What changed
RBI reviewed ECB policy for the microfinance sector and decided to allow MFIs to raise ECB up to USD 10 million per financial year under the Automatic Route, and NGOs to raise ECB up to USD 10 million (from USD 5 million). Detailed guidelines specify eligible borrowers, borrowing relationships, and recognized lenders.
What it means for you
This opens a new funding channel for microfinance institutions, potentially lowering their cost of funds. Banks acting as AD Category-I must ensure compliance with due diligence and eligibility norms before facilitating such ECBs.
What you must do
- Verify borrower eligibility as per the listed MFI types (societies, trusts, cooperatives, NBFC-MFIs complying with DNBS.CC.PD.No. 250/03.10.01/2011-12 dated December 2, 2011, Section 25 companies).
- Ensure MFIs registered as societies/trusts/cooperatives have a satisfactory borrowing relationship of at least 3 years with a scheduled commercial bank authorized to deal in foreign exchange.
- Obtain a certificate of due diligence on the fit and proper status of the borrowing entity's board/management.
- Check that overseas lenders provide required due diligence certificates from a regulated bank adhering to FATF guidelines.
- Monitor that total ECB per borrower does not exceed USD 10 million in a financial year.
Who it affects
AD Category-I banks, Micro Finance Institutions (MFIs), NGOs engaged in microfinance, NBFC-MFIs, Section 25 companies in microfinance
What is the maximum ECB amount an MFI can raise under this circular?
Up to USD 10 million or equivalent per financial year under the Automatic Route.
Which entities are eligible as lenders for NBFC-MFIs under this route?
Multilateral institutions (e.g., IFC, ADB), regional financial institutions, international banks, foreign equity holders, export credit agencies, and overseas organizations.
What due diligence is required for an overseas organization lending to an MFI?
The lender must provide a certificate from an overseas bank regulated by its host-country regulator and adhering to FATF guidelines, confirming the lender maintains an account for at least two years, is legally organized, and has no pending criminal action.