Muni - Bonds

Raising capital for funding City infrastructure

Muni-Bonds short for Municipal Bonds, they are financial instruments used for raising capital from financial markets to fund infrastructure projects for cities. Muni-Bond markets is quite mature in the west, especially America. 

On the other hand India has not witnessed significant maturity in its financial markets. In order to fund infrastructures of cities, such as Metro Rail project in big metropolitan, the city government would take a loan from institutions such as World Bank. 

Alternative approach to fund this project, could be that the city issue its own Bonds. Though currently India doesnt offer any place where such bonds could be issued for investors, nor are there any mechanisms to rate the quality of bonds, which are essential for bond markets. 

This gives rise to opportunity for India, especially GIFT City to become hub for similar activities. In order for such a market to become established, the investors, exchanges, rating agencies and issuers all have to come on board. 

Directions in which financial reforms are headed it seems day of reckoning is nearing, but the gloomy global economic climate may just push development of these markets to couple of years down the road. 

In order for a company to successfully become part of such a market, must offer services to Municipals or say local governments, to firstly adopt international accounting standards for their books, helping the local governments make their source of revenues and expenses transparent. 

This service helps the local governments earn credibility in terms of rating agency in deciding the quality of bond, as well as for investors choosing to invest in that city's project. The room for such services are enormous and providers few. 

The next step would be for companies interested in establishing itself in issuing, trading of city bonds. These set of companies deal purely on the financial part of it, dealing with investors, and companies representing cities. 

Though in order for the market to develop, initial steps would be for establishment of companies offering accounting services to municipals, who may be interested in future for raising capital from financial markets, and have provisions for raising taxes for its residents. 

While these companies are offering accounting services, they may also focus on offering services that streamline tax collection and accounting systems, making the process of revenues as well as expenses seamless as possible. 

Currently the challenges we face are the resistance to change, and also very less adoption of sophisticated technology in its processes. If enough political will is generated, then such a market is next obvious step for boosting growth and getting finance going for infrastructure. 

Its a question of time would GIFT city attract companies who establish themselves in the business of raising capital for other cities? For the potential in the market is enormous, but will the early investors enter this segment remains to be seen?