Microfinanciers in ECB mode

Microfinance institutions (MFIs) led by Basix, Share MicroFin, Sewa, Spandana and Swayam Krishi Sangam are gearing up to raise around $20 million through the external commercial borrowing (ECB) route after getting the green signal in the Budget.

The Reserve Bank of India (RBI) was asked to open a window to enable qualified non-government organisations (NGOs) engaged in microfinance activities to use the ECB window.

The banking regulator is currently in the process of formulating guidelines for this.

"With the RBI planning to reopen the ECB window, we are chalking out plans to approach the International Finance Corporation (IFC) and Dutch, Swiss and US-based development funds," said Vijay Mahajan, managing director of Basix, a Hyderabad-based MFI.

The IFC had extended a $3 million loan facility to Basix in 2002. However, it was unable to avail of this following the closure of the ECB window by the RBI.

Silicon Valley big gun Vinod Khosla, a partner in venture fund firm Kleiner Perkins Caufield & Byers has plans to invest in microfinance opportunities in India and Africa.

Unitus, the Washington-based non-profit organisation, is also understood to be interested in bringing in more microfinance funds to India. Apart from India, it already has also made investments in the sector in Kenya and Mexico.

"The opening up of the ECB window will enable us to bring down our cost of funds. We will be able to borrow at around 6-7 per cent," said Uday Kumar, managing director, Share MicroFin. Currently, Share MicroFin borrows funds from banks and refinance institutions at around 12 per cent.

"Commercial funds such as the Netherlands-based Cordaid and Oiko Credit, and the Luxembourg-based Blue Orchard are interested in putting in money at 6-7 per cent. Cordaid is likely to pump in $1 million and Blue Orchard $2 million," said Kumar.

"These funds have also agreed to bear the exchange risk attached to the borrowing," he added.

"Foreign exchange risk is not a big issue for these institutions as commercial funds are often willing to bear the exchange risk on behalf of the MFIs," said Mathew Titus, executive director of Sa-Dhan, a microfinance association.

The RBI had closed the ECB window for NGOs in 2002 following the 9/11 attacks on the US in an effort to check money laundering.

Another reason for the closure of the window was the liquidity overhang in the banking system.