Masala Bonds:
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.
- 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.
