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Microfinance Company Registration

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Overview of Microfinance Company Registration

The term Microfinance Company (MFC) basically means an entity that is engaged in providing financial assistance and help to the rural people, low income strata, and the backward and undeveloped section of the society. That means the main objective of this business model is to offer access of the banking facilities to every section of the society. However, to start a MFC in India, one needs to first acquire a Microfinance Company Registration from the RBI.

Further, it shall be noted that a microfinance institution or a company is a Non Deposit Taking NBFC and is separate and distinct from section 8 company. Also, the operations and affairs of a Microfinance Institution are governed and regulated by the provisions of the Reserve Bank of India Act 1934 and the directions issued thereunder.

Role for Microfinance Institution

The key role and responsibilities of a Microfinance Institution are as follows:

  • Renders Financial Assistance to the Low Income Strata;
  • Offers Banking Facilities to the Rural, Semi Rural, and Backward Areas of Society;

Microfinance Company Registration

Benefits of obtaining Microfinance Company Registration

The key benefits of obtaining Microfinance Company Registration in India are as follows:

  • No Need for Collateral Security for Borrowing Funds;
  • Facilitates Employment Generation;
  • Contributes in Rural Development;
  • Renders Opportunity to Earn Income;
  • No Need to fulfil any Minimum Capital Requirement Criteria;
  • Provides better Interest Rate of Repayment;
  • Aims to make people Self Sufficient;

Regulations Governing the Model of Microfinance Institution

The regulations governing the Model of Microfinance Institution can be summarised as:

RBI Compliance

The term RBI Compliance denoted the guidelines passed concerning the affairs ans operation of the Microfinance Companies.

Further, it shall be significant to mention that a Microfinance Company is exempt from satisfying the RBI requirements. However, it requires adhering to the rules prescribed by the RBI concerning Microfinance Companies.

Companies Act 2013

It shall be noted that if a Microfinance Company is incorporated as a Section 8 Company, then it needs to abide by the requirements prescribed under the provisions of the Companies Act 2013.

Who are all Eligible to Acquire MFI Registration in India?

The ones who are eligible to obtain MFI Registration in India are as follows:

  • Agricultural Activities;
  • Artisan Business;
  • Professional & Transport Trade;
  • Small Scale Businesses;

Perquisites for Obtaining MFC Registration in India

The perquisites for Obtaining MFC Registration in India can be summarised as:

  • The company must have a registration under the provisions of the Companies Act 1956 and 2013;
  • It should have the Net Owned Funds (NOF) of Rs 5 crores;
  • It is eligible to offer loan only between Rs 50 thousand to Rs 1.25 lakh;
  • Need to Furnish details concerning Promoters;
  • 85% of the Total NOF needs to be the Qualifying Assets;
  • Does not require any amount of minimum capital;

Different Types of MFC Registration in India

The different types of MFC Registration applicable in India can be summarised as:

  • RBI Registered MFIs

    To incorporate a Microfinance Company or Institution as an NBFC (Non Banking Financial Company), the applicant requires to get a company registered either as a Private Limited or Public Limited Company under the Companies Act 2013.

    Thereafter, the said applicant company requires to comply with all the steps needed for obtaining microfinance company registration, starting from the minimum capital requirement to the actual filing of the application for registration at the regional office of the Reserve Bank of India.

  • Section 8 Registered MFIs

    To start a Microfinance Institution in India, as a section 8 company, the applicant company requires to firstly apply for acquiring the Digital Signature Certificate (DSC) & Directors Identification Number (DIN) for all the proposed directors.

    Thereafter, it needs to furnish an application for obtaining Name Approval in form INC – 1. Also, it requires to draft of the MOA (Memorandum of Association) & AOA (Articles of Association) for the said company and the need to submit INC – 12, along with the needed documents to acquire Microfinance Company Registration.

Types of Loans Provided by Microfinance Company

Usually, a Microfinance Company provides a loan of small amounts to the rural and backward sections of the society. These loans are, although not secured, the company is capable of levying interest at a rate that meets the requirement.

Further, the key features of the loans provided by the Microfinance Company are as follows:

  • The interest rate charged by a Microfinance Company should not exceed a particular threshold;
  • It shall be noted that the interest charged by a Microfinance Institution must be of reasonable nature;
  • Also, the requirements of the loans or funds being given need to comply with the requirements concerning Microfinance Company;

Documents required for Obtaining Microfinance Company Registration

The documents required for obtaining Microfinance Company Registration are as follows:

  • A copy of the Certificate of Incorporation (COI) of the Company;
  • Permanent Account Number (PAN) Card details of the Applicant Entity;
  • PAN Card details of the proposed Directors;
  • Digital Signature Certificates (DSCs) for all the proposed Directors;
  • Director Identification Number (DIN) for all the proposed Directors;
  • Latest passport sized photographs for all the proposed Directors;
  • Address Proof for the premise being utilised as the Registered Office of the company;
  • A copy of the duly stamped Lease Deed or Rental Agreement, in the case property being used is Rented;
  • A copy of the Sale Deed or Ownership Certificate, in the case property being used is the Self Owned Property;
  • A certified copy of the Memorandum of Association (MOA);
  • A certified copy of the company’s Articles of Association (AOA);
  • A copy of the certified Banker’s Report;
  • A duly certified copy of the passed Board Resolution;
  • A copy of the Auditors Report displaying the minimum Net Owned Funds (NOF);
  • A duly certified copy of the Compliance Certificate from a Practising Chartered Accountant;
  • A Structured Business Plan of the Applicant Company;
  • A copy of the latest Financial Report concerning Directors;
  • A copy of the Income Proof of all the Key Managerial Personnel (KMP) and proposed Directors;
  • No Objection Certificate from the Company;
  • Bankers Certificate regarding No Lien;
  • A copy of the Credit Statement of the company;
  • A copy of the Passport if the proposed director is an Indian National. However, in the case of Foreign Nationals, apostil or notarised copies of the passports is required to be submitted;
  • Net worth certificate for all the proposed directors;

Also, it shall be taken into consideration that the applicant company needs to furnish all the required documents, but the same must not older than a period of 2 months.

Process for Obtaining Microfinance Company Registration in India

The steps involved in the process for obtaining Microfinance Company Registration in India are as follows:

Register a Company

In the first and foremost step of the process for obtaining Microfinance Company Registration in India, the applicant needs to register a company under the stipulations of the Companies Act 2013.

Further, for the purpose of incorporation, the applicant needs to file a SPICe + Form with the Ministry of Corporate Affairs.

Also, it shall be noted that when the company is initially incorporated, the best type of business structure which is utilized for this type of organisation will either be a public limited company or a private limited company. Further, through Companies (Incorporation) Act 2015, the Ministry of Corporate Affairs have removed the requirement of the minimum capital required for incorporating a company in India.

SPICe Plus Service

Usually the above mentioned SPICe Plus Service will be easily carried out by the respective applicant as the whole procedure of the registration procedure is online.

Further, the said service will offer name reservation, Director Identification Number, Mandatory Issuance of the Permanent Account Number, Tax Deduction & Collection Account Number, EPFO, ESIC, and other forms of registration which are required.

Furthermore, the compliances as follows have to be duly carried out after the completion of the above process:

  • If the company has been incorporated as a new business entity, then, in that case, the name has to be reserved;
  • It shall be noted that all the other compliances concerning the EPFO (Employee Provident Fund Organisation), GST (Goods and Service Tax), Income Tax, PAN (Permanent Account Number), TAN (Tax Deduction and Collection Account Number), Bank Account, and Professional Tax Registration (if required) needs to be carried out in accordance with the required law.

Application in SPICe Plus

The applicant needs to click on the SPICE plus under the relevant MCA services. Further, the applicant will be redirected towards another page, wherein he/ she needs to apply for a new application.

However, it shall be noted that if a company is already existing, then, in that case, an existing application is required to be clicked on. After that the applicant is needed to check on the correct category and sub category concerning the company.

All the activities & operations that are carried out by a company have to be clearly mentioned. Therefore, if an applicant is going for a particular set of activities, then, in that case, it needs to specify the type of industrial activities as well.

Check for the Name Approval

If the company, which is applying for Microfinance Company Registration already has a name present, then, in that case, the applicant is required to click on the auto check to fulfill the requirements concerning to name of the company.

Further, all the other information in respect to the name of the company needs to be duly furnished. Both the part A and B must be submitted.

Furthermore, the details as follows are required to submitted, together the details mentioned above:

  • Name of the Applicant Company;
  • Location of the Premise being used as the Registered Office;
  • Operations which are carried out by the applicant company;
  • PAN, TAN, and other registrations that are carried out by the company;
  • The company needs to carry out the process of pre-scrutiny check concerning registration;

The directors of the company need to download all the particulars specified in Part B of the form. After that, it need to affix DSC (Digital Signature Certificate) for all the proposed directors accordingly. However, it shall be noteworthy to note that all the forms which are downloaded must include AGILE-Pro, SPICe+ MOA, and SPICe+ AOA, URC-1, and INC 9, and all of them must be properly linked and uploaded online. After that, a request number will be generated and the applicant needs to make the payment as required. Lastly, the forms filed will be processed.

Raise the Capital Required

Further, in the next step of the process for Microfinance company registration, the applicant company need to raise about Rs 2 crores or 5 crores as per the requirements.

Open a Current Bank Account

In the further step the directors of the applicant company would require to open a current bank account. Also, a certificate concerning the no lien created will be required for the process above mentioned. An application will further be presented at the regional office of the Apex Bank for this type of certificate.

Apply to RBI for Microfinance Company Registration

Next, all the certified copies of the documents required for the process of acquiring microfinance company registration, have to be furnished at the regional office of the Reserve Bank of India.

Further, the documents and certified copies that are required to be filed at the regional office of the RBI are as follows:

  • Copies of the Incorporation Certificate received by the ROC (Registrar of Companies);
  • A duly certified copy of the Memorandum of Association (MOA) and;
  • A duly certified copy of the Articles of Association (AOA);
  • A copy of the FDR (Fixed Deposit Receipt);
  • A Certificate from Bankers of the company concerning No Liens on the NOF (Net Owned Fund);

File an Online Application

Now, the applicant is required to file an online registration with the Reserve Bank of India for obtaining Microfinance Company Registration in India. After that the applicant will be provide an CARN (Company Application Reference Number) for future reference.

Furnish the Hard Copy

In the last step of the process for Microfinance Company Registration, the applicant is required to submit the hard copies at the specified regional office of the Reserve Bank of India. Further, after submission, the RBI will carry out the procedure of scrutiny and due diligence to confirm that the company has satisfied all the requirements.

Frequently Asked Questions

Microfinance is also coined as 'microcredit'. It is a financial service that provides loans, savings, and insurance to entrepreneurs and small business owners who don’t have access to traditional sources of capital, like banks or investors. Microfinance is also named as microcredit.

  • File Name Approval Application
  • Apply for DIN & DSC
  • Certificate of Incorporation
  • Online Application to RBI
  • Copy of PAN Card
  • Aadhar Card
  • Address Proof (Bank Statement, Mobile Bill, Telephone Bill),
  • Passport Size Photo
  • Ownership Proof (Electricity bill etc.)
  • Utility Bill (Gas bill, Electricity bill)
  • NOC
  • It benefits in fostering self-reliance and entrepreneurship.
  • Constant and smooth access to funding
  • High-grade overall loan repayment rate in correlation to traditional bank

The starting registration fees for Microfinance Company is Rs.1,190,000/-

Yes, the loan can be provided for the personal purpose of the borrowers by Microfinance companies; the still aggregate amount cannot exceed 30% of the total investment.

No, the prepayment penalty cannot be imposed by Microfinance companies.

Microfinance Companies are not available to charge a higher rate of interest from the directed rate of interest, and most variation cannot exceed 4%. In comparison, if we talk about loan processing costs, then it cannot exceed 1% of the gross loan amount. Microfinance Companies can levy loan insurance charges individually.

  • NBFC MFIs shall ensure that the Fair Practices Code is followed during recruitment, training, and supervision of field staff.
  • Recovery should be non-coercive and be made only at a central designated place. If the borrower fails to come to the first designated place on two or more successive occasions, then field staff shall be allowed to recover the loan.

Net assets are described as Total Assets other than cash and bank balances and money market devices.

“Qualifying Assets” are loans disbursed to a borrower with an annual household income of less than Rs.1,00,000 in rural areas or Rs. 1,60,000 in urban and semi-urban regions.

Apart (i.e., a maximum of 50 percent) of the cumulative amount of loans may be judged for other purposes such as housing repairs, education, medical, and other emergencies. However aggregate amount of loans given to a borrower for income generation should constitute at least 50 percent of the total loans from the NBFC-MFI.

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