A Masala Green Bond is a hybrid of two innovative finance instruments

 Masala Green Bond

What is a Masala Bond? 1

Here's why it's called "Masala Bond": 1

What Makes It a Green Masala Bond? 2

Historical Highlights 2

Benefits & Risks 3

For Issuers 3

For Investors 3

Why It Matters 3

Summary 3

A Masala Green Bond is a hybrid of two innovative finance instruments:

What is a Masala Bond?

  • A Masala Bond is a rupee‑denominated bond issued in international markets (e.g., London, Singapore), typically by Indian corporates or institutions (en.wikipedia.org, financialexpress.com).

  • Since it’s in Indian rupees, the currency risk is borne by foreign investors, not the issuer (timesofindia.indiatimes.com).

  • Purpose: raise capital overseas for Indian projects, diversify investor base, and internationalize the rupee .

The term "Masala Bond" is a metaphorical name coined to give the bond an Indian identity—similar to how Indian cuisine is known for its masalas (spices).

Here's why it's called "Masala Bond":

  • The name was popularized by the International Finance Corporation (IFC) in 2014–15 when they issued the first rupee-denominated bond overseas to fund Indian infrastructure.

  • "Masala" reflects Indian culture and flavor—just as "Dim Sum Bonds" refer to Chinese yuan-denominated bonds issued outside China, or "Samurai Bonds" are yen-denominated bonds in Japan.

  • The name makes the bond recognizable and marketable to international investors as an India-specific financial instrument, with a hint of local flavor.

What Makes It a Green Masala Bond?

  • Adds a “green” label—proceeds must be used strictly for environmentally friendly projects (e.g., wind, solar, energy efficiency).

  • Usually certified or independently verified (e.g., by the Climate Bonds Initiative or third-party auditors) (reddit.com, energetica-india.net).

  • Meets global sustainability standards and attracts “green” investors.

Historical Highlights

  1. IFC (World Bank arm) issued the first-ever Green Masala Bond in Aug 2015 (₹3.15 billion), with proceeds funding Yes Bank’s renewable‑energy portfolio (climatebonds.net, business-standard.com).

  2. In Aug 2016, NTPC launched India’s first corporate Green Masala Bond worth ₹20 billion, dual-listed on LSE & SGX, with Climate Bonds certification at 7.48% coupon (energetica-india.net).

  3. IREDA similarly raised USD 300 million (~₹19.5 billion) through Green Masala in Sept 2017, also CBI‑certified for renewable energy funding (climatebonds.net).

Benefits & Risks

For Issuers

For Investors

  • Gain from potential rupee appreciation

  • Contribute to environmental goals

  • Benefit from certified green instruments

  • Rupee depreciation risk—if INR weakens, ROI in USD terms falls (cfo.economictimes.indiatimes.com)

  • Usage restrictions—e.g., RBI does not permit proceeds to be used for real estate or capital‑market investments (reddit.com)

Why It Matters

  • Combines the INR-denomination and offshore issuance (Masala bond) with green impact goals

  • Enables Indian issuers to tap sustainable finance trends while retaining currency risk neutrality

  • Helps align India's renewable energy finance with international green standards

Summary

“Masala Bond” symbolizes an Indian rupee bond issued in foreign markets, with the cultural term “masala” representing its Indian origin—making it easier for global investors to associate it with India, just like “tikka masala” or “masala chai.”

A Masala Green Bond is essentially a rupee‑denominated bond sold overseas, with proceeds earmarked for green initiatives. It helps Indian issuers raise capital globally without forex risk, while allowing investors to support sustainable projects and potentially gain from rupee appreciation—though they shoulder the currency risk. This financing structure has been effectively used by institutions like IFC, NTPC, and IREDA to fund India’s renewable energy expansion.

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