Microfinance company provides financial support to entrepreneur and small businesses. Micro Finance company is part of Non-Banking Financial Company who provides credit finance to individual and small business. It is also known as Micro Finance Institute (MFI) There are two categories of business form handled by Micro Finance activities \tNGOs - Not for profit (e.g. Trust, Society, Section 8 companies) \tFor-Profit (NBFC, MFI) Minimum net owned funds for incorporating NBFC-MFI (other than section 8 company) is 5 crores. While in the northeastern region of the country, it will be 2 crores. RBI Approval for Micro Finance Activity Every finance businesses have to be authorized by Non-Banking Finance Company and governed by RBI. All NBFC has to get registered with RBI and comply with the guidelines. However, there are certain business models which are exempted given by RBI to perform financial activity to certain extent How Micro Finance Company is Incorporated as NBFC \tRegister a Public/Private Limited Company \tDeposit the paid-up capital and obtain share certificate \tComplete the requirement with RBI registration \tOnline application for NBFC registration as a Micro Finance Company \tSubmit physical copies to the Regional office of RBI How Micro Finance Company is Incorporated as Section 8 \tRBI Approval is not required \tNo minimum authorized/ paid up criteria \tNeed to take approval from Central Government for license \tOnce approved, need to file for incorporation Can Charge Different Rate of Interest \tMFI can charge a different rate of interest to its customer, but as per limit imposed by Reserve Bank of India (RBI), the variance between the minimum and maximum interest rates should not be more than 4%. \tRBI has also made it mandatory for MFI to display the effective rate of interest being charged. Point to be Kept in Mind While Taking Loans from MFIs MFIs are always fair and keep their policy clear to have better transparency with their customers. Customers are not required to keep any security deposit or collateral for getting a loan from MFIs. Following points should be kept in mind while taking loans: \tThe rate of interest charged \tInformation about the borrower \tOther terms and conditions attached to the loan agreement \tAcknowledgment of all repayments Remuneration to Director in MFI The profit earned by the company or any other income received shall be solely utilized for the promotion of the company as per the clause of the memorandum. A person who at any time, has been a member of the company or to any one person claiming through shall not be given any portion of profits or other income earned by the company. A person is not entitled to get remuneration or any other benefit in money or money’s worth, except payment made out of pocket, interest on money lent, rent on premises let to the company However, company in good faith shall make payment to any of its officers or any other person who is not a member in return for their services A Director shall get remuneration when he is engaged in the profitable organization. But shall not get remuneration when it is a nonprofit organization.