Raising money for ULBs via municipal bonds
- Posted By
24th Dec, 2020
What is municipal bond?
- A municipal bond is a kind of debt instrument where investors offer loans to local governments.
- They are issued by civic bodies for specific projects and usually have 10-year tenure.
- The Urban Local Bodies (ULB) pays the annual interest on the bonds to the investor at the decided rate.
- The difference between a bank loan and a municipal bond is that any institution can secure a bond only if it has favourable credit ratings.
- The bond helps raise funds from the stock market. The bond also increases the number of investors available to the civic body, as compared to a loan from a single bank.
- Bonds are issued to institutional and high networth individuals.
- The face value of each instrument slot of a municipal bond if a minimum of Rs 10 lakh.
- It can be subscribed by a single investor or multiple investors.
Which city first launched the municipal bond?
- Ahmedabad was the first city in south Asia to launch a municipal bond of Rs 100 crore in 1998, which was completely subscribed.
Significance of Municipal bond
- Able to tap the bond market
- Bonds help ensure improved credit profiles
- Direct transfer of funds by the Centre
- Transparency and efficient revenue generation