{"id":14830,"date":"2020-08-14T14:38:36","date_gmt":"2020-08-14T09:08:36","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=14830"},"modified":"2024-05-18T14:20:13","modified_gmt":"2024-05-18T08:50:13","slug":"advantages-and-disadvantages-of-microfinance-company-registration-in-india","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/advantages-and-disadvantages-of-microfinance-company-registration-in-india\/","title":{"rendered":"Advantages and Disadvantages of Microfinance Company Registration"},"content":{"rendered":"\n<p class=\"has-drop-cap\">If you are willing to make a significant investment in Microfinance business, this would probably be your best bet. Microfinance business is thriving rapidly ever since it gets a much-needed boost from the government. But colossal success should not be the only criteria for selecting a particular business model. For long-term sustainability and profit, one has to look into every aspect of this business. In this blog, we will be looking into this business model inside out and try to point out the Advantages and Disadvantages of Microfinance Company.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/advantages-and-disadvantages-of-microfinance-company-registration-in-india\/#Microfinance_company-_General_overview\" >Microfinance company- General\noverview<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/advantages-and-disadvantages-of-microfinance-company-registration-in-india\/#Advantages_of_Microfinance_Company\" >Advantages\nof Microfinance Company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/advantages-and-disadvantages-of-microfinance-company-registration-in-india\/#Disadvantages_of_Microfinance_Company\" >Disadvantages\nof Microfinance Company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/advantages-and-disadvantages-of-microfinance-company-registration-in-india\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Microfinance_company-_General_overview\"><\/span>Microfinance company- General\noverview <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Microfinance companies primarily benefit the low-income group and\nthe underprivileged section of the society. Providing easy funds without the\ncollateral is one major highlight of this business model. They are only\neligible to give the credit up to Rs. 50,000 and Rs. 1, 50,000 to people from\nrural and urban areas. Microfinance companies objectively aid people from\nlow-income groups by providing them credit through relaxed provisions. Microfinance\nCompany can be formed through the following business models: <\/p>\n\n\n\n<ul>\n<li>NBFC<\/li>\n\n\n\n<li>Section 8 companies<\/li>\n<\/ul>\n\n\n\n<p>NBFC based model is quite popular because of its versatility and flexibility in terms of exposure and compliance. Section 8, on the other hand, is preferred by those who don\u2019t have substantial resources to set up a company. Just like other financial institutions, Microfinance firms are also governed by the RBI\u2019s provisions.  <\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" width=\"674\" height=\"567\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/08\/image-60.png\" alt=\"Microfinance company\" class=\"wp-image-14832\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/08\/image-60.png 674w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/08\/image-60-300x252.png 300w\" sizes=\"(max-width: 674px) 100vw, 674px\" \/><\/figure><\/div>\n\n\n<p>There is no way these firms can alter the interest rate or any other services parameter without the permission of RBI. They are liable to execute their business activities under prescribed guidelines. RBI approves the application for <a href=\"https:\/\/corpbiz.io\/microfinance-company-registration\"><strong>registration of microfinance companies<\/strong><\/a> and the applicant has to furnish plenty of documents for this purpose. Now let\u2019s move to the next section i.e. Advantages and Disadvantages of Microfinance Company. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Advantages_of_Microfinance_Company\"><\/span>Advantages\nof Microfinance Company <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">Collateral-free\nloans<\/h3>\n\n\n\n<p>Most of the microfinance companies seek no collateral for providing\nfinancial credit. The minimum paperwork and hassle-free processing make them a\nsuitable option for quick fundraising. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Disburse quick loan under\nurgency<\/h3>\n\n\n\n<p>The financial crisis is inherently unpredictable as it could creep up at any point in time without intimating anybody. Thanks to microfinance companies that can provide secure and collateral-free funds to an individual in the demanding situation to meet their financial need. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Help people to meet their\nfinancial needs<\/h3>\n\n\n\n<p>The renowned financial institute provides unparalleled services when\nit comes to loans or credit. But the worst part is that they are not accessible\nto low-income groups. Microfinance companies, however, offer different\nproposition altogether. They are dedicated to serving a poor and unemployed\nindividual by providing them easy financial credit. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Provide an extensive portfolio\nof loans<\/h3>\n\n\n\n<p>Microfinance companies are not only limited to providing emergency\ncredit but also capable of disbursing housing loans, business loans, and\nworking capital loans with minimum formalities and processing.&nbsp;&nbsp; <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Promote self-sufficiency and\nentrepreneurship <\/h3>\n\n\n\n<p>Microfinance companies can provide much-need funds to an individual for setting up a healthy business that seeks minimum investment and offers sustainable profit in the long run. Thus, these companies ensure entrepreneurship and self-sufficiency among the lower-income group. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important\"><a href=\"https:\/\/corpbiz.io\/learning\/micro-finance-company-registration-process\/\">Micro Finance Company Registration: Complete Process<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Disadvantages_of_Microfinance_Company\"><\/span>Disadvantages\nof Microfinance Company <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">Harsh repayment criteria <\/h3>\n\n\n\n<p>In the absence of the legit working protocol and compliances,\nMicrofinance Companies could adopt a harsh repayment approach that someone would\nnot prefer in the state of the financial crisis. Easy debt never comes with\nrelaxed conditions, and that is something true with microfinance companies as\nwell. Since these companies work under strict compliances, they could\nmanipulate their customer for repayment unethically.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Small Loan amount <\/h3>\n\n\n\n<p>Unlike mainstream financial banks, Microfinance Companies offers a\nsmaller loan amount. Since these banks don\u2019t ask for collateral against the\ncredit, the disbursement of the large loan amount is practically impossible in\ntheir case. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">High-interest rate<\/h3>\n\n\n\n<p>Another problem with Microfinance Companies is that they were unable to render low-interest based loans. This is because they don\u2019t follow traditional banks\u2019 footprint, where the accumulation of funds is easy. Plus, they have to borrow money from these banks to execute appropriately and allocate some part of it for <em><strong>risk management<\/strong><\/em><sup><a href=\"https:\/\/www.investopedia.com\/terms\/r\/riskmanagement.asp\"><em><strong>[1]<\/strong><\/em><\/a><\/sup>. Hence operating cost per transaction is quite high for them despite the high volume of transactions per day. <\/p>\n\n\n\n<p>Unlike banks, the microfinance institution accumulates funds through private equity to render financial services. This primarily implies that these firms are under relentless pressure to create more profit for their investor, consequently forcing them to crank up the interest rate. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>That&#8217;s our take on the Advantages and Disadvantages of Microfinance Company.  Microfinance is a great business model for someone who wants to work for the well-being of the underprivileged section of the society. However, there are many hidden challenges that one has to face while conducting such business activities. This business model probably won\u2019t give you higher ROI, but it can ensure optimum growth due to stable demand for credit. Hence, we can conclude that Microfinance business is more of an initiative than a company that works beyond the scope of profit. It\u2019s the replica of an NBFC business model that works in a confined landscape and facilitates financial services for needy ones. If you are serious about investing in such a business model, then applying for registration is the first thing you need to do for the establishment. <\/p>\n\n\n\n<p>Registration could be a daunting errand for someone who is not familiar with compliance requirements. If you want to make your registration journey more comfortable, we would suggest you connect with <a href=\"https:\/\/corpbiz.io\/\"><strong>CorpBiz\u2019s<\/strong><\/a> professional as they have years of expertise in this field.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important\"><a href=\"https:\/\/corpbiz.io\/learning\/document-for-registering-microfinance-company-in-india\/\">A Complete Checklist of Document for Registering Microfinance Company in India<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>If you are willing to make a significant investment in Microfinance business, this would probably be your best bet. Microfinance business is thriving rapidly ever since it gets a much-needed boost from the government. But colossal success should not be the only criteria for selecting a particular business model. For long-term sustainability and profit, one [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":14833,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[507],"tags":[877],"acf":{"service_id":"52"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":91478,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/14830"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=14830"}],"version-history":[{"count":7,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/14830\/revisions"}],"predecessor-version":[{"id":64228,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/14830\/revisions\/64228"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/14833"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=14830"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=14830"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=14830"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}