to being BRD's first bond issuance, it was the first SLB issued in Rwanda and East Africa and marks the first time a national development bank has issued an SLB globally.

The objectives of the FRW30 billion ($ 24.8 million) maiden SLB issuance were to align BRD's strategy and Rwanda's sustainable development goals; to minimise the overall lending cost to the final beneficiaries, and contribute to the domestic capital market development, specifically the sustainable finance market.

The three key performance indicators (KPIs) underpinning the SLB structure included (i) Increasing the percentage of BRD's Participating Financial Institutions (PFIs) implementing environmental and social management standards (ESMS) from 0 to 75%, (ii) increasing the share of loans to women-led SMEs from 15 to 30% of the bank's SME portfolio, and (iii) financing 13,000 affordable housing units by 2028.

The bond has a step-down coupon feature. Depending on the number of targets BRD meets, the coupon payments will decrease on a sliding scale between 0 and 40 basis points.

Separately, the bond also has a partial credit enhancement mechanism, which reduces credit risk. It also helped in minimising borrowing costs and supported lower on-lending interest rates from BRD. BRD reports that the combined impact of the credit enhancement mechanism, the reinvestment yield, and the coupon step-down meant that the institution could provide end borrowers with new lending at a rate that was half of what it would have been for a plain vanilla issuance.

BRD funded an escrow account ($10 million for the initial issuance) set up at the National Bank of Rwanda, to be used as collateral in the event of a default and invested into Government of Rwanda bonds. This collateralisation was financed by the World Bank's International Development Association.

The SLB issuance was oversubscribed and BRD reported diverse participation from over 120 investors across local pension funds, asset managers, insurance companies, microfinance institutions, banks, unit trust schemes and retail investors. The SLB issuance is listed on the Rwanda Stock Exchange.

In January 2024, BRD announced that half of the SLB proceeds would be used to improve public transport in Kigali and contribute to the overall objective of creating sustainable and liveable cities.

BRD's hopes that its approach will be scaled and replicated in other low-income countries, pushing the financial ecosystem towards more innovative and impactful financing solutions.

Kampeta Sayinzoga, CEO of BRD, commented: "By issuing its first bond ever, BRD is effectively diversifying its source of development finance by tapping into the local capital market for the first time. This will ensure that BRD is no longer solely reliant on international credit lines thereby expanding its resource mobilisation efforts.

"By partnering with the World Bank and the Ministry of Finance and Economic Planning, BRD also leads the way in leveraging innovative yet transformative blended finance instruments for Sustainable Development Goals investments."