Thousands of low and middle-income urban and rural families in Bangladesh, often underserved by commercial banks, are expected to be able to take out affordable housing loans through IFC’s investment in the country’s first housing bond to be issued by BRAC Bank.

In a first for the country, IFC will make a subscription of up to $50 million-equivalent Bangladeshi taka (BDT) denominated, five-year senior bond by BRAC Bank to fund and expand its affordable housing finance program.

The move is expected to create thousands of new jobs in construction and related industries, said the International Finance Corporation (IFC) in Dhaka on Monday.

It’s estimated about 80 percent of people in Bangladesh’s cities live in rented properties all their lives, mostly due to lack of mortgage finance. Home mortgages only account for three percent of the loan market in Bangladesh, below the average of 4.9 percent in South Asia and 8.9 percent in emerging markets.

Most financial institutions focus on providing housing finance to the higher-income people, while access to formal housing loans for low and middle-income segments is very limited. This causes a surplus in premium housing and a shortage of both housing finance and housing units for low and middle-income people.

“This marks a whole new strategic priority for BRAC Bank, since our establishment in 2001, with our goal then to improve access to finance for underserved small and medium enterprises. We, along with IFC, recognize that far too many low and middle-income earners simply cannot access the funds they need to buy a home. Now people of semi urban areas can also fulfill their dream of owning a house with our affordable home mortgage facilities,” said Selim R. F. Hussain, BRAC Bank Managing Director and CEO.

As an investor in the first ever privately placed housing bond issuance in Bangladesh, IFC will help deepen the country’s long term bond market which remains underdeveloped.

The project was supported by the Joint Capital Markets Program (J-CAP), a World Bank Group initiative to develop debt capital markets. IFC’s work upstream with J-CAP efforts involved supporting BRAC Bank in structuring and laying the groundwork for the first ever housing finance bond in Bangladesh.

The investment is also supported by the local currency facility of the International Development Association’s Private Sector Window through a US dollar/BDT cross-currency swap to facilitate local currency lending.

“This innovative deal marks an important milestone in the development of the domestic long-term bond market and offers multiple benefits for Bangladesh, with first and foremost helping to tackle the acute need of low and middle-income people to obtain affordable housing finance. It is also the first time that a foreign investor plans to invest in an onshore local currency bond to be issued by a local private institution to finance housing. It thendemonstrates opportunities for new foreign and local investors to invest in such thematic bonds in the domestic corporate bond market,” said Allen Forlemu, IFC Regional Industry Director, Financial Institutions Group, Asia and Pacific. Through this initiative, IFC and BRAC Bank jointly aim to demonstrate a commercially viable lending product that caters to the housing finance needs of households belonging to low and middle-income household, promote inclusive development and create thousands of new jobs.

IFC—a member of the World Bank Group—is the largest global development institution focused on the private sector in emerging markets. While the BRAC Bank Limited, traded as ‘BRACBANK’ on Dhaka Stock Exchange, has been one of the fastest-growing banks in Bangladesh with a particular focus on the SME segment.