For a nation seeking emancipation from the long-time classification of “Third-World Country”, it is important that we not only intensify our focus on infrastructural development but also devise innovative means of ensuring that our social problems are addressed promptly.

The Securities and Exchange Commission (SEC), on the 7th of June 2021, published its “Proposed New Rule on Social Bonds–June 4, 2021.” (the “Rule”). Social bonds are a relatively new type of financial security that creates funding for public sector projects primarily aimed at achieving better social outcomes within the society.
Since the first social impact bond in 2010 by a UK-based Social Finance company, Social Bonds have continued to grow in their application and utility globally and with the proposed Rules, will soon be introduced to the Nigerian capital market.
We have set out below, some key provisions in the proposed Rule and made recommendations for its practical application in Nigeria.

What is a Social Bond?

It is a type of debt instrument, where the proceeds would be exclusively applied to finance or refinance new and/or existing eligible projects with clear and identifiable social objective(s) and which are dedicated to an identified population.”

Who is to issue a Social Bond under the Rule?

Though not explicitly mentioned in the proposed Rule, the public sector would typically issue Social Bonds, however, nothing precludes private sector organisations from issuing them.

How is a Social Bond issued under the Rule?

SEC General Rules and Regulations for debt issuance are to be followed for the issuance of a Social Bond. In addition, certain other conditions are required to be satisfied for approval including; (i). A letter committing to invest proceeds for the bond in social projects; and (ii). Feasibility stating the benefits of the project.

What are the eligible Social Projects under the Rule?

These include (i) Affordable basic infrastructure; (ii) Access to basic services; (iii) Affordable housing; (iv) Job creation including through the potential effect of small and medium-sized enterprises; (v) financing and microfinance; (vi) food security; and any other social project as may be approved by the SEC from time to time.”

Who is the target population for Social Projects?

Social Projects should be dedicated to one or more of the following identified target populations: (i). people living below the poverty line; (ii). excluded and/or marginalised populations and/or communities; (iii). vulnerable groups; (iv). people with disabilities; (v). migrants and/or displaced persons; (vi). undereducated population; and (vii). underserved population, due to lack of access to essential goods and services and (viii) unemployed persons.

How are proceeds to be utilized?

Proceeds of Social Bonds are to be used solely for purposes set out in the offer document and domiciled with a custodian in an escrow account. Unallocated proceeds are to be invested by trustees in the money market instruments aimed at positive social outcomes but not exclusively for the target population.


Social Bonds are a welcome opportunity for private and public sector partnership, and this is particularly welcome in Nigeria to deal with social issues which have been a barrier to economic development. For the proposed Rule to however have the intended impact, it would need to be improved upon to clarify ambiguities, for instance, the Rule does not state; (i). what sort of returns are to be received by investors; and (ii) Rule 4 (d) despite stating how unallocated proceeds will be invested in the money market, does not state who would benefit from the returns on the investment.

Lastly, foreign models sometimes do not apply locally. The practicality of implementing Social Bonds in Nigeria requires that they be modeled to add value to the Nigerian social fabric, and also yield profits for investors (as an incentive for such investments). One way to achieve this is by the issuance of Social Bonds that create jobs and at the same time generate revenue for investors and the government alike. For example, Social Projects that are tied to the agricultural sector.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.