Microfinance Company Registration
Microfinance Company Registration
The Microfinance Company is basically the financial institutions that provide small-scale financial services in the form of loan, credit or savings. These companies are introduced to ease the credit system for small businesses as they don’t get a loan from banks due to their complex process. Therefore it is commonly named as a Micro-credit organization. They offer small loans to various small businesses or households that do not have access to formal banking channels or eligibility for loans. They provide small loans that are less than Rs.50,000 for rural areas and for urban it is Rs.1,25,000. The simplest way to register a Micro Finance Company in India is to register the Section-8 Company with MCA ( Ministry of Corporate Affairs). Without charging any marginal money or guarantee security. It can give loans at inexpensive rates directed by the RBI and central government. They are a huge support to all rural and agricultural development including income and employment creation. There are basically 2 types of microfinance companies that are allowed in India, one is which has to be registered with the RBI and another is the non-profit type, which is registered as section 8 company and does not need RBI approval.
How to register the micro-finance Companies in India?
The microfinance can be registered in India by Section 8 company. Section 8 does not need any minimum capital. Here is the process:
Mandatory Requirements for Micro Finance Company
There are essentially 2 ways to register the Micro Finance Institution (MFI). One way is to form a company and then apply to RBI for approval. The least requirements for Microfinance company is Rs.5 crore net owned fund and active profiles of promoters. The second way is to register a section 8 company. We offers the second way of registration. Apply for central government licenses features of which are as follows:
The highest Rs.50,000 can be given for business purposes and Rs.125,000 for household dwelling.
No least net owned fund requirement. You can choose on your own
No RBI approval is needed since RBI has exempted this company from registration and some different conditions.
NO RBI APPROVAL
In India, finance businesses are approved only to Non-Banking Finance Companies (NBFC) and directed by RBI. However, some business forms have been granted an exemption by the Reserve Bank of India (RBI) to do banking activities up to a specified limit. The RBI by its master circular: RBI/2015-16/15 DNBR (PD) CC.No.052/03.10.119/2015-16 Dated July 01, 2015, has released all Section 8 Companies involved in microfinance activities.
As per Para 2 (iii), Sections 45-IA, 45-IB, and 45-IC of the Reserve Bank of India Act, 1934 (2 of 1934) must not apply to any non-banking financial company which is involved in activities:
(a) Engaged in micro-financing activities, giving credit not more than Rs. 50,000 for a business enterprise. And, Rs. 1,25,000 for meeting the cost of a housing unit to any poor person for letting him raise his level of income and standard of living.
(b) Licensed under Section 8 of the Companies Act, 2013
(c) Not taking public deposits as described in paragraph 2(1) (xii) of Notification No. 118 /DG (SPT)-98 dated January 31, 1998.
What is Included In Our Package?
Advantages of Micro Finance Company
Why to register for Microfinance company?
Some of the working mechanism of micro-finance companies are as follow:
Promoting socio-economic growth: At the community level, the microfinance company will promote socio+ecomic growth. Also, empowering self-help groups along with facilitating sustainable development by them. A variety of other financial services will be required by the poor and not just loans; hence, it is a powerful tool to eliminate the poverty factor.
No RBI Approval: No long procedures and easy to register as there is no RBI approval required when you register as a non-profit company. Even, there is no need for minimum capital of Rs. 2 Crores.
Provide a way to funding: It gives a better overall loan repayment rate than traditional banking products. Further, which will help in meeting credit needs for such a population range from emergency loans, consumer loans, business loans, working capital loans, housing, etc.
Offers reasonable services for small businesses: It focuses on building a financial system for the poor and unemployed and aims to make permanent local financial institutions that try to attract domestic deposits, recycle them into loans, and give other financial services.
Minimum Compliances: Company is expected to comply with RBI standards even if it is not required to register with the reserve bank. But no approval from RBI is needed. Section 8 company will comply with Companies Act the same way as other companies do. That’s all!
Procedure For Microfinance Company
Benefits of Microfinance Company Registration
For Microfinance Institutions in India, Reserve Bank of India has created a policy framework in order to provide necessary legitimacy to the sector.
Here are the following benefits of Microfinance Institutions:
- It helps in encouraging self-sufficiency and entrepreneurship
- Smooth access to funding
- Better overall loan repayment rate in comparison to traditional banks.
- It helps in strengthening the financial condition by meeting the credit needs of needy people by giving a different type of loans such as emergency loans, business loan, working capital loan, housing loan etc.
Documents Required for MFI Registration in India
PAN card: In the case of Indian citizens, the PAN card of shareholders and directors.
Passport size photograph: Not more than 10 months old photograph of directors and shareholders.
ID proof: Copy of Aadhaar card/voter identity card/passport/driving license of directors and shareholders
Rent agreement: If you have rented property, then a copy of rent agreement
Address proof: Electricity bill, water bill, bank statement, gas or telephone bill of shareholders and directors
Registered office proof: Electricity bill, water bill, bank statement, gas or telephone bill of the registered office address
NOC from the owner: No objection certificate is needed from the owner of the registered office
Interest Rates on loans
There are usually 3 types of charges that can be imposed by the Micro Finance Company (MFI)
Acceptance of Deposits under Micro Finance Company
Deposits are not permitted to be accepted under section 8 company. Moreover, the company has to invest its funds and start your microfinance company. Further, the company may also raise funding by way of donations.
Even if you are intending to register an NBFC company and ready to invest Rs.5 Crore into the business, then also deposits are not permitted to be taken. As per the RBI procedure, first, you require to register an NBFC non-deposit-taking company and consequently apply for deposit-taking status from the Reserve Bank of India (RBI).
Hence, it advised if you thinking to register your own NBFC, first start with microfinance company, test your skills and then move forward.
Micro-credit loans under Micro Finance Company
Loans under microfinance companies are not very complicated. Most unsecured loans are given and against monthly repayments or weekly repayments. Interest is charged often in the range of 20 -26%. Besides the following points are also important which are as follows:
NBFC can impose a differential rate of interest to its customers but change must not be more than 4%.
The interest on the loan to be charged on decreasing balance method.
Microfinance companies to show in all the offices or literature, the effective rate of interest.
Companies must issue a loan card to all members saying the interest rate, all different terms & conditions.
Loans are also provided in self-help groups (SHG) and other link programs.
If no repayment is received within 90 days, then the same must be treated as a non-performing asset, though, provisioning norms do not apply to section 8 company.
Type of Legal Structure for Microfinance Company Registration
|Particulars||NBFC-MFI||Societies and Trust||Section 8 Company||Cooperative Society|
|Govern by||As per Companies Act, 2013 with the Reserve Bank of India||Society Registration as per Society Registration Act, 1860 and Trust Registration as per Indian Trust Act, 1882||Registration as per Companies Act, 2013||Registration as per the Cooperative Societies Act, 2002|
|Net Worth Requirement||Rs. 5 Crore and Rs. 2 Crore in case of North East States||No Minimum Requirement||No Minimum Requirement||No Minimum Requirement.|
Mandatory Compliances for Micro Finance Company
There are minimum compliances which are to comply by the Micro Finance Company, however, the most important compliances are as follows: