Context:

The municipal bonds issued by the Lucknow Municipal Corporation have been listed on the Bombay Stock Exchange (BSE).

Municipal bond

• Municipal corporations can raise funds through bond issuances, called municipal bonds.  The municipal bodies set aside an amount from their monthly property tax collections for interest and principal repayment.
• Most of the municipal bond issuances have their own structured repayment pattern
• Civic bodies raise funds to meet the rising requirements under the flagship Smart City Mission and Atal Mission for Rejuvenation and Urban Transformation (AMRUT) scheme of the central government.
• Besides Lucknow, some of the other bond issuances that have been listed include those of the municipal bodies of Pune, Indore, Bhopal, Ahmedabad, and Hyderabad.

 Bonds have a sovereign guarantee

• These bonds, like the state development bonds, are not backed by a sovereign guarantee
• A sovereign guarantee is typically provided by the central government promising debt repayment for the third party in case of a default by the latter.
• Due to this, the interest rates on municipal bonds are also higher than the interest rate on central government securities and State Development Loans (SDLs).

Municipal corporations

• Municipal corporations are government bodies that typically form the third tier of the government in urban areas after the central and state government.
• Typically, municipal bodies provide services like water, sanitation, sewage, and solid waste management. Some bigger municipal bodies also run schools.
• They raise resources through levies like property tax, government grants, and fees for the services provided.