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Microfinance Company Registration

Register your Micro Finance Company with our pan-India services of company registration available to you at the most reasonable prices. All you need to do is subscribe to our wholesome package of MFI registration and our dedicated team of paralegal experts will guide you at every single step of the formation of your MFI.
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Register your Microfinance Company with us!

Small scale businesses usually do not prefer to borrow from larger banks and NBFCs, owing to their high-interest loan facilities on collaterals. As SMEs struggle to grow in the market with their limited revenue earnings, what they ideally need are smaller amounts of collateral-free loans, with relatively lower interest rates, in order to ease their overall cost burden. Hence, the purpose to form Microfinance companies. MFIs are established to facilitate collateral-free credit for small scale startups in India. To know more about MFIs, and to establish one, you may contact us and avail our services of MFI formation & registration in India.
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What is a Micro Finance company?

A Microfinance institution is an organization that offers a range of financial services to low income businesses, including credit facilities, and insurance services. NABARD defines a micro finance institution as “provision of thrift, credit, and other financial services and products of very small amounts to the low income businesses in rural, semi-urban and urban areas in order to meet their specific financial needs.” Microfinance institutions can be classified into the following two categories:

Microfinance Company Registration

Checklist to set up a Microfinance Company Registration in India

A microfinance company can be incorporated as a public or private limited company, for getting established either as an NBFC or a Section 8 company. Therefore, before beginning the process of its formation, the members must ensure that the necessary prerequisite conditions have been fulfilled. We have provided an elaborate list of all such conditions below, for your precise understanding.

Checklist to set up a Microfinance company in India

At least two members for Private Limited and 7 for Public Limited company

At least 2 directors for Pvt Ltd and Section 8, while 3 for Public Limited company

At least one resident director

A unique and valid name

Certain amount of capital

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Checklist to set up a Microfinance Company in India

A microfinance company can be incorporated as a public or private limited company, for getting established either as an NBFC or a Section 8 company. Therefore, before beginning the process of its formation, the members must ensure that the necessary prerequisite conditions have been fulfilled. We have provided an elaborate list of all such conditions below, for your precise understanding.
S.No Checklist to set up a Microfinance company in India
1.
Loan disbursement is limited to Rs.50,000 for collateral free loans and Rs,1.25 lakhs for dwelling units
2.
The MFI has obtained license to operate a Section 8 company by the MCA
3.
The company does not accept public deposits
You can read about the complete process and documentation required for registering a section 8 company here. However, to set up an MFI as an NBFC you are mandatorily required to obtain the approval of the RBI. We have discussed the step by step procedure of setting up a microfinance company as an NBFC in India.
STEP 1 – Documentation
To obtain a license from the RBI, an application needs to be filed in the prescribed format, along with a number of documents, as listed here. (direct to the documentation section, link on “here”). A failure to produce any of these documents during the time of application can lead to the complete rejection of the application. To avoid such a situation, it is advised that all the documents required to be filed must be arranged before beginning the application process.
STEP 2 – Incorporate your company
An MFI-NBFC can either be incorporated as a Public or a Private Limited Company. So, the process of setting up MFI-NBFC begins with the incorporation of your organization as a Public or Private Limited Company, whichever best suits its needs. Here, at Setindiabiz, we provide services of private and public limited company incorporation through our wholesome and reasonably priced packages. To know more and avail our services, you can visit our official page on company registration in India.
STEP 3 – Ensure Capital Adequacy
An MFI-NBFC must have adequate capital before it files the application to obtain the approval of the RBI. The prescribed capital limit or the net owned funds for the same is Rs.5 crores, which means that the applicant company must have a minimum capital of Rs.5 crores before it applies for the necessary license from the RBI. Note that, this amount is Rs.2 crores for North Eastern states in India.
STEP 4 – Deposit Capital
After the prescribed capital of Rs.5 crores is arranged, the same should be deposited as fixed deposit in an FD account opened in the name of the NBFC in any scheduled commercial bank. Also, a No Lien Certificate must be obtained by the banker.
STEP 5 – Apply for RBI license digitally
The application prescribed for obtaining RBI license is available on the official website of the RBI. The application must be downloaded and must be filled out manually. After filling it out, you are required to submit the application by uploading its scanned copy along with the scanned copy of the required documents. Following a successful submission, an application reference number is generated.
STEP 6 – Submit the application to the RBI regional office
After the application has been submitted digitally, a copy of the application, the application reference number, and the copies of the required documents must be submitted to the Regional Office of the RBI. The concerned authorities then examine the application, and upon successful verification, send the same to the Central Office of the RBI.
STEP 7 – Issuance of RBI license
With a few days of filing the application to obtain a license from the RBI, the RBI issues the license to the applicant company. After receiving the license, the NBFC can begin operating as a microfinance company without any hassle or hindrance.

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Documents for MFI registration

Documentation is the most significant aspect of filling the application for MFI registration in India. To set up an MFI as a Section 8 company, no additional documents are required other than those prescribed for Section 8 company incorporation. You can refer to the complete list of all such documents here. However, to set up an MFI as an NBFC, a prior approval of the RBI is needed, for which the following documents mst be filed with the prescribed application:
S.No List of Documents
1.
Memorandum of Association and Articles of Association
2.
Certificate of Incorporation of the company
3.
Certified True Copy of Board resolution
4.
Auditor’s Certificate on Net Owned Fund
5.
Banker’s Certificate of No Lien on Fixed Deposit
6.
Banker’s report about the company
7.
CIBIL Credit Report of the directors
8.
CA Certifed Net worth certificate of the directors
9.
Education Proof of the Director
10.
Directors Professional Qualification Proof
11.
Photo, Identity & Address Proof of Directors
12.
Income Proof of the director
13.
Relevant work experience in the financial sector
14.
Organization Structure Plan

Frequently Asked Questions

The Reserve Bank or the RBI regulates microfinance companies like all other financial institutions in India
Microfinance companies operate as a for profit organization if registered as an NBFC, whereas as a non-profit organization if registered as a Section 8 company.
RBI license is mandatory for setting up an MFI as an NBFC. However, if the MFI is registered as a Section 8 company, no approval or license is required by the RBI, even though the MFI is regulated by the RBI. The only license a section 8 MFI requires is the license to operate as a Section 8 company by the MCA.
No. All MFIs, whether established as NBFC or Section 8 companies, are barred from accepting deposits from the public.
MFIs registered as NBFCs must have a minimum capital of Rs.5 crores before its formation. However, there is no such prescribed minimum capital for MFIs established as Section 8 companies in India.
Directors of microfinance companies registered as NBFC must have at least 10 years of work experience in the finance industry prior to being appointed as its director. However, there is no such requirement for directors of MFIs registered as Section 8 companies.
MFIs registered as NBFCs cannot disburse loans beyond 10% of its total assets. As far as MFIs established under section 8 of the Companies Act are concerned, they cannot disburse unsecured or collateral free loans beyond Rs.50,000 and beyond Rs.1.25 lakhs to dwelling residences.
The recovery system in an MFI must not be coercive. A centralized recovery system must be followed. If the borrower does not repay the amount due within the prescribed time period, the officials in charge of recovery are entitled to retrieve money from the borrower.
Net assets are the number of assets that a corporation currently holds in its hands.
Bankers have the right to lien for securities or money deposited with them, meaning the bankers can retain the deposited securities / money for any amount due to the bank by the depositor. The bankers have no lien if no amount is due to be paid by the depositor, or if the amount deposited by the depositor has a special purpose. Hence, after the deposit of the MFIs capital into the FD account of the MFI, a no lien certificate is required to be obtained for moving further in the process of MFI-NBFC formation.
Qualifying assets are assets that take a substantial amount of time to become effective. Assets that are ready for their intended use as soon as they are acquired cannot be defined as “Qualifying Assets”. An MFI-NBFC must maintain 85% of its total assets as Qualifying Assets.
The distinct characteristic features of microfinance loans are as follows:
  1. Small amounts of loan
  2. Shorter maturity period
  3. No requirement of collateral
  4. Generally, loans are provided to groups rather than individuals
  5. The transaction cost of lending is quite low
No. The purpose of end use of microfinance loans may be flexible.
Banker’s report in the context of MFI-NBFC contains details regarding the dealings of the applicant company with the concerned bank as a depositing entity or a lending entity.
Donations made to MFIs can be exempted under sections 12 A and 80 G of the Income Tax Act. 1961.