Masala Bonds

Introduction

• Masala bonds are rupee-denominated bonds, which can be issued by the Indian entities to raise money from overseas markets. By rupee-denominated bonds, it means that the money borrowed will be in Indian rupees and not in any foreign currency.
• Masala means spices and the term was used by International Finance Corporation (IFC) to popularize the culture and cuisine of India on foreign platforms.
• The objective of Masala Bonds is to fund infrastructure projects in India, fuel internal growth via borrowings and internationalize the Indian currency.

Features of Masala Bonds

• The bonds are directly pegged to the Indian currency. So, investors will directly take the currency risk or exchange rate risks. If the value of Indian currency falls, the foreign investor will have to bear the losses, not the issuer which is an Indian entity or a corporation.
• If foreign investors eagerly invest in Masala Bonds or bring money into India, this would help in supporting the rupee.
• The issuer of these bonds is shielded against the risk of currency fluctuation, typically associated with borrowing in foreign currency.
• The costs of borrowing via masala bonds could also turn out to be lower than domestic markets.
• Currently, these bonds are listed on the London Stock Exchange.
• The subscriber of these bonds can sell rupee bonds to a third party (domestic or offshore) but the proceeds from the issue can’t be used for real estate activities or capital market investment. 

• The first Masala bond was issued by the International Finance Corporation (IFC), the investment arm of the World Bank dubbed as Uridashi Masala Bonds in November 2014. The IFC also issued the world’s first Green Masala Bond, denominated in offshore Indian Rupee.
• The Housing Development Finance Corporation (HDFC) was the first Indian company to issue rupee-denominated “Masala bonds” on the London Stock Exchange (LSE) in July 2016.
• Canada’s British Columbia province was the first foreign government to issue Masala bonds.