Micro Finance Company Registration (Useful Guide)

Microfinance companies, as the name suggests, are financial institutions that provide funding to low-income groups with lower funding needs than other sectors of society. These sectors typically do not have access to traditional financial institutions such as banks and other financial institutions.

If you are wondering to know more about micro finance company registration. Let’s dive into it.

What is micro finance company?

Loans, savings and insurance are just some of the financial services that microfinance companies offer to low-income people. Rural residents need credit that is affordable and does not increase input costs. This is essential for these industries to expand, develop and boost the Indian economy.

Microfinance organizations can lend up to INR 50,000 in rural areas and INR 1,25,000 in urban areas to homeowners, businesses and individuals to people from various households and small businesses.

Microfinance institutions usually provide unsecured loans to small business owners, farmers and other farmers. These institutions help develop rural and agricultural areas, create jobs and expand the Indian economy.

There are two ways to register for microfinance:

Non-profit organizations registered as Section 8 legal entities that do not require RBI accreditation, and as non-banking financial companies – Microfinancial institutions (NBFC-MFIs) that can be incorporated with RBI accreditation. 

Microfinance Company Registration Process

Below are the few steps to register with the Registrar of Companies (ROC) as a microfinance company.

1. Register as a private limited company or public company:

The first step is to register as a private limited company or public company and then as a NBFC(Non-Banking Finance Companies) microfinance company.

2. Eligibility to register as a private limited company or public company:

For private companies the capital investment at least Rs. 1 lakh with 2 members and 7 members with an amount of Rs. 5 lakh for registration of public limited company 

3. Raise funds:

Arrange and lift the capital of internet-owned finances of a minimum of Rs. five crores to in addition deposit in a financial institution as a Fixed Deposit to get a ”No Lien” certificate from the bank.

4. Apply for NBFC License:

An NBFC license can be applied for and obtained by completing an online application form and submitting it to the Registrar of Companies along with a hard copy to the RBI.

5. Obtained NBFC registration certificate and starting a microfinance business:

Once the form is submitted and approved by the ROC, you will receive NBFC certificate within 10-15 business days.

Section 8 Microfinance Company Registration Fees

Section 8 Microfinance companies are financial institutions that provide loans to low-income individuals. These companies are introduced to ease the SME credit system, as SMEs cannot obtain credit lines from banks due to the complicated process.

Therefore, they are also called microcredit or micro benefit organizations.

Microfinance companies are the easiest to register and can issue unsecured loans at interest rates of up to 26% without RBI approval.

The total cost for registering a microcredit/finance company under Section 8 Professional Utilities registration is Rs.50,000 only all-inclusive. All applicable taxes are included in the approximately that must be paid as part of the registration fee for a section 8 microfinance company.

How Much Do I Need to Start a Microfinance

There are many institutions in India, such as banks, that lend to financial businesses. So why do we need a microfinance company? This need arises from the following objectives:

1. Providing financial assistance to companies unable to provide collateral
2. Promoting women’s entrepreneurship
3. It provides the support that needs for startups
4. It also provides face-value assistance that is normally funded as hand credit.
5. Discipline borrowing by low-income groups by formalizing the lending process. This prevents over-indebtedness and reduces complications arising from large amounts of debt in the future.

There are also required these kind of documents:

1. A duly completed application form with passport photos of all managing directors.
2. KYC of Directors and Shareholders (Passport, Voter ID, Driving Licence, Aadhar Card, Utilities).
3. Business  Incorporation license.
4. Income certificate from director and shareholder and pan card.
5. Proof of business address or rental contract.
6. NOC from the owner.
7. Applicable stamp duty (varies by state).
8. All other documents required by relevant authorities.

What Are the Types of Microfinance

The different types of MFC registrations valid in India can be summarized as follows:

RBI Registered MFI:

To set up a microfinance company or institution as his NBFC (Non-Banking Finance Company), the applicant must register the company as a private limited company or a public company under the Companies Act, 2013.

The applicant company must take all the necessary steps to obtain microfinance company registration. This starts with the minimum capital requirements and ends with the actual filing of the registration application at a regional office of the Reserve Bank of India.

Section 8 Registered MFIs:

To set up a microfinance institution as a Section 8 company in India, the applicant company must first apply to obtain a Digital Signature Certificate (DSC) and Director Identification Number (DIN) for all proposed directors.

You will then need to submit an application to obtain naming permission in the form of INC-1. You will also need to draft the MOA (Memorandum of Association) and AOA (Memorandum of Association) for the designated company and file an INC – 12, along with the documents required to obtain registration of a microfinance company.

What is NBFC registration procedure?

• Establish a legal entity under the Companies Act 2013.
• The company must have at least rupees 2 crores net worth.
• A corporation must have at least one director with the same background as him.
• A high CIBIL score is required to register as an NBFC.
• The next step is to fill out an application form on the RBI official website. Submit the application and required documents.
• The application will generate CARN number as soon as it is submitted.
• A paper copy of the application must be sent to the RBI Regional Office.
• Applications are reviewed and validated before a license is granted to the company. 

What Is the Disadvantage of Microfinance

The disadvantages of MF are as follows.

Rigid repayment method

Microfinance companies employ strict repayment methods due to a lack of legitimate protocols and compliance. These companies operate under strict regulations, which allows them to manipulate their customers into paying them back.

Small loan amount:

Microfinance companies offer small amounts of credit, unlike other financial institutions that make large loans.

High-interest rate:

Another concern is their inability to provide low-interest-based loans. Therefore, the operating cost per transaction is too high despite the high transaction volume.

Frequently Asked Questions (FAQs):

Can a NGO do microfinance?

NGOs are responsible for making SHG Microfinance the largest program in the world.

Is microfinancing legal in India?

A microfinance loan is defined as an unsecured loan granted to a household with an annual income of Rs 3 million or less.

Who is eligible for microfinance in India?

Microfinance loans are defined as unsecured loans made to households with an annual household income of INR 3,00,000 or less.

Conclusion

Now as you know about microfinance company registration. We need efficient microfinance management that works to meet the financial needs of underserved segments of society. At the same time, there should be proper controls and regulations governing the operations of microfinance companies.

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