The Reserve Bank today allowed micro finance institutions (MFIs) to raise up to USD

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10 million through external commercial borrowings (ECBs), as against the earlier limit of USD 5 million, a move that will widen their fund raising sources.

"Considering the specific needs of the micro finance sector, the existing ECBs policy has been reviewed in consultation with the Government of India and it has been decided that Micro Finance Institutions (MFIs) may be permitted to raise ECB up to USD 10 million or equivalent during a financial year for permitted end-uses, under the automatic route," RBI said in a notification.

It has also been decided that Non-Government Organisations (NGOs) engaged in micro finance activities can avail of ECB up to USD 10 million or equivalent per financial year under the automatic route, up from USD 5 million or equivalent, RBI said.

Of late, MFI sector has been facing liquidity crunch resulting in the RBI announcing a working group on restructuring of loans.

Last week, RBI Deputy Governor H R Khan had said, "all MFIs of all hues will now be permitted to take ECB of (up to) USD 10 million."

"Of course, they have to be hedged. If you don't hedge you get into difficulties," Khan had said.

As part of eligibility criteria, the MFIs registered as societies, trusts and co-operatives and engaged in micro finance should have a satisfactory borrowing relationship for at least 3 years with a scheduled commercial bank authorised to deal in foreign exchange.

MFIs would require a certificate of due diligence on 'fit and proper' status of the board of the borrowing entity from the designated authorised dealer bank.

The notification further said, ECB funds should be routed through normal banking channels. NBFC-MFIs will be permitted to avail of ECBs from multilateral institutions, such as IFC, ADB etc.

Companies registered under Section 25 of the Companies Act and engaged in micro finance will be permitted to avail of ECBs from international banks, multilateral financial institutions, export credit agencies, foreign equity holders, overseas organisations and individuals, it said.