Microfinance Company Registration

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Micro-Finance Companies may be registered as Section 8 Companies subject to RBI approval for microfinance activities in India. We advise and assist in setting up the Micro Finance Company anywhere 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, deposit, 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.” Only Non-banking Finance Companies can be set up as Micro Finance Companies, with the prior approval of the Reserve Bank of India.
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Checklist to set up a Microfinance Company Registration

A microfinance company can be incorporated as a public or private limited company, for getting established either as an NBFC in India. 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.

Microfinance Company Registration Process Step-by-Step

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 below. 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.

Documents Required for Section 8 Micro Finance Company Registration

Documentation is the most significant aspect of filling the application for MFI registration in India. To set up an MFI as an NBFC, a prior approval of the RBI is needed, for which the following documents must be filed with the prescribed application:
S.No List of Documents For MFI Registration as NBFC
Memorandum of Association and Articles of Association
Certificate of Incorporation of the company
Certified True Copy of Board resolution
Auditor’s Certificate on Net Owned Fund
Banker’s Certificate of No Lien on Fixed Deposit
Banker’s report about the company
CIBIL Credit Report of the directors
CA Certifed Net worth certificate of the directors
Education Proof of the Director
Directors Professional Qualification Proof
Photo, Identity & Address Proof of Directors
Income Proof of the director
Relevant work experience in the financial sector
Organization Structure Plan

Frequently Asked Questions About Microfinance Company Registration

Donations made to MFIs can be exempted under sections 12 A and 80 G of the Income Tax Act. 1961.
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. Before 2022, even non profit organizations under Section 8 of the Companies Act were eligible for being established as an MFI. However, this option has now ceased to exist according to a recent notification of the Ministry of Corporate Affairs.
Yes. RBI license is mandatory for setting up an MFI as an NBFC.
No. MFIs are barred from accepting deposits from the public.
MFIs registered as NBFCs must have a minimum capital of Rs.5 crores before its formation.
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.
MFIs registered as NBFCs cannot disburse loans beyond 10% of its total assets.
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.

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