Introduction of Section-8 Micro – Finance Company

The Micro finance Company is basically the financial institutions that provide small-scale financial services in the form of loan, credit or savings. These companies are introduced to ease the credit system for small businesses as they don’t get a loan from banks due to their complex process. Therefore it is commonly named as a Micro-credit, Micro-benefit organization. They offer small loans to various small businesses or households that do not have access to formal banking channels or eligibility for loans.

They provide small loans that are less than Rs.50, 000 for rural areas and for urban it is Rs.1, 25,000. The simplest way to register a Micro finance Company in India is to register the Section-8 Company with MCA (Ministry of Corporate Affairs). Without charging any marginal money or guarantee security. It can give loans at inexpensive rates directed by the RBI and central government. They are a huge support to all rural and agricultural development including income and employment creation.

There are basically 2 types of microfinance companies that are allowed in India, one is which has to be registered with the RBI and another is the non-profit type, which is registered as section 8 company and does not need RBI approval.

Main Features of Section-8 Micro Finance Company

• RBI approval is not required.
• No need of minimum capital of Rs. 5 Crores.
• Minimum Compliances.
• Can give unsecured loan to small business of Rs.50, 000.
• Can give loan for dwelling residence up to Rs.1.25 lakh

• Section-8 company have to follow the RBI guidelines on interest rate and processing charges.
• It is a legal finance business and you can sue the defaulter in case of non-payment of loan amount.
• In India, finance businesses are authorized only to Non-Banking Finance Companies (NBFC) and governed by RBI. NBFCs are required to get registration with RBI and comply with RBI guidelines. However, some business forms have been given exemption by the Reserve Bank of India (RBI) to do finance activities up to a certain extent.

The Reserve Bank of India through its master circular RBI/2015-16/15 DNBR (PD) CC.No.052/03.10.119/2015-16 Dated July 01 2015 has exempted all Section 8 Companies engaged in micro finance activities.

As per Para 2 (iii), Sections 45-IA, 45-IB and 45-IC of the Reserve Bank of India Act, 1934 (2 of 1934) shall not apply to any non-banking financial company which is engaged in below mentioned activities:

• Engaged in micro financing activities, providing credit not exceeding Rs. 50,000 for a business enterprise and Rs. 1,25,000 for meeting the cost of a dwelling unit to any poor person for enabling him to raise his level of income and standard of living; and.
• Licensed under Section 8 of the Companies Act, 2013; and.
• Not accepting public deposits as defined in paragraph 2(1) (xii) of Notification No. 118 /DG (SPT)-98 dated January 31, 1998.

Loan Limits by Section-8 Micro Finance Company

• Borrower with a rural household annual income not exceeding Rs. 1,00,000 or urban and semi-urban household income not exceeding Rs. 1,60,000 will be eligible.
• Loan amount will not exceed Rs. 60,000 in the first cycle and Rs. 1,00,000 in subsequent cycles.
• Total indebtedness of the borrower will not exceed Rs. 1,00,000.
• Tenure of the loan not to be less than 24 months for loan amount in excess of Rs. 30,000 with prepayment without penalty0.
• Loan to be extended without collateral.
• Aggregate amount of loans, given for income generation, is not less than 50 per cent of the total loans given by the mfis.
• Loan is repayable on weekly, fortnightly or monthly installments at the choice of the borrower.

Benefits of Section-8 Micro Finance Company

Government of India and the Reserve Bank of India have created conducive policy framework for Microfinance Institutions (MFIs) to provide necessary legitimacy and impetus to the sector. The following are the benefit of Micro Finance Business.

• Provide access to funding
• Encourage self-sufficiency and entrepreneurship
• It offers a better overall loan repayment rate than traditional banking products.
• Strengthen financial condition for some days till situation gets better.
• Help in meeting credit needs for such a population range from emergency loans, consumption loans, business loan, working capital loan, housing etc.

Basic Documents required for Incorporation of Section-8 Micro Finance Company

• Aadhar Card
• Income tax return can only be filed if the person has linked his PAN card with Aadhar number.
• Address proof will be required for all directors and shareholders of the company to be incorporated.
• For Indian nationals, PAN is mandatory. For foreign nationals, apostilled or notarized copy of passport must be mandatorily submitted.
• Residence proof documents like bank statement or electricity bill should not be more than 2 months old.
• All documents submitted must be valid
• Register office of all companies must be in India .If it is a Rented Property, Rent agreement and NOC from a landlord. If it is a Self-owned Property, Electricity bill or any other addresses proof.
• Documents submitted must not be older than 2 months.