Social bonds

Conditions for issuance of social bonds


On 29 October 2021, the Securities and Exchange Commission (SEC) introduced new rules in relation to the issuance of social bonds in Nigeria (the Social Bond Rules). The Social Bond Rules contain provisions defining:

  • what social bonds are;
  • the types of projects eligible for social bonds;
  • conditions for approval; and
  • how the proceeds of the bonds should be utilised.

This article highlights the notable provisions of the Social Bond Rules and their impact on the Nigerian capital markets.

Social bonds

The Social Bond Rules define a "social bond" as a type of debt instrument, where the proceeds are exclusively applied to finance or refinance new and/or existing eligible projects:

  • with clear and identifiable social objectives; and
  • which are dedicated to a target population.

Such eligible projects directly aim at addressing or mitigating a specific social issue in order to achieve positive social outcomes, whether or not exclusively, for a target population. To qualify as a social bond, the proceeds from the bond must be used to finance eligible social projects, which include projects focused on:

  • improving access to basic infrastructure and services;
  • food security;
  • housing;
  • job creation;
  • access to education;
  • healthcare; and
  • other forms of socio-economic advancement and empowerment.

The SEC may also approve any other eligible social project from time to time.

The Social Bond Rules further prescribe the target population to which the eligible social projects must be aimed. These include:

  • people living below the poverty line;
  • vulnerable groups;
  • undereducated people;
  • unemployed persons;
  • migrants or displaced persons;
  • people with disabilities; and
  • other target populations as may be included in the Social Bond Principles, which are updated from time to time by the International Capital Markets Association.

Conditions for issuance of social bonds

The Social Bond Rules prescribe the conditions under which the SEC will approve the issuance of social bonds in Nigeria. These conditions are to be discharged, in addition to the general registration requirements for debt issuances under the SEC Rules and Regulations 2013. Furthermore, the Social Bond Rules define the manner in which the proceeds of a social bond issuance should be utilised. The net proceeds of a social bond issue shall:

  • only be utilised for the purposes stated in the approved offer documents;
  • be tracked as stated in the approved internal policy of the issuer, which shall be disclosed in the offer documents; and
  • be domiciled with a custodian in an escrow account specifically opened for the net proceeds.

The trustees and issuer of the bonds are required to be signatories of the escrow account that is specifically opened for the net proceeds. The trustees and issuer must also ensure that the net proceeds are utilised or invested in the social projects within the given timeframe prescribed in the prospectus.

In the event that there are unallocated proceeds, such proceeds should be invested by the trustees in money market instruments with investment grade rating. This may include projects that are consistent with the delivery of positive social outcomes, though not exclusively targeted towards a specific population.

Once a social bond has been issued, but is still outstanding, the Social Bond Rules provide that the issuer must provide, on an annual basis, a social bond report, containing the list of projects and assets to which proceeds have been allocated for the duration of the bond, to the SEC and the securities exchange where the bond is listed. The issuer is also obliged to make the social bond report available to the trustees for inspection.

Where an issuer intends to use the proceeds from a social bond to refinance an already existing social project, the issuer is required to disclose the details of such projects identified for refinancing in the offer documents. An issuer is also at liberty to appoint a qualified external review provider to verify that the proposed bonds to be issued comply with Social Bond Principles from the International Capital Markets Association.


Social bonds have become an increasingly popular debt instrument, not just in Nigeria, but around the world, more so in light of the ongoing covid-19 pandemic. Social bonds have become an avenue through which countries and corporates can obtain funding to deal with social and economic disruptions. Therefore, the issuance of the Social Bond Rules by the SEC is a welcome development.

In the short and medium term, it is envisaged that there will be more of these issuances due to the covid-19 pandemic. It is also envisaged that more public and private issuers will pivot towards social bonds. For instance, in the final quarter of 2021, the Africa Exchange Commodities Exchange Limited announced its intention to launch a new $100 million 10-year bond, and that the funds derived from the bond issuance will be used to produce as much as 3 million metric tonnes of food annually in Africa.

Similarly, on 26 April 2022, the company for habitat and housing in Africa (Shelter Afrique) issued its debut 40 billion naira (approximately $96 million) Series I (Tranches A and B) Bonds under its 200 billion naira (approximately $480 million) debt issuance programme in the Nigerian debt capital markets. The proceeds of the issuances under the programme are to be primarily tailored towards mass housing developments across Africa and provision of lines of credit.

For further information on this topic please contact Ajibola Asolo, Oluwatobi Oluwasanya or Ofure Odia at Aluko & Oyebode by telephone (+234 1 462 8360 71) or email ([email protected], [email protected] or [email protected] ). The Aluko & Oyebode website can be accessed at