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microfinance registration

Microfinance Company Registration

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What is a Microfinance Company Registration?

The majority of the current population of India lives in rural areas. The data distributed recently suggests that agricultural and other related activities still employ a majority of the population of the Indian Sub-continent. Hence, we see that there is a need of credit in rural areas which should be met for the sectors to grow and develop. This arose the need of an institution which could provide credit to these sectors and that too at a low rate of interest because the population which generally takes credit from these institutions is generally poor. Thus, they need credit which is cheap and does not increase their input cost.

And hence, Micro-Finance institution came into existence, which paved the way for the development of the small-scale sectors. the gap between the demand and supply of funds was reducing and the sector started to grow. The Micro-Finance institution provided cheap credit and also very low financing cost. Since, then the growth of this sector has been unstoppable and has been on continuous rise. The sector has nearly uprooted all the small-scale financers. And is currently serving the majority of the small-sectors in the Indian subcontinent.

Moreover, we see that in the recent years even though the growth in credit sector was down, the Micro-finance institution registered an enormous growth of 39 % and that too on a year-on-year basis. This so far has been a tremendous accomplishment for the Micro-Finance Institution.

The Micro-Finance Institution brought a revolution in the lending sector of the small-scale industries. The revolution has not ended, it has just only begun. The Micro-Finance Institutions have also exploring other sectors too, they have invested in the IPOs (Initial Public Offering), acting as the underwriters and other services too.

We must note that even though the Micro-Finance Institutions have grown and have several advantages, there are at the same time many disadvantages too. The sector recently has taken the brunt of too many NPAs (Non-Performing Assets) falling into its lap. This issue must be addressed because it is also plaguing the banking sector too.

Thus, we see after all the advantages and disadvantages, what Micro-Finance Institutions need is some revival.

A Microfinance Company or institution is a type of NBFC which is not authorized to take deposits but carry out small lending activities to finance the low-income category individuals like small businessman, farmers, agriculturalist, horticulturist etc. Microfinance registration are regulated under the RBI Act of 1934 in India.

Microfinance Company Registration Procedure

To register a microfinance company, applicant has to follow a predefined procedure as per the guidelines of the RBI Act 1934. Here is a step-wise guide or procedure for microfinance registration.

Documents Required for Microfinance Company Registration

Before applying for Microfinance registration, the applicant must go through document preparation to avoid any chance of cancellation of the application due to shortage of correct documents.

RBI Approval for Microfinance Company

You are required to apply for RBI approval to commence operations of the microfinance company in India. Below is the list of documents required for RBI application for microfinance registration.


* At One Glance *

Q1. What is a Micro-Finance company?

Ans. 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.

Q2. What are the documents required for the registration of a Micro-Finance company?

Ans. Following are the documents required for registration of a Micro-Finance company: 1. Duly certified COI and COC 2. Certified AOA and MOA 3. Board resolution certificate which states that the company will follow norms specified in RBI Act, 1934 4. Audit report 5. Certified copies highest educational qualifications of all directors. Following are the documents required for registration of a Micro-Finance company: 1. Certified copy of COC and COI 2. Certified copy of MOA and AOA 3. Copy of FD receipt 4. Bank certificate for net own funds 5. Audit report with financial balance sheets

Q3. What are the advantages of a Micro-Finance company?

Ans. Following are the advantages of a Micro-Finance company: 1. Good Access 2. Better payment rates 3. Sustainability

Q4. What are the disadvantages of a Micro-Finance company?

Ans. Following are the disadvantages of a Micro-Finance company: 1. Limited Growth 2. High cost 3. Strict Regulation

Q5. How are the Microfinance companies regulated?

Ans. 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.

Q6. Why does interest rate tend to be higher than traditional banks?

Ans. 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.

Q7. Who are the clients of the Microfinance companies?

Ans. 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.

Q8. What is the rate of interest charged on the loan?

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

Q9. What are the criterias to obtain loans form MFIs?

Ans. Following are the criterias to obtain loans from MFIs: 1. Client should not have borrowed from more than one MFI 2. Client’s total indebtedness should not exceed Rs 1,00,000 3. Client should have an income generating activity 4. Client should have house of their own 5. Client should have documents (ID and Proof) 6. Client should have a bank account.

Q10. What are the minimum and maximum loan amounts?

Ans. Following are the minimum and maximum loan amounts: 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

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