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MICROCAPITAL BRIEF: Indian Microfinance Institutions Allowed to Raise $10m Each in External Commercial Borrowings

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Reserve Bank of India ('RBI') Deputy Governor Mr H R Khan has announced that Indian microfinance institutions (MFIs) will now be allowed to execute external commercial borrowings ('ECB')–those that are raised from outside India–of up to USD 10 million per financial year, twice as much as was previously allowed [1]. Such funds must be “utilised for lending to self-help groups or for micro-credit or for bonafide micro finance activity including capacity building.” [2] The change is intended to address liquidity issues in the industry [1].

However, industry experts reportedly say that the volatility of the rupee make it more difficult for MFIs to raise money from overseas. Regulations passed in October 2010 in the state of Andhra Pradesh also make it more difficult for MFIs to attract foreign investors. Ramesh Ramanathan, chairman of Bangalore-based MFI Janalakshmi, was quoted as having said....

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