Documents required for money lending license

Vaibhav Rathi

30 Mar, 2024

If an individual is considering starting a money lending business in India, obtaining a license is necessary! This license is an absolute necessity to ensure that the performed lending activities comply with the respective rules and regulations, hence protecting the interest of both parties and avoiding any legal risks. In this comprehensive article, we will outline the documents needed for acquiring a money lending license and answer some critical questions related to this process.

Can an Individual Do a Money Lending Business?

Yes! An individual can pursue a money lending business, but with some conditions, especially in India, an individual can become a money lender and get started in this business. However, meeting the specific criteria and obtaining the license to operate legally is crucial.

Benefits of a Money Lending License

1. Legal compliance: Working without a license can have severe legal consequences. Operating without a license can be risky and lead to fines and imprisonment. A license is issued to ensure the lending activities comply with the laws.
2. Credibility: Obtaining a license before operating can add significant credibility to a business’s reputation. A borrower will trust a licensed lender rather than one without it. Creating credibility will ultimately lead to a more extensive customer base.
3.  Access to Legal Remedies: It’s clear that without a certification or license, a business won’t be able to avail any legal remedy in case of any default by the borrowers. A company can pursue legal action to recover the money with a license.
4. Regulatory compliance: The license must comply with specific rules and regulations; this helps in preventing unethical lending practices.

How to get a Money Lending License in India?

Here’s a step-by-step guide explaining the whole process of obtaining a money lending license in India:

• The first step would be to ensure that you meet the eligibility criteria before applying for a money lending license, and these criteria include the following:
  • Indian Citizenship
  • Good character and reputation
  • Minimum age requirement (21 years old or above)
• The next step would be to choose the preferred type of license required according to the company. There are two types of moneylending claims:
  • Individual Money Lending License- As the name suggests, this type of license only allows an individual to operate as a sole proprietor in the money lending business.
  • Partnership or Company Money Lending License: This license type would be viable if a group decides to operate as a partnership or a company.
• Collect all the necessary documents: Gather all the required documents to apply for a lending license. This list of documents may vary from state to state, but the general requirements include:
  • Application Form: Get the specified application form from the respective authority (usually the District magistrate’s office) or download it online.
  • Identity Proof: The applicant must submit copies of their Aadhar card, Passport and Voter ID as identity proof.
  • Address proof: Applicant must submit documents like the electricity bill, utility bill or rental agreement as proof of your business address.
  • Income Proof: Applicant may need to present the income source, including the bank statements, to establish your financial stability.
  • Character certificate: Arrange a character certificate from a respected gazette officer to prove good character.
  • Business Plan: An Outline of your business plan, including the financial projections, scale of operations and target market.
  • No Objection Certificate: A No Objection Certificate will be needed if the registered premises for the business operation are not in the name of the applicant, the property owner.
• The fourth step would be to visit the concerned authority and submit your application with the required documents. The respective authority will run a background check to make sure there are any imparities in your application; once the officials are satisfied with the status of your application (eligibility plus documentation), the applicant will receive the Money Lending License.
• A money lending license needs to be renewed regularly. The license holder must ensure that you keep track of the renewal dates to avoid any legal complications.

Conclusion

In this dynamics of finance, obtaining a moneylending license in India is not just a legal requirement anymore but a testament to responsible lensing. Operating with certification provides a lot of benefits, such as protection from any potential legal risk. It creates credibility in the eyes of the borrowers, which eventually leads to a larger customer base, access to remedies and even regulatory compliance. More importantly, operating without a license is illegal, and noncompliance with the various state-specified rules and regulations is significant as compliance isn’t just a requirement but a cornerstone of responsible lending. Acquiring a Money lending licence is considered an ethical responsibility as it shows commitment to financial inclusivity, ethical standards and improved economic opportunities.

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