What are Social Bonds?

Written by : Pocketful Team

Updated by : Pocketful Team

Published on : 8th September 2025

Updated on : 8th September 2025

Investing today is no longer just about chasing higher profits. Many investors are also seeking ways to create a positive impact on society. Social Bonds have become one such modern investment vehicle that offer financial returns as well as an opportunity to participate in social development. Whether it is education, health or helping the poor, investments made through these bonds directly support communities that need them the most.

In this blog, we will explore how social bonds work, the benefits they offer, and how they are reshaping the future of finance.

Social Bonds are a type of debt instrument used to raise capital for social welfare projects. They are issued by governments, companies or international organizations, and the money raised from them is invested only in projects that aim to generate social impact.

The main objective of these bonds is to invest in sectors that directly benefit the weaker sections of the society. The major focus areas include:

Affordable Housing
Primary education and digital literacy
Public health and hygiene
Employment generation for the unemployed
Women empowerment and support to the elderly

Comparison with Green Bonds and Sustainability Bonds

While Green Bonds focus on environmental projects such as renewable energy, Social Bonds prioritise social development. Sustainability Bonds are a mix of the two they cover both environmental and social projects.

These bonds can be issued by many entities:

Government bodies
Public & Private Corporations
Multilateral Institutions such as the World Bank, IFC etc.

Example : In 2020, IFC significantly expanded its social bond program, issuing $1.6 billion across 11 bonds to support businesses and vulnerable groups during COVID-19. This brought IFC’s cumulative social bond issuance to over $3.8 billion since the program began in 2017.

Read Also: What Are Corporate Bonds?

Social bonds follow a set process that focuses on transparency, purposeful funding, and social impact. Below is a simple process to explain how they work:

Issuers : Social bonds can be issued by a range of entities such as governments, public and private banks, large companies, and development agencies to raise funds for social welfare projects.
Investors : These bonds are typically funded by institutional investors such as mutual funds, pension funds, insurance companies, and ESG (Environmental, Social, Governance)-focused investors. In some cases, retail investors also have indirect access.
Fund Allocation & Process : Money raised through social bonds is invested in pre-determined social projects such as affordable housing, education, healthcare, women empowerment, etc. There is regular reporting and monitoring so that investors are clear that the funds are being used in the right place.
Certification & Guidelines : Most social bonds are issued in accordance with ICMA (International Capital Market Association) Social Bond Principles (SBP). These principles ensure that:
- Fund utilisation is transparent
- Monitoring and reporting is done at every stage
- Social impact is assessed
Returns + Impact : Social bonds usually offer market-competitive returns, i.e. the returns are the same as any other corporate or government bond. But there is an added benefit that your money also brings about social change.

The aim of social bonds is not just to invest but to bring about positive change in the areas of society where it is needed the most. These bonds specifically fund projects that address the following key social needs

Affordable Housing Scheme: These bonds fund the redevelopment of urban slums and affordable housing projects in rural areas.
Education and Digital Literacy: Improvement of government schools, expansion of e-learning facilities and giving scholarships to needy students are part of them.
Health Services: They contribute to the preparation of rural health clinics, maternal-child health schemes and emergency facilities during epidemics.
Help to the weaker sections: Support schemes are started for the LGBTQ+ community, the elderly, migrant laborers and the disabled.
Small industries and employment: MSMEs get easy finance and skill development programs for the youth are supported.
Disaster Relief: Social bonds also play an important role in relief and rehabilitation operations during natural disasters.

Read Also: Benefits of Investing in Bonds

Social bonds provide financial support to social projects, but each party benefits at different levels.

Benefits for Investors

Just like traditional bonds, fixed income is accompanied by a meaningful purpose.
Including them in an ESG portfolio also highlights the investor’s social responsibility.
A strong option for diversification especially for investors with a long-term vision.

Benefits for Issuer

A reliable way to raise new capital, that too from investors who value social values.
Improves the brand value and public image of the institution, especially when it uses funds transparently.
Helps maintain investor confidence in the long term.

Impact on society

Funds are directed to underserved communities in areas like education, healthcare, and housing.
Local employment, women empowerment, and upliftment of underprivileged communities.

Contribution to the economy

Social stability and increased productivity provide long-term benefits to the economy.
The government gets help from private investment for social schemes, which reduces the financial burden.

Investing in social bonds is slowly gaining popularity in India, especially among investors who are looking for safe returns along with social change. Here’s how:

Via public issue or private placement : Some government entities (like NABARD, NHAI, REC etc.) or corporates issue social bonds from time to time. You can buy them:

Via bonds listed on BSE/NSE (if available for retail)
Via private placement through SEBI registered brokers or dealers

Via ESG or Social-Themed Mutual Funds : As of now, direct access to social bonds for retail investors is limited, but several AMCs (like SBI MF, Axis MF, ICICI Prudential) are running mutual funds that invest in bonds with a social or ESG framework.

Social Bonds may serve a good social purpose, but it is important to understand some of their potential risks before investing:

Social Impact Risk : The purpose of these bonds is to bring positive change in the society. But many times these projects do not reach the stipulated time or impact target. If social goals are not met, it can affect investor confidence.
Credit Risk : Social Bonds are mostly issued by government agencies or companies. If the issuer’s credit rating is weak or the company falls into a financial crisis, there is a risk of default.
Transparency Risk : Reporting and tracking of social impact is necessary in every bond issue. But reporting standards are not the same in many countries, including India, which can make it difficult to get the right data.
Liquidity Risk : Social Bonds are not always liquid in the market. That is, if you need and want to sell the bond, it may be difficult to find an immediate buyer.
Regulatory Risk : SEBI and other regulatory bodies are making guidelines for social bonds, but these rules are still evolving. Regulatory changes in the future may affect your investment.

Conclusion

Social Bonds are an investment option that goes beyond just profits and connects your money to a purpose. These bonds are for those who want to be a part of social change through their investments. Their scope is gradually increasing in India, and both their demand and transparency are expected to improve in the future. If you do not want to limit your investment to just returns, then Social Bonds can be a powerful and meaningful way.

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