What are Masala Bonds?

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 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
• Any resident of a country which is member 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 International Organisation of Securities Commissions (IOSCO).
• 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.