Overview of Microfinance Institutions
- The Microfinance Company is the financial institution that gives small-scale financial services in the form of loans, credit, or savings. These companies are initiated to ease the credit system for small businesses as they don't get a loan from banks due to their complicated method. Hence, it is commonly named as a Micro-credit company or organization. They offer small loans to several small businesses or households that do not have access to formal business channels or eligibility for loans.
- They give small loans that are less than Rs.50,000 for rural regions, and for urban, it is Rs.1,25,000. The easiest way to register a Micro Finance Company in India is to register the Section-8 Company by MCA (Ministry of Corporate Affairs). Outwardly charging any marginal money or ensure security. It can give loans at reasonable rates directed by the RBI and central government. They are extensive support to all rural and agricultural development, including income and job creation. There are two types of microfinance organizations that are allowed in India; one is which has to be registered with the RBI, and added is the non-profit type, which is listed as section 8 company and does not need RBI approval.
- Microfinance Institutions give financial services such as loans, savings, and insurance to needy personalities of the society and small business contractors who will not be able to pass for a standard bank loan.
Salient Features of Microfinance Institutions
- Microfinance Institutions must be included as per the Companies Act 2013 or 1956.
- Before starting operations, they must have the least net worth as designated by the authority.
- They must have received the necessary license or permit.
- They are included in the low amount of financing to the needy frames of society.
- Offer banking assistance at small monetary amounts
- To provide financial support to individuals who work in varied trades like 'transportation,' 'fishing,' 'carpentry,' etc.
- Offer financial support to small enterprises that cannot afford any collaterals
- Increase the participation of women in generating sustainable livelihood
- Provide access to quality healthcare
- Enhance and enrich the mode of maintenance for low-income individuals and building opportunities for self-employment
Obligatory Conditions for Micro Finance Company
There are principally two ways to register the Micro Finance Institution. One way is to create a company and then apply to RBI for support. The least necessities for Microfinance Company is Rs.5 crore net owned fund and active sketches of promoters. The other way is to register a section 8 company.
- The essential and highest Rs.50,000 can be given for business purposes and Rs.125,000 for household dwelling.
- No least net controlled fund requirement.
- No RBI support/approval is needed since RBI has released this company from registration and some different conditions.
Non - Approval from RBI
In India, finance institutions are authorized only to Non-Banking Finance Companies (NBFC) and regulated by RBI. However, some business forms have been granted immunity by the 'Reserve Bank of India' (RBI) to do banking activities up to a specified limit. The RBI by its chief circular: "RBI/2015-16/15 DNBR (PD) CC.No.052/03.10.119/2015-16" Dated July 01, 2015, has published all Section 8 Companies involved in microfinance activities.
Receiving of Securities under Micro-Finance Company
- Deposits are not advised to be accepted under section 8 company. Furthermore, the company has to advance its funds and start your microfinance company. Moreover, the company may also raise funding utilizing contributions as donations.
- Yet if you plan to register an NBFC company and available to invest Rs.5 Crore into the business, then also securities are not permitted to be exercised. As per the RBI scheme, first, you expect to register an NBFC non-deposit-taking company and, consequently, demand for deposit-taking status from the Reserve Bank of India (RBI).
Micro-credits supporting Micro Finance Company
Loans below microfinance companies are not very confused. Most unsecured loans are provided and against monthly repayments or weekly payments.
- NBFC can force a differential rate of interest to its consumers, but reform must not be more than 4%.
- Microfinance companies to present in all the offices or literature, the reasonable rate of interest.
- Companies must begin a loan card to all members announcing the interest rate with all different tax rates
- Loans are also given in self-help groups and other link programs.
- If no payment is obtained within 90 days, then the equivalent must be treated as a non-performing asset, except for section 8 companies.
Microfinance Company Registration
Mandatory Compliances for Micro Finance Company
There are the least compliances which are to comply with the Micro Finance Company. However, the most important adjustments are as follows:
- RBI Compliance:
The company is advised to comply with RBI norms even if it is not required to register with the reserve bank.
- Company Act:
Section 8 company also required to comply with the Companies Act, in the same way, other companies.
There are several laws as well, which are to be taken care of like PMLA etc. if talk about the mandatory compliances.
Benefits of Microfinance Company Registration
For Microfinance Institutions in India, the Reserve Bank of India has created a policy framework to provide necessary legitimacy to the sector.
- It helps in promoting self-sufficiency and business start-ups
- Easy ways to obtainfunding
- Better overall loan repayment rate related to general traditional banks.
- It helps in upbringing the financial condition by meeting the credit for different types of loans such as emergency loans, business loans, working capital loans, housing loans, etc.
- No minimum capital of 5 Cr
- No RBI approval
- The easiest way to start a finance business
- It can charge up to a 26% rate of interest.
- Promoting socio-economic growth:
- Offers reasonable services for small businesses:
- Minimum Compliances:
Documents Required for MFI Registration in India
- Duly tested copy of 'Certificate of Incorporation of a company'.
- Certified copy of 'Memorandum and Articles of Association' (MOA & AOA) of the Company
- Board Resolution concerning the proposed 'Microfinance company registration'
- Banker's Report
- Auditors report regarding receipt of the 'minimum net owned fund (NOF) of the applicant company
- A certificate of 'Chartered Accountant' regarding details of members of companies along along with details of investments in other 'NBFCs' as shown in the 'Performa Balance Sheet'
- A certified copy of the Essential and highest educational and professional qualification of all the proposed directors of an applicant company.
- PAN card: In the matters of Indian citizens, the PAN card of shareholders and directors.
- Passport size photograph: Not more than ten months old photo of directors and shareholders
- ID proof: Copy of Aadhaar card/voter identity card/passport/driving license of directors and shareholders
- Rent agreement: If you have rented property, then a copy of rent agreement
- Address proof: Electricity bill, water bill, bank statement, gas or telephone bill of shareholders and directors
- Registered office proof: Electricity bill, water bill, bank statement, gas or phone bill of the registered office address
- NOC from the owner: No objection certificate is needed from the owner of the registered office
- KYC/income proof of the Director
- Proof experience in the financial segment of the business
- Recent credit report of the directors
- Net worth certificate of the directors
- Detailed Action plan about the products and risk assessment policy
- Structure plan of the organization
Procedure for Micro-Finance Company Registration
- Company Registration with SPICe + Form
- Initially, in MFI-Microfinance Institution, it needs to register a company either as 'Private Limited Company' or 'Public Limited Company' as per the 'Companies Act, 2013'. The company can be enrolled in the capital of Rs.1,25,000.
- SPICe Plus serves many requirements like name reservation, incorporation, DIN allotment, mandatory issue of PAN, TAN, EPFO, ESIC, Profession Tax (Maharashtra), and Opening of Bank Account and acquire the GSTIN via SPICe + form.
Part A –: Name Reservation (New Companies only)
- Company Incorporation
- Application for DIN
- PAN Application
- TAN Application
- GSTIN Application
- EPFO Registration
- ESIC Registration
- Opening of Bank Account for the Company
- Profession Tax Registration (only for Maharashtra)
Step By Step Procedure for New Company-Incorporation under SPICe+
- Click ‘SPICe+’ placed under ‘MCA Services’.
- After that Choose ‘New Application;
- Existing application, you can prefer ‘Existing Application’, fill in the application number with the proposed or approved name. Click ‘Type of Company’
- Click ‘Class of Company’, and the ‘Category of Company’'
- Click ‘Sub-Category of Company’
- Next, you have to specify the ‘Main division of industrial activity of the Company’
- Next, you have to mention the ‘Main division of industrial activity of the Company’
- Next you have to provide details of the ‘proposed or approved name’. Click the ‘Auto-check’ to in accordance with the rules administering the name. Submit the ‘Part A’ for reservation of name or proceed with the incorporation.
- Part B has different sections for ‘check form’ for each section.
The details required for registration
- Location of the registered office of the company
- Advised directors and subscribers
- Resources of the company
- Other learning to apply for tax registrations such as PAN and TAN
- Carry out a ‘pre-scrutiny’ check. A confirmation is presented upon successful submission of the form.
- Download the PDF of Part B proposed for affixing the DSC and for filling up any linked forms along with Part B. The forms linked to SPICe+ are AGILE-PRO, SPICe+MoA and SPICe+AoA, URC-1 and INC-9. Part B of SPICe+ and linked forms can then be uploaded on the MCA portal. A Service Request Number is generated for making a payment towards Private Limited Company incorporation. Once the payment is made successfully, the forms would be processed.
In a case where the forms need resubmission for any errors being flagged upon processing, the SPICe+ form has to be resubmitted in the same manner
- Raise Capital
Secondly, it is to raise approved and paid-up share capital up to 'Rs. 5 Crore' or 'Rs. 2 Crore' whatever the case may get. It need fully should be raised in the form of 'equity Share Capital' and not individualistic Share Capital.
- Bank Account
The certificate of 'no lien' shall receive from the bank. This certificate shall be associated with an application that will be presented to the RBI.
- Application to RBI for Micro-finance Company Registration
Moreover, it is to obtain all the certified copies and present them with the RBI for carrying enterprise Operations. Following are required to be submitted:
Copy of Certificate of Incorporation
Text of the main object clause in MOA and AOA.
Copy of fixed deposit receipt.
Bankers Certificate certifying no lien concerning Net Owned Fund
- Filling Online Form
An online application will be filed, including the RBI for Microfinance Company Registration. After listing of an application, the company will get a 'Company Application Reference Number.'
- Hard Copy Docility
Once an online application gets filled, a hard copy of the certificate along with the required documents will be submitted with the regional office of the 'Reserve Bank of India.' On hosting the application, RBI will direct due diligence, and after satisfaction, RBI will issue a certificate of commencement of business.
Understanding: Impact of Micro-Finance Company, In India
- Because of a disgrace in the microfinance industry, a notable reformation took place in the way things operated in the business of 2010. The transformation was done to give a positive outlook for the microfinance sector. Millions of defaulters were noted where the loan values aggregated to thousands of crores.
- The Reserve Bank of India also guided the initiative to set a regulation where it directed credit bureaus to have the aim of supporting MFIs. Therefore, the services of credit agencies were limited to providing information to the MFIs and consumers; it asked the branches to stop unplanned lending and catering MFIs with value-added outcomes.
The Response of GST on MFI-NBFCs
- Unlimited number of departments
Currently, an NBFC, Banks with pan-India operations, can perform its service tax agreements through a single `centralized' registration. Nevertheless, under GST, such as Banks/ NBFCs would need to purchase a separate certification for each state where they work.
In supplement to registration, the compliance liability about the filing of returns has also increased substantially.
- Input-Tax-Credit Panorama
Presently, Banks and NBFCs majorly opt for the possibility of reversal of 50% of the 'CENVAT' credit availed against inputs and input sets. In contrast, CENVAT credit on capital goods could be availed with no cancellation conditions.
Supporting GST, 50% of the CENVAT credit availed upon inputs, input services, and 'capital goods' is to be changed, which leaves them with a position of diminished credit of 50% on capital goods, thereby raising the cost of capital.
The evaluation would be done by the corresponding state regulators under which the particular branch is registered. Now, every certified office of banks and NBFCs must maintain its position on rechargeability in the separate state and purpose for utilizing input tax credit in various states.
As following GST, more than one adjudicating officials will be involved, and each domain may hold a different impression on the same underlying issue. This inconsistency, in view, will continue the adjudication process. Presently, a taxpayer is adjudged by a unique adjudicating authority on a business involved. Clearing up and dealing with the diversity of opinions provided by the different adjudicating power would be difficult.
Subjects related to Income Identification under GST
- Account and Finances
The 'place of supply' will be the position of the recipient of services on the listed records of the 'supplier of services.' In the digitized and centralized situation predominating in India, recognizing the state of location of the service receiver will be quite tricky. In cases where the service receiver, like professionals, manufacturers, traders, and other workers, often shift from one place to another in search of better opportunities. The service provider may have a different address, namely permanent address, current address, the address of communication, and KYC address.
- Non-Account and Finances
The location of the supply of service here would be the location of the service provider. This will again hit such companies that are widespread in remote areas to establish their presence but operate and transact from a back-office located in some other state.
- Actionable Demands
Actionable claims do not constitute a service under Service Tax, and hence no tax is payable under the current regime. Under GST, actionable claims are now included in the definition of supply of goods. Services provided from bills discounted to securitization will now be taxed as an effect B2C and B2B majorly.
CorpBiz Complete Procedure:
- Select 'Order' above.
- Start with the required details and develop the application form.
- Complete the payment consideration.
- We will file the expected form electronically with Companies House to designate or resign a director.
- You will obtain a notification that the appointment or resignation has been approved at Companies, copy of your digital documents in 2-3 Business working days by email or Post.
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)
- 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.
No, there are no restrictions.
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.