DMPQ :What are masala bonds? Explain their significance (ECONOMY)

Masala bonds are bonds issued outside India but denominated in Indian Rupees, rather than the local currency The term was used by the International Finance Corporation (IFC) to evoke the culture and cuisine of India Unlike dollar bonds, where the borrower takes the currency risk, masala bond makes the investors bear the risk The first Masala bond was issued by the World Bank-backed IFC in November 2014

Benefits:

1. Help companies in the diversification of source of funding.
2. Help to build confidence of investor in the country and its currency.
3. Provide security to the borrower from exchange rate volatility.
4. Withholding tax has been reduced from 20% to 5% making it more attractive avenue.
5. Masala bonds are intended to further deepen market development, enhance participation, facilitate greater market liquidity and improve communication.