Everything You Need to Know About Microfinance Company

PUBLISHED ON: Jun 18 2022
PUBLISHED IN: Uncategorized

Microfinance companies are unique institutions that provide finance and credit facilities to the low-income group. The main objective of a microfinance company in India is to ensure that the line of credit should be open for everyone, irrespective of their income and credibility. It is for those who fall below the poverty line and don’t have access to financial services. Poor people need loans and credit to start their small businesses, which a microfinance company can provide. 

In India, any loan below 1 Lakh falls under the category of micro loan. The reserve bank of India has allowed many companies to engage in financial activities. The microfinance companies are permitted to operate as section 8 companies.  

NBFC is a Microfinance company 

A non-Banking Finance Company (NBFC) is a financial institution that provides the facilities of loans and financial services to the low-income group of the society. They usually operate in rural areas among the low-income persons and the metropolitan regions, offering small loans. 

Microfinance company registration 

Microfinance company registration can be done in 2 different modes. Microsoft company registration as an NBFC and Microfinance company registration as a section 8 company. This article will briefly discuss the processes and the need for a Microfinance company in India. 

Following are the steps for a microfinance company registration as an NBFC. 

Step 1 – Register as a company 

To register as an NBFC, first, you need to form either a private or a public company under the companies act 2013. To create a private company, a minimum of 2 members are required; for a public company, a minimum of 7 members are needed.  

Step 2 – Capital  

To form an NBFC microfinance company, a minimum of 5 crores capital should be raised. For north eastern states, this amount is only two crores. Once the money is arranged, this should be deposited in a bank as a fixed deposit, and a no lien certificate is obtained. 

Step 3 – Application for license 

To apply for a license, the NBFC must fill out an application form online and submit it with all the certified documents. A hard copy of this form and documents should also be presented in the regional office of RBI.

Following is a list of documents required for applying- 

Memorandum of Association and Articles of Association 

Incorporation certificate  

Board resolution copy 

Copy of Auditor’s report of receipt of fixed the deposit receipt 

Banker’s Certificate of No Lien stating the net owned fund 

Banker’s report about the company 

Recent credit report of the directors 

Net worth certificates of the directors 

Education/professional qualification proof of the director 

KYC and income proof of the director 

Proof of work experience in the financial sector 

Structure plan of the organization 

Microfinance company registration as a section 8 company 

Step 1 – Obtaining DSC and DIN 

First, you must apply for DSC (digital signature certificate0 and DIN (director identification number), which will help you with the necessary procedures. 

Step 2 – Approval of name 

The company's name should include words like Sanstha, foundation, or micro-credit since it is registered as a section 8 company. For the approval of the term, the INC - 1 form should be filled out.  

Step 3 Drafting MOA and AOA 

The Memorandum of association and article of association should be drafted and filed along with the other documents. 

Step 4 – Filing the final documents. 

Once everything is done, the final step is to file all the necessary documents along with the certificate of incorporation and form INC – 12 to obtain the license. 

Here is a list of standard documents required for microfinance company registration as NBFC and section 8 company.  

PAN Card  

Identity proof 

Address proof 

Photograph of all directors/promoters 

Proof of ownership of registered office or rental agreement for the same 

NOC from the owner 

Applicable stamp duty  

Any other documents as required 

There are many banks and financial institutions in India, then why is there a need for microfinance company in India.

Let’s discuss the need for MFI, what services they offer, and how it helps uplift society’s impoverished people. 

One primary reason companies fail while taking loans from the bank is the unavailability of collateral. The microfinance company in India provides loans to companies that cannot place any collateral.  

Women empowerment has always been a hot topic in India. With all the development and modernization, women are encouraged to advance and contribute to economic growth. Women entrepreneurs consistently work towards making their businesses successful but fail due to a lack of credit. The MFI encourages women entrepreneurs by providing them easy credit and loans at a Meager interest rate. 

They also provide seed capital for start-ups to encourage entrepreneurship in the country and help those who have the potential to do something significant but lack finance, 

Majority of the poor people require small loans of nominal amounts, which are hard to get. The MFI provides these small loans as well. Poor people like vegetable vendors, peddlers, and small farmers usually take these loans to fund their business activities. 

It formalizes the lending process and brings discipline to borrowing by low-income groups. This avoids over-borrowing and the complications that come with large future debts.

From the above information, we can conclude that registering a microfinance company as a section 8 company is more accessible than NBFC. The drawback here is the lending capacity. The lending capacity of a section 8 company is comparatively low. So all these points should be considered, and a comparison should be made to which suits you and your company the best.  

Both the registration processes are complex and require expertise to be completed smoothly without any complications. Lawgical India is the right place for you to go and get your MFI registered. Lawgical India is a leading company providing excellent services to the people who find it challenging to do all the registration and documentation work. They provide assistance and expertise, which will help you get your job done quickly and on time without much hassle. 

Lawgical India is known for its team of experts who are highly experienced and can do the job right. So, approach them and get a consultation at its earliest.  

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