Micro Finance Institution

Micro Finance Institution is a type of organization which offers financial services to low income group. In developing countries, poverty is the main cause of concern in improving the economic status. Almost every micro finance institution give loans to their members and many of them offer insurance, deposit and other related services.Micro Finance Institutions offer credits and other financial services to the representatives of poor population. Micro finance is considered as an economic development approach which involves financial services to low income groups. The need of micro finance arise in order to empower under-privileged class of society. It is a type of Non-Banking Financial Company.

This type of institution is considered as one of the most effective tool of reducing poverty. Micro finance Institution plays significant role in bridging the gap between the formal financial institutions and the rural poor. They accesses financial resources from the Banks and other mainstream Financial Institutions and provide financial and support to poor people.

In each country, MFIs are the overseas organizations who make individual micro credit loans directly to villagers, micro entrepreneurs, impoverished women and poor families. With proven record of success many MFIs are creditworthy and many are operationally self-sufficient.

Following type of institutions offer micro finance:

• Credit Unions,
• Commercial Banks,
• NGOs (Non-governmental Organizations),
• Co-operatives,
• Government banks.

In India, MGIs ‘for-profit’ are referred as Non-Banking Financial Companies (NBFC). Mainly NGOs work in remote rural areas thereby providing financial services to those persons with no access to banking services. Change in legal status from an unregulated nonprofit or non-governmental organization (NGO) into a regulated, for-profit institution referred as “transformation,” or commercialization.

Regulated, transformed organizations differ from nonprofits in that they are held to performance and capital adequacy standards supervised by the central bank of the country where they are registered. Transformed MFI attracts equity investors and equity investors want to ensure that the values of their investments are enhanced and elect board members who share a common vision.

There are classifications of regulated institutions exist among transformed MFIs the strictest being banks — rural banks and thrift banks — followed by non-bank financial institutions. For these regulated MFIs Different countries have varied names.

Consistently this sector is focusing on understanding the needs of the poor and also focusing on delivering services in line with their requirements, developing the most efficient and effective mechanisms to deliver finance to the poor.

Micro finance enables beneficiaries in following manner:

• To increase their income, create sustainable activities
• Reduce external shocks
• Improve the living condition
• Empower people and mainly women

With the continuous efforts,the automated systems helped in accelerating the growth rate of the micro finance sector.

Following goals for MFIs:

• By providing access to financial and support services, improve the quality of life of the poor;
• To become a viable financial institution developing sustainable communities;
• In order to provide financial and support services to the poor particularly women, mobilize resources for viable productive income generation enterprises enabling them to reduce their poverty;
• Evaluate how people will get help to move out of poverty faster;
• To create opportunities for underprivileged regarding self-employment;
• Contribute to employment and income generation in rural areas by train rural poor in simple skills and enable them to utilize the available resources.

INDIA IN CURRENT SCENARIO

• According to World Bank, India fall under the low income class.
• India is a second populated country in the world and 70% of its population lives in the rural area.
• There is a chronic underemployment as 60% of its population depend on agriculture which results in low rate of education, low sex ratio, exploitation.
• Rural people have quite low access to institutional credit from commercial banks.

Therefore the need for financial inclusion and need of micro finance is being felt by the economists and practitioners in India. 

Indian Micro finance sector is rated as one of the fastest sector in the world.

In India, micro finance is sought by following users:

• Small and marginal farmers
• Rural artisans
• Economically weaker sections of the society

REQUIREMENTS

• There are certain borrower’s income limit in the rural area and urban areas.
• Loan amount should not exceed Rs.50,000 in the first cycle and Rs.100,000 in subsequent cycles and for prescribed tenure.
• Loan to be extended without collateral.

In the rural and semi-rural areas, Micro Finance is a very famous type of business.

REGISTRATION PROCEDURE OF MFIS

• Company registration

In India, firstly it is required to incorporate a company whether a private limited company or a public limited company.

• Raise Authorized and Paid up Capital

After this, the next step is to raise the authorized and Paid up share capital up to Two Crore Rupees. As in India, to register a NBFC there is a requirement of minimum net worth of Rs.2 crore.

• Deposit Two Crore Rupees in Fixed Deposit and obtain Certificate

After increasing authorized and paid up share capital, the next step is to deposit the sum of Rs.2 crore in Fixed Deposit and obtain a no lien certificate from the bank. This certificate shall be further attached with the application when filed with the Reserve Bank of India (RBI).

• Get all the certified Copies as per the checklist and complete the requirement for RBI registration
• Certified Copies of Certificate of Registration
• Certified copies of an extract of the main object clause in the MOA relating to the financial business.
• Copy of Board Resolution
• Copy of Fixed deposit receipt & bankers certificate of lien indicating balances in support of Net Owned Funds (NOF).
• Bankers Report for applicant company, group companies.
• Fill online application

After the above mentioned step the next step is to fill the online application for NBFC registration as a Micro Finance Company.

Once the online application is filed with the authority, company gets a Company Application Reference Number.

• Submission of Hard Copy to the Regional Office of Reserve Bank of India (RBI)

After the filing of an application, hard copy of the application along with all the necessary necessary papers are sent to the regional office of the Reserve Bank of India.