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Tackling Turkey’s Credit Gap with Gender Bonds

Tackling Turkey’s Credit Gap with Gender Bonds

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In the summer of 2018, CEE Legal Matters reported that Turkey’s Garanti Bank had issued its first-ever Gender Bonds. The bonds, valued at USD 75 million and issued in partnership with the Women Entrepreneurs Opportunity Facility launched by the IFC through its Banking on Women Program, and Goldman Sachs 10,000 Women initiative, are meant to finance small enterprises and companies owned or managed by women in Turkey.

Boosting Financial Inclusion

The new bond has a six-year term maturity and is issued in line with IFC’s social bonds criteria. “In Turkey, nearly 30 percent fewer women than men have access to financial services,” reported the IFC in a press release, explaining its involvement in the issuance. “Only about nine percent of small and medium enterprises are owned by women and these face a credit gap of USD five billion, constraining growth. The gender bond, a new financing structure both in the Turkish market and international capital markets, will help create funding to support these women entrepreneurs and business owners.” 

“We are delighted to be able to introduce this new funding instrument to the Turkish market to obtain fresh funding for women entrepreneurs through this pioneering bond issue,” said Garanti Bank CEO Fuat Erbil in the IFC’s press release. “We have been offering products and services for women entrepreneurs since 2006, including over five billion Turkish liras in financial support, to help them grow and, in turn, drive broader economic growth.” 

More Than a Mandate

“The debt capital markets for banks and non-banks in Turkey is significantly silent right now” explains Omer Collak, Head of Securities Practice Group at Paksoy, who led the firm’s team on the issuance. “We don’t see a lot of debt offerings, since easy money is no longer available for Turkish issuers who are already loaded with foreign debt. They need foreign currency income, which they mostly lack, to repay the debt.”

“Gender bonds, in my opinion, are instruments that emerging markets may all see, regardless of market conditions, because their driving force is specific and designed to support businesses initiated by women,” Collak continues. “From this perspective, I value this deal very much, and I think the Turkish issuance will set a good precedent.”

The bonds, Collak reports, will mainly affect small and medium-size businesses launched by women by creating better funding opportunities for them, with affordable and good interest payments. He explains that the most visible gap in funding for women businesses can be observed in rural areas, where owners of small businesses have a hard time getting funding in the first place, because the conventional loan conditions are simply not favorable for them. 

“Istanbul is a commercial center – we all know that – but as you go further to the rural areas in Turkey, you will see quite a lot of small and medium-size businesses initiated by women, who create good handmade materials and products such as textiles and ceramics” Collak says. “On some occasions, they may want to export these products to other countries, but they don’t have the necessary financial means in order to increase and enlarge their businesses. With this funding, through the notes that Garanti obtained from the IFC, such businesses can now have access to some level of financing with reasonable terms to grow and increase their visibility, even hire more people – more women to work with them – and create equal opportunities in society.”

A Good Example to Follow

Linklaters London-based Counsel Morag Russel, who worked on the project with Partner Richard O’Callaghan and Associate Sebastian Witte, suggests that from a social perspective, gender bonds indeed play an important role. “It is a prime example of how market forces can be tapped to make a real social impact, in this case, to promote small enterprises and companies owned or managed by women in Turkey,” she says. “As a firm, we are a participant of the UN Global Compact, a voluntary initiative where companies pledge to support ten principles focused on sustainable and socially responsible actions. We are committed to making the principles part of our core work as well as part of the strategy, culture, and day-to-day operations of the firm, and we believe gender bonds have the potential to become an important and innovative new financing tool in the growing Social Finance sector.”

Richard O’Callaghan, Capital Markets Partner at Linklaters, says that the Magic Circle firm has been at the forefront of the most interesting developments in the capital markets over many years, and believes that these gender bonds stand out as something that will have meaningful societal impact in the long-term. “It’s an innovative financing tool which can easily be replicated in other markets,” he says.

According to the IFC press release, over the last seven years, the IFC has worked with Turkish banks to provide USD 61 million in financing for women entrepreneurs under its Banking on Women program, launched a program to support women in supply chains, and engaged in efforts to increase the number of women on company boards. “Strengthening women’s participation in Turkey’s economy helps to unleash untapped potential for employment and economic growth, stated Wiebke Schloemer, IFC Regional Director for Europe and Central Asia.“Our partnership with Garanti Group in Turkey and the region ensures that smaller companies and women entrepreneurs will continue to have access to the funds they need to grow and create jobs.” 

In addition, the IFC and Garanti Bank have previously cooperated on a project to spur lending to women in Romania. Over the past six years, IFC has committed over 100 million euros to Garanti Group Romania, including banking and leasing services, to help finance SMEs. 

*We made multiple attempts to reach out to Garanti Bank for comment for this article, without success. 

This Article was originally published in Issue 5.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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