What changed
RBI allowed NGOs in microfinance to access ECB up to USD 5 million per year under the Automatic Route, following the Union Budget 2005-06 announcement. The circular sets detailed safeguards covering borrower genuineness, end-use, lender credentials, and systemic risks.
What it means for you
Authorised dealers must ensure the NGO has a 3-year borrowing relationship and obtain a due diligence certificate on the 'fit and proper' status of its management from the designated AD.
What you must do
- Verify the NGO has a satisfactory borrowing relationship with a scheduled commercial bank for at least 3 years.
- Obtain a due diligence certificate on the 'fit and proper' status of the NGO's board/committee from the designated AD.
- Ensure ECB proceeds are used only for permitted microfinance activities like lending to self-help groups or capacity building.
- Confirm the overseas lender meets due diligence norms, including KYC compliance and FATF adherence.
- Ensure the borrower hedges forex exposure at drawdown and complies with reporting via Form 83 and ECB-2 returns.
Who it affects
Authorised dealers (banks) handling foreign exchange, NGOs engaged in microfinance activities, Overseas lenders including banks, multilateral institutions, and individuals
What is the maximum ECB amount an NGO can raise under this circular?
The maximum is USD 5 million per financial year per borrower, as per the circular.
What due diligence is required for an overseas individual lender?
The individual must provide a certificate from an overseas bank confirming a two-year account relationship, plus audited statements and tax returns certified by that bank. Lenders from countries without KYC norms are not allowed.
What are the permitted end-uses for ECB proceeds?
Proceeds must be used for lending to self-help groups, micro-credit, or bonafide microfinance activities including capacity building.