Microfinance institutions may soon be able to borrow up to $10 million in a year overseas.
In a press release issued on Monday, the Reserve Bank of India said that MFIs may be permitted to raise funds through External Commercial Borrowing (ECB) under the automatic route.
The move is expected to address the issue of liquidity that the microfinance sector has been witnessing in recent times, according to leading players in the industry.
The criteria
According to the RBI guidelines, MFIs should have a satisfactory borrowing relationship for at least three years with a scheduled commercial bank authorised to deal in foreign exchange.
The bank would also require to issued a certificate of due diligence on ‘fit and proper' status of the board or committee of management of the MFI that is borrowing.
The ECB funds should be routed through normal banking channels.
In addition, NBFC-MFIs will also be permitted to borrow from multilateral institutions, such as International Finance Corporation and Asian Development Bank, the RBI said.
Other MFIs will be permitted to avail themselves of ECBs from international banks, multilateral financial institutions, export credit agencies, overseas organisations and individuals, subject to certain conditions, said the RBI.
The RBI has also increased the ECB limit of NGOs (non-government organisations), engaged in microfinance activities, to $10 million in a financial year, as against the current $5 million.