RBI Allows MFIs to Raise Capital Upto $10 Million Via ECB
By siliconindia   |   Wednesday, 21 December 2011, 22:54 IST
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RBI Allows MFIs to Raise Capital
Bangalore: The year ends on a cheerful note for the capital starved Micro-financed Institutions (MFIs), as The Reserve Bank of India allowed MFIs to raise External Commercial Borrowings (ECBs) up to $10 million, which is approximately 53 crores, during this financial year in comparison to the present limit of $5 million, which is around 26.5 crores. Lending Self Help Groups (SHGs) or micro credits or micro finance activities, including capacity building, is how the funds raised through ECBs will be utilized. RBI said in a release, "ECB funds should be routed through normal banking channels. NBFCs-MFIs will be permitted to avail of ECBs from multilateral institutions such International Finance Corporation (IFC) and Asian Development Bank, regional financial institutions, international banks, foreign equity holders and overseas organizations." Since October 2010, MFI in India is facing a real tough time as the government of Andhra Pradesh passed a legislation to shut down the private sector institutions due to the rising number of suicide cases. Andhra is said to be the epicenter of MFI activities in India. This resulted in banks to block lending to MFI. The exposure towards MFI was also contracted as banks feared the rising rate of bad loans from that sector. In an interview by Moneycontrol.com, experts tracking MFIs feel that RBI's move will not exactly help MFIs to get adequate capital support. According to an analyst from a rating agency, this will help large MFIs but not the medium to small sized ones. He said, "There is a crisis of confidence in the market. Even branded companies are struggling to get capital. MFI sector as a whole does not look bright at this point of time."

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