Introduction of Microfinance Institutions
Microfinance Institutions provide financial services such as loans, savings, and insurance to needy people of the society and small business entrepreneur who will not be able to qualify for a standard bank loan.
Features of Microfinance Institutions
Here are the following key features of Microfinance Institutions:
- Microfinance Institutions must be incorporated as per the Companies Act 2013 or 1956.
- Before starting operations they must have a minimum net worth as prescribed by the authority.
- They must have obtained the necessary license or permit.
- They are involved in the low amount of financing to the needy people of society.
Benefits of Microfinance Company Registration
For Microfinance Institutions in India, Reserve Bank of India has created a policy framework in order to provide necessary legitimacy to the sector.
Here are the following benefits of Microfinance Institutions:
- It helps in encouraging self-sufficiency and entrepreneurship
- Smooth access to funding
- Better overall loan repayment rate in comparison to traditional banks.
- It helps in strengthening the financial condition by meeting the credit needs of needy people by giving a different type of loans such as emergency loans, business loan, working capital loan, housing loan etc.
Type of Legal Structure for Microfinance Company Registration
|Particulars||NBFC-MFI||Societies and Trust||Section 8 Company||Cooperative Society|
|Govern by||As per Companies Act, 2013 with the Reserve Bank of India||Society Registration as per Society Registration Act, 1860 and Trust Registration as per Indian Trust Act, 1882||Registration as per Companies Act, 2013||Registration as per Cooperative Societies Act, 2002|
|Net Worth Requirement||Rs. 5 Crore and Rs. 2 Crore in case of North East States||No Minimum Requirement||No Minimum Requirement||No Minimum Requirement|
India is world’s second fastest growing economy with a large population. Government banks and private sector banks cannot open their branch in every village. Though Indian banks have increased their presence but still, have limited reach in remote areas. Microfinance Institutions (MFI) mainly working in villages / remote area to empower farmers and small business.
What are Microfinance Institutions (MFIs) as NBFC?
Microfinance Institutions (MFIs) are a non-deposit taking NBFC (other Than a company licensed under section 8 of the Companies Act, 2013), which performs banking at a small level as a bank does. MFI Exist at a very small level than NBFC. MFI stands for Microfinance Institutions which provides similar lending services as NBFC to the poor and weaker sections of the society who do not have access to regular banking facilities.
Microfinance Company Registration Requirements
For, Microfinance Company Registration or you can say MFI registration in India, there is a requirement of minimum paid-up capital of Rs. 5 crores. Whereas in the case of the North-East region of India, the minimum paid-up share capital requirement is Rs. 2 Crore only. MFIs have to maintain 85% qualifying assets all the time. MFI has to abide by the guidelines issued by RBI for NBFCs in general in relation to the terms & condition of loans.
Note: No company can carry the activities of Microfinance Company without obtaining the prior approval of RBI (Reserve Bank of India).