Microfinance Companies Registration in India

Microfinance companies are financial institutions that provide finance to low-income groups where the financial burden is less than in other sectors of society. Such sectors do not have access to traditional financial institutions which include banks and other financial institutions. In this article, we will discuss Microfinance Company Registration in India

What are Microfinance Institutions?

Microfinance institutions were an initiative of the Government of India to provide easy credit to society. These companies provide credit facilities to SMEs and other forms of organizations that find it difficult and difficult to secure credit facilities from large financial institutions and banks. Therefore, this form of organization is known as a microcredit agency or microcredit institution. This institution is designed to provide small loans and finance for institutions. Usually, the amount of loan given by a microcredit institution would be up to Rs. 50,000/- for rural areas and Rs. 1, 25, 000 for urban areas. A microfinance company can be easily incorporated by registering it as a section 8 company under what is promulgated as the Companies Act 2013.

Role of the microfinance company

Microfinance is lending funds that do not have access to capital. It enables individuals to become financially stable and leads to a better lifestyle. The following sectors can use microfinance to improve and increase production:

• Small Business
• Craftsmen
• Transport and professional trades
• Agriculture and allied activities

Advantages of obtaining a microfinance company registration

The key benefits of getting a microfinance company registration in India are as follows:

• No collateral is needed for borrowing funds;
• Facilitates job creation;
• It contributes to rural development;
• It provides an opportunity to earn;
• No minimum capital requirement criteria need to be met;
• It provides a better repayment interest rate;
• It aims to make people self-reliant.

Documents required for Microfinance Company registration

• PAN Card: PAN card of shareholders and directors if Indian citizens.
• Passport-size photograph: The passport-sized photograph of directors and shareholders not more than 10 months old.
• Identity Proof: Copy of Aadhaar Card/Voter ID/Passport/Driving License of Directors and Shareholders
• Lease agreement: If you have a rented property, then a copy of the lease agreement
• Proof of address: Electricity bill, water bill, bank statement, gas bill, or telephone of shareholders and directors
• Proof of residence: Electricity bill, water bill, bank statement, gas bill, or telephone with the address of residence
• NOC from the owner: No objection confirmation from the owner of the residence is required.

Process of registering a microfinance company

The process differs depending on whether you want to register as an NBFC or as a Section 8 company. We will have a look at the steps involved in both these models.

NBFC Registration Process

• STEP 1: Start a company and register: For registration of NBFC Microfinance Company, first, form a public or private company. A minimum of 7 members is required to establish a public company. A minimum capital of Rs. 1 lakh and two members are required for a private company.
• STEP 2: Raise the minimum NOF: You need to raise a minimum capital of ₹ 5 crores as Net Owned Fund (NOF). Further, this amount stands at ₹ 2 crores for the North East region.
• STEP 3: Put up capital: In this step, capital needs to be deposited as a fixed deposit in the bank. A “No Lien” certificate will be issued in the bank.
• STEP 4: Apply for a license: Apply online for a license from RBI for financial assistance. You should also submit certain documents with your application, such as-
  • Memorandum of Association (MoA)
  • Articles of Association (AoA)
  • Certificate of Incorporation of the Company
  • Copy of the board resolution
  • Auditor’s Report on Receipt of Fixed Deposit Receipt
  • No mortgage bond from banker stating net owned fund
  • Company structure plan
  • Recent credit report of Directors
  • Documents on professional qualifications and education of directors
  • Proof of income and KYC of directors
  • Evidence of directors’ experience in the financial sector.

After obtaining the license, its hard copy must be submitted to the RBI Regional Office.

Process for Section 8 Company Registration

• STEP 1: Apply for DSC and DIN: DSC (Digital Signature Certificate) and DIN (Director Identification Number) are used to authorize electronic forms. So if the company directors don’t have them, the first step is to get these two for the company directors.
• STEP 2: Request name approval: You must apply for name approval by completing the INC-1 form. Please note that your proposed name must indicate that it is a section 8 company. The name of the company must contain words like “foundation”, “micro-credit” or “Sanstha”.
• STEP 3: File AoA and MoA: After you receive name approval, the next step is to draft the Articles of Association (AOA) and Memorandum of Understanding (MOA). These should be filed along with the prescribed documents.
• STEP 4: Apply for registration in the commercial register: You must file an application for incorporation on Form INC-12. Certain documents will have to be submitted along with it. They are listed below:
  • Copy of PAN Card of all Directors/Promoters
  • Documents proving identity
  • Documents proving the address
  • Photos of all directors/promoters
  • Proof of ownership of the residence (lease agreement or ID number of the owner of the rented premises)
  • Stamp duty applies in the given state.

Microcredit loans under Micro Finance Company

Loans from microfinance companies are not particularly complicated. Most unsecured loans are provided against monthly installments or weekly installments. Interest is often charged in the range of 20 – 26%. Other than accompanying specializations are also significant, which are as follows:

• An NBFC can impose a different interest rate on its clients, but the variation cannot exceed 4%.
• Loan interest is to be charged on the declining balance strategy.
• Microfinance companies appear in all workplaces or literature, with a viable interest rate.
• Companies must issue a credit card to all individuals stating the interest rate, and any outstanding terms, and conditions.
• Loans are also provided under Self Improvement Groups (SHGs) and linkage schemes.
• If there is no repayment within 90 days, at that point the equivalent must be treated as a non-performing resource, however, the provision standards do not change to a Section 8 corporation.

Final words

We tried to solve a big problem for a microfinance company. If you are planning to start a microfinance company or are already entering it and want to operate it legally. Legal Window can register your Section 8 Company for you! Our experts will take care of the entire process and guide you through it. Furthermore, if you have any questions or doubts about the process, you can contact our support team.