Microfinance Companies| how to register | Apply Now in India

Microfinance Companies| how to register | Apply Now in India

Microfinance institutions in India are regulated under the RBI act of 1934. A microfinance company is a type of non-deposit of Non Banking Finance institutions they are authorised to provide financial services such as loans, savings, and insurance to small businesses, entrepreneurs and need people in society. The micro-financing institution provides very cheap credit and also very low financing cost. Since the growth of the sector was unstoppable and continuously rising. The sector has nearly uprooted all the small-scale financers. We see that in recent years, the growth in the credit sector was down, but the microfinance institution registered an enormous growth of 39% on a yearly basis.

What is the difference between traditional banks and NBFCs?

NBFCs are primarily involved in lending and making investments, hence their activities are similar to that of banks; however there are a few differences as given below:

  • NBFC cannot accept demand deposits.
  • NBFCs cannot issue cheques drawn on itself and are not part of payment generation system.
  • Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in the case of banks.

Key features of Microfinance company

The main objective of forming micro-financing company is to offer very cheap credit to needy people in society.

Microfinance institutions are eligible to provide loans up to 50,000 in rural areas and 1,25,000 to small business and entrepreneurs.

It is mandatory to take permit before starting microfinance institution from RBI. A microfinance company must be incorporated under The Companies Act 2013 or 1956.

Before starting the operation of microfinance company, they must have minimum net-worth which is applicable for micro finance institutions.

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Documents required for the Microfinance company Registration

  • Certified copy of the Articles of Association and COA of the company.
  • Board resolution document to certify that company will follow the norms specified in The Companies Act 2013.
  • Banker’s report about the finances of the company in a sealed envelope.
  • Audit report with finance balance sheet.
  • A certificate of Chartered Accountant regarding details of associated/ directors/ group/ associate/ subsidiary/ holding/companies along with the details of investment in other NBFCs as shown in the performa balance sheet.

How to apply for microfinance company registration?

  • Register a company: 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. Only after the registration of the company we can proceed to the next step.
  • Raise Capital: The equity share of the company must be raised from 2 crore to 5 crore
  • Open a bank account: After incorporation of the company, the amount received shall be deposited in a bank account in the form of Fixed Deposit. This certificate shall be attached to an application that will be submitted with the RBI.
  • File an application for microfinance company in RBI: The next step is to obtain all the certified copies and submit them with the RBI for carrying business Operations. Following are required to be submitted:
    Copy of Certificate of Incorporation
    Copy of fixed deposit receipt.
    Bankers Certificate of no lien in relation to Net Owned FundBankers Report
  • Submit a hard copy: After an online application is filed, a hard copy of the application along with the required documents will be submitted at the Regional office of the Reserve Bank of India.

Frequently Asked Questions

  • Micro-finance company offers the credit and other facilities services to the representatives of the poor strata of the population but do not for the extremely poor strata. Hence, we see that a Micro-finance company or institution is a type of NBFC which is not authorized to take deposits but carry on small lending activities to finance the low-income category individuals like businessman, farmers, agriculturist, horticulturist etc.

  • Following are the documents required for registration of a Micro-Finance company:
    Duly certified COI and COC
    Certified AOA and MOA
    Board resolution certificate which states that the company will follow norms specified in RBI Act, 1934
    Audit report
    Certified copies highest educational qualifications of all directors.
    Following are the documents required for registration of a Micro-Finance company:
    Certified copy of COC and COI
    Certified copy of MOA and AOA
    Copy of FD receipt
    Bank certificate for net own funds
    Audit report with financial balance sheets

  • Following are the advantages of a Micro-Finance company:
    Good Access
    Better payment rates

  • Following are the disadvantages of a Micro-Finance company:
    Limited Growth
    High cost
    Strict Regulation

  • These companies are regulated by the RBI (Reserve Bank of India) as per the master circulars pertaining to NBFC-MFIs. They are based on the RBI Circular No: DNBS (PD) CC No:395/03.10.38/2014-15.

  • The interest rate in MFIs tend to be higher than that of traditional banks because small loans tend to be more expensive to process than larger ones.

  • The clients of microfinance are either below or above poverty line who otherwise do not have access to financial services from financial institutions such as banks.

  • The new rate of interest of 19.25 % - 20 % was effective from 10 th April, 2018

  • Following are the criterias to obtain loans from MFIs:
    Client should not have borrowed from more than one MFI
    Client’s total indebtedness should not exceed Rs 1,00,000
    Client should have an income generating activity
    Client should have house of their own
    Client should have documents (ID and Proof)
    Client should have a bank account.

  • For On-ward borrowing: Rs. 50 lakhs to Rs. 50 crores
    For Women borrower: Rs. 15 lakhs to Rs. 35 lakhs
    For Micro-entrepreneur: Rs. 1 Lakh to Rs. 10 lakhs