Wednesday, December 21, 2011

MFIs can tap ECB


The Reserve Bank of India (RBI) on Monday allowed micro finance institutions (MFIs) to raise funds via external commercial borrowings (ECBs) up to $10 million or equivalent during a financial year for permitted end-uses under the automatic route. The MFIs eligible for the same will be: those registered under the Societies Registration Act, 1860; those registered under Indian Trust Act, 1882; MFIs registered either under the conventional state-level cooperative acts, the national level multi-state cooperative legislation or under the new state-level mutually aided cooperative acts and not being a co-operative bank; non-banking finance companies (NBFCs) categorised as ‘non-banking finance company-micro finance institutions' (NBFC-MFIs) and companies registered under Sec. 25 of the Companies Act, 1956, and involved in micro finance activity. Further, the MFIs registered as societies, trusts and co-operatives and engaged in micro finance activities should have a satisfactory borrowing relationship for at least three years with a scheduled commercial bank authorised to deal in foreign exchange; and would require a certificate of due diligence on ‘fit and proper' status of the board/committee of management of the borrowing entity from the designated authorized dealer (AD) bank.

ECB funds should be routed through normal banking channels. NBFC-MFIs will be permitted to avail themselves of ECBs from multilateral institutions such as IFC and ADB/ regional financial institutions/international banks / foreign equity holders and overseas organisations.

Companies registered under Sec. 25 of the Companies Act and engaged in micro finance activities will be permitted to avail themselves of ECBs from international banks, multilateral financial institutions, export credit agencies, foreign equity holders, overseas organisations and individuals. Other MFIs will be permitted to raise funds via ECBs from international banks, multilateral financial institutions, export credit agencies, overseas organisations and individuals.

However, overseas organisations and individuals complying with specific safeguards may lend.The RBI has also stipulated that the designated AD must ensure that the ECB proceeds are utilised for lending to self-help groups or for micro-credit or for bona fide micro finance activity, including capacity building. It has also been decided that non-government organisations engaged in micro finance activities can avail themselves of ECB up to $10 million or equivalent under the automatic route as against the present limit of $5 million or equivalent per financial year. The RBI has also said that these amendments to ECB policy would come into force with immediate effect and the framework with respect to MFIs would be reviewed after one year.

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