The Ministry of Finance revealed plans to issue the first-ever development bond with a maturity of 15 years in the first quarter (January to March) of next year. A development bond is a financial instrument issued by a government to provide an investment outlet for surplus resources available in the economy and also finance the capital expenditure of various

developmental projects.

Development impact bonds are considered a sub-type of social impact bonds. Similar to other social impact bonds, development impact bonds are new financial instruments that were introduced only in 2012.

The main purpose of development impact bonds is to attract private investors to subsidize development projects in poor countries.

Although the security is called a bond, it lacks most of the features of conventional bonds. The bonds come with a fixed term, but they do not offer a fixed rate of return to the investors. Instead, the repayment of the bonds primarily depends on the success of a project that’s been subsidized using the proceeds from the sale of the bonds.

If a project is successful, the investors are repaid by the outcome funder (a philanthropic organization or an aid agency). However, if the project fails, the investors do not receive anything. Therefore, development impact bonds are high-risk instruments for investors.