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Microfinance Company Registration

Microfinance Institutions (MFIs) are a non-deposit taking NBFCs which provides lending services to the poor and weaker sections of the society who do not have access to regular banking facilities. We are here to assist you to get your microfinance company registered quickly!

Package inclusions:
  • Company Formation
  • Business Plan for MFI
  • Market Research
  • Plan Lending Model
  • Assistance in filing application with RBI
  • Liaisoning with the Reserve Bank of India
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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. A loan which is less than Rs 1 Lakh will usually qualify as a microloan. Small business entrepreneurs and can depend on Microfinance Institutions for their business needs.

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

Industry Analysis

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. Microfinance institutions in general help women entrepreneurs. Low income individuals do not have access to loans from large banks. Therefore microfinance institutions act a mode of finance for small time business owners.

Eligibility Criteria for Microfinance Institutions

There are separate eligibility criteria for microfinance institutions as an NBFC and a section 8 company:

Microfinance Institution as an NBFC

  • Prior Approval is required from the RBI
  • The microfinance institution must have a minimum net worth or net owned funds of Rs 5 Crore.
  • Directors of this institution must have minimum experience in the field of finance for 10 years.
  • There is a limit on loans which is maximum of 10% of the assets held by the Microfinance institution
  • The microfinance institution must adhere with all compliances of an NBFC
  • The number of members has to the according to the requirements of the authority. For a private company- two members and a public company- minimum of seven members.

Microfinance institution as a Section 8 Company

  • There is no minimum net worth or net owned funds that have to be maintained by the microfinance companies (if a section 8 company).
  • Limit of loan for MFI (Section 8 Company) is up to Rs.50, 000. This loan amount has to be unsecured. This loan can be used for small businesses.
  • Section 8 Microfinance institution has to adhere to different compliance.
  • Number of members- 2

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 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).

Procedure for Microfinance Company Registration in India

  • Company Registration

The first step in MFI (Microfinance Institution) registration is to register a company either as Private Limited Company or Public Limited Company as per Companies Act, 2013. Initially, the company can be registered with the capital of Rs.1,25,000. After company registration, we can proceed to the next step.

  • Raise Capital

The next step is to raise authorized and paid up share capital up to Rs. 5 Crore or Rs. 2 Crore as the case may be. It should be raised in the form of equity Share Capital and not Preference Share Capital.

  • Bank Account Opening

After incorporation of the company, the amount received shall be deposited in a bank account in the form of Fixed Deposit. After this, a certificate of no lien shall be obtained from the bank. This certificate shall be attached with an application which will be submitted with the RBI.

  • Application for Microfinance Company Registration with RBI

The next step is to obtain all the certified copies and submit it with the RBI for carrying business Operations. Following are required to be submitted:

  1. Copy of Certificate of Incorporation
  2. Copy of an extract of the main object clause in MOA.
  3. Copy of fixed deposit receipt.
  4. Bankers Certificate of no lien in relation to Net Owned Fund
  5. Bankers Report
  • File Online Application

An online application will be filed with the RBI for Microfinance Company Registration. After filing of an application, the company will get Company Application Reference Number.

  • Hard Copy Submission

Once an online application is filed, a hard copy of the application along with the necessary documents will be submitted with the regional office of the Reserve Bank of India. On receiving the application, RBI will conduct due diligence and after satisfaction, RBI will issue a certificate of commencement of business.

Documents Required for Microfinance Company Registration in India

From All Directors and Shareholders

  • Duly Certified copy of Certificate of Incorporation of a company.
  • Certified copy of Memorandum and Articles of Association (MOA & AOA) of the Company
  • Board Resolution in relation to 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 group/associate/subsidiary/holding companies along with the details of investments in other NBFCs as shown in the Performa Balance Sheet
  • A certified copy of the highest educational and professional qualification of all the proposed directors of an applicant company.

Frequently Asked Questions

A borrower whose total annual income does not exceed Rs. 100,000 in rural area or Rs. 1,60,000 in urban and semi-urban and loan amount cannot be more than Rs. 50,000/- in the first cycle and in subsequent cycle Rs. 1,00,000/-. Under this, loan to be extended without collateral.

Minimum loan tenure should not be less than 24 months. If the loan amount is more than Rs.15000 then the repayment can be made by the borrower without any penalty. MFI has to give a loan to eligible borrowers without any collateral or margin money. At least 70% of total loan amount has to be offered to borrowers by MFI for Income generation. Under this, it will be a choice of borrowers to repay the loan amount weekly or fortnight or in monthly installments.

Microfinance Companies are not eligible to charge a higher rate of interest from the prescribed rate of interest and maximum variation cannot exceed 4% while if we talk about loan processing charges then it cannot exceed 1% of the gross loan amount. MFI can levy loan insurance charges separately.

Yes, the loan can be given for the personal purpose of the borrowers by MFI, the however aggregate amount cannot exceed 30% of the total loan.

It is mandatory for MFI to apply for CIBIL membership.

No, prepayment penalty cannot be levied by MFI.

The total cost will be around Rs.8,00,000 out of which Rs. 5,00,000 will be the professional fees and rest will be the government fees. If you are thinking that professional fees are quite high, then you are wrong as it is a very complex and time-consuming process.

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