Masala Bonds

Masala Bonds Latest News

The Enforcement Directorate’s (ED) recent decision to issue notices to the Kerala Chief Minister in the KIIFB masala bond investigation marks a significant escalation in a long-running conflict between the LDF government and central agencies over the state’s financing model.

About Masala Bonds

• They are rupee-denominated bonds issued outside India by Indian entities. 
• The International Finance Corporation (IFC), an arm of the World Bank, issued the first masala bonds in October 2013 as part of its $2 billion dollar offshore rupee programme.
• They are debt instruments which help to raise money in local currency from foreign investors. 
• That means the currency risk—if exchange rates change—is on the investor, not the issuer. This helps Indian companies manage their risks better.
• To offset the risk of exchange rate fluctuations, bonds typically offer attractive interest rates that are frequently greater than those offered in the investors’ home countries.
• Both the government and private entities can issue these bonds. 
• Who Can Invest?
  • Investors outside India who would like to invest in assets in India can subscribe to these bonds. 
  • Any resident of that country can subscribe to these bonds which are members of the Financial Action Task Force (FATF). 
  • That includes individuals, institutions, and even financial organisations from countries that follow international standards for fair and secure investing, like those under IOSCO (International Organisation of Securities Commissions). 
  • It also covers multilateral and regional financial institutions of which India is a member.
• Maturity Period:
  • It depends on the size of the bond. 
  • For bonds up to USD 50 million, the maturity is usually 3 years. 
  • For larger amounts, it can go up to 5 years, giving investors more flexibility based on their goals.
• What Can The Money Be Used For?
  • The funds raised through Masala bonds are generally earmarked for productive and regulated purposes.
  • The proceeds can fund affordable housing, infrastructure, refinance rupee loans, or meet corporate working capital requirements.
  • Activities like buying land, investing in the stock market, or funding real estate projects are off-limits—unless they’ve received specific government approvals.

Source: OI

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