Re, domestic issues to act as spoilers for MFIs' ECB plans

Last Updated: Friday, December 23, 2011 - 20:37

Mumbai: The microfinance industry is unlikely to get much respite from the recent RBI decision to increase external commercial borrowing (ECB) limit for them, as the rupee fall and the bad financial health will act as spoilers to their fund raising efforts, say industry experts.
"Though increasing the ECB limit is a step in the right direction taken up by the regulator, it is difficult to raise money from overseas now due to the sharp volatility in the rupee," a top MFI official told reporters over phone from from Hyderabad. He wished not to be quoted.
Without proper hedging, it will be difficult to take such kind of exposures which will impact the balance sheet of MFIs, he added.
The official also pointed out that it is difficult to convince foreign investors to put in money at a time, when the domestic business is not doing good.
"The health of MFIs is not good after the Andhra Pradesh Ordinance last October. Unless the issues relating to the sector are sorted out, it will be difficult to raise money overseas," he said.
The Reserve Bank last week increased the ECB limit for MFIs to USD 10 million in a financial year from USD 5 million earlier and also allowed ECB credit by international banks, foreign equity holders and overseas organisations into the domestic MFIs.
Another industry official said the raising the ECB cap is a good step in the medium-term.
"Increasing the credit limit through ECB window is definitely a good step by the RBI. However, one can't see it in isolation. Without the sophistication of dealing with a volatile currency, MFIs will not able to raise money at now," Bangalore-based Janalakshmi MFI chairman Ramesh Ramanathan pointed out.
He also said without domestic credit flow to the sector, these solutions would not be very effective to solve liquidity issue.
Ramanathan, however, noted that this step will be beneficial to the industry in the medium-term.


First Published: Friday, December 23, 2011 - 20:37

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