Question 29 from UPSC CSE 2016 - Current
Affairs

Question

With reference to 'IFC Masala Bonds', sometimes seen in the news, which of the statements given below is/are correct?
1. The International Finance Corporation, which offers these bonds, is an arm of the World Bank.
2. They are the rupee-denominated bonds and are a source of debt financing for the public and private sector.
Select the correct answer using the code given below.

IASCODEX · Accepted Answer

Correct Option: C. Both 1 and 2

Strategy: - Recall that the International Finance Corporation (IFC) is a member of the World Bank Group.
- Recall that Masala Bonds are rupee-denominated debt instruments issued by Indian entities overseas.
- Evaluate the statements based on these established facts.

Key Info: The 'IFC Masala Bonds' refer to rupee-denominated bonds issued by the International Finance Corporation (IFC) to raise capital for investments in India. The term 'Masala Bonds' broadly applies to rupee-denominated bonds issued outside India by any Indian entity or multilateral financial institution for Indian projects.

**International Finance Corporation (IFC):**
- **Role:** The IFC is one of the five institutions that make up the World Bank Group. It is the largest global development institution focused exclusively on the private sector in developing countries.
- **Mandate:** It offers investment, advisory, and asset management services to encourage private sector development.
- **Connection to Masala Bonds:** IFC was among the first entities to issue rupee-denominated bonds in international markets, branding them as 'Masala Bonds' to evoke Indian culture.

**Masala Bonds:**
- **Definition:** These are rupee-denominated bonds issued outside India by Indian entities (both public and private sector) or multilateral agencies for funding Indian projects.
- **Purpose:** They serve as a source of debt financing for Indian companies and public sector undertakings looking to raise capital from international investors.
- **Key Feature:** The bonds are denominated in Indian Rupees, meaning the currency risk associated with foreign exchange fluctuations is borne by the investor, not the Indian issuer. This protects the issuer from depreciation of the rupee.
- **Regulation:** The issuance of Masala Bonds is regulated by the Reserve Bank of India (RBI).
- **Comparison:** Similar to 'Dim Sum Bonds' (denominated in Chinese Yuan) or 'Samurai Bonds' (denominated in Japanese Yen).

IASCODEX · Answer

Option A: 1 only

IASCODEX · Answer

Option B: 2 only

IASCODEX · Answer

Option D: Neither 1 nor 2