Microfinance Company Registration: Complete Procedure and Benefits

Sonal Pruthi

15 Jan, 2021

A finance company which provides the finances to lower-income groups is known as a Micro finance company. The financial requirements are less as compared to the other groups of society. These sectors do not have access to the traditional financial institution like banks and other financial institutions. In this article, we are explaining the complete procedure of Microfinance Registration.

It can be said that these financial institutions provide loans of smaller amounts. They provide small scale financial services in the form of a loan, credit of savings.

Significance of Microfinance Registration:

1. These companies have been introduced to ease the credit system for small business, as they don’t have access to the traditional banking system.
2. It is commonly called Micro-benefit organization.
3. They are not eligible for loans from the traditional banking system.
4. They provide small loans from Rs. 50,000 in Rural Areas and Urban Areas a loan for Rs 1, 25,000.
5. The Company is registered as Section 8 Company under Ministry of Corporate Affairs^[1].
6. No securities are charged by the Microfinance Company.
7. These loans are given by the Microfinance Company at expensive rates which are directed by RBI and central Government.
8. Such type of companies is a huge support to all rural and agricultural development. This helps in income and employment creation.
9. There are two types of Microfinance Company, one registered with RBI and other as non-profit type- written as Section 8 Company no approval from RBI approval.

Features of Microfinance Registration

1. No approval from RBI is required for microfinance registration if it is non-profit type.
2. No Minimum Capital is required for the Microfinance registration.
3. Minimum Compliance for Microfinance Registration.
4. It is considered a legal finance business and defaulter can be sued in case of the loan’s non-payment.
5. The financing business in India is governed by NBFC-Non Banking Financial Companies. NBFC is required to comply with RBI Guidelines.
6. The notification dated RBI/2015-16/15 DNBR which exempted all the Section 8 Companies, engaged in the microfinance activities.
7. The RBI Act u/s 45 –IA and 45-IB and 45-IC, shall not apply to NBFC if it is engaged in providing loans/credit not exceeding Rs. 50,000/- to Rs. 1, 25, 000/- and licensed as Section 8 Company under the Companies Act, 2013. Also, there is no acceptance of Public Deposits.

Microfinance Registration Procedure:

1. Microfinance Registration as NBFC:

a. Company Registration

The critical part of the formation of Microfinance Company Registration is that it must be registered either as public or private limited Company.

For the private Company, there must be at least two members. For a public company of microfinance registration, there must be at least seven members.

b. Capital

The minimum capital requirement or minimum net owned funds required is 5 Crore Rupees.

c. No-Lien Certificate

Deposit the capital in the Bank once obtained. Apply for the No-Lien Certificate for the same.

d. License Application

The license must be filled through online application along with the certified documents must be submitted.

The list of documents that are required and needs to be submitted with this are:

1. Memorandum of Association- MOA and Articles of Association-AOA
2. Certificate of Incorporation
3. Resolution copy of the Board
4. Auditor’s copy of the report
5. Report from the Bank about the Company
6. Certificate of lien from the Bank
7. Directors Net Worth Certificate
8. Certificate of Qualification of the Director
9. Proof of Income of the Director
10. Work Experience under the financial sector
11. Organization Structure Plan.

2. Microfinance Registration as a Section 8 Company

a. DSC-Digital Signature Certificate and DIN- Director Identification Number

The first step for the microfinance registration is to obtain the DSC and DIN for its directors. This is used for authorising the digital e-forms.

b. Name Approval of the Company

Take the approval of the name of the Company under Form INC-1. The name must suggest that the Company is registered as the Section 8 Company. So the words must be used at the end.

c. MOA –Memorandum of Association and AOA- Article of Association

The Company filed its MOA and AOA, after the name approval of the Microfinance.

d. Other relevant documents approval

After the above steps, the Company must file the Form INC-12 and the incorporation certificate, to obtain the license.

Documents required as follows:

1. PAN Card of the company directors
2. Identity proof documents
3. Address Proof documents
4. Director’s Photograph
5. Non- Objection Certificate of the owner’s premises
6. Stamp duty to be paid as mandated by the state

Types of Microfinance Company

There are various types of microfinance institutions which are offering credit, insurance and financial training in the rural areas:

1. Joint Liability Group

The loans are taken for agriculture purposes or associate activities. It is a group of 4 to 10 individuals who are seeking loans, against the mutual guarantee. Here the borrowers are generally the farmers, rural workers, and tenants fall under this category.

2. Self Help Group

These are the group of individuals or the common entrepreneurs with the common socio-economic background have pooled their funds for a short duration, to meet their common interest. These are generally non-profit organisation. The group takes care of the debt recovery. There is no requirement for the collaterals in this kind of lending. Some of the banks are tied up with the SHG’s and offer the loan with the lower interest rate. This group aims at improving the financial condition of the rural areas.

3. Grameen Model Bank

This type of microfinance registration was the model view of the Professor Mohammad Yunus in Bangladesh. In this type of microfinance registration, it created regional rural banks in India. The idea was to create an end to end development of the rural areas.

4. Rural Cooperatives

This type of microfinance registration came to India at the time of independence. Here the resources of the poor were poled, and financial services were provided using that fund.

The best model of microfinance registration in India was the Grameen Model Bank.

Conclusion

Read our article:Micro Finance Company Registration Procedure in India