Want to Empower Communities Financially? Here’s How to Get Section 8 Microfinance Company Registration in India

As far as microfinance goes in India, it has become one of the strongest tools for financial inclusion for the low-income population and rural communities that have faced exclusion from mainstream banking. If you want to start up a microfinance institution without pursuing profit motives, then Section 8 Microfinance Company Registration in India might just be your best bet.

A microfinance company under Section 8 operates as a not-for-profit, providing small loans to those in need for promoting their economic and social empowerment. Within this detailed guide by Lawgical India, we will look into everything about Section 8 microfinance company registration: eligibility, benefits, and documents, plus the whole registration procedure step by step.

What is a Section 8 microfinance company?

A company registered under Section 8 of the Companies Act, 2013, and the main aim is to promote social welfare, charitable purposes, or the economic development of the society at large. These companies are not permitted to share their profits with their members but are obliged to reinvest the accumulated amount into the objectives of the concerned organization.

When registered in a proper way, a Section 8 microfinance company in India can provide small loans to women, farmers, small enterprises, and self-help groups—that is, without the heavy burden of compliance imposed on traditional NBFCs by the Reserve Bank of India (RBI). 

Why Choose Section 8 Microfinance Company Registration in India?

Establishing a Section 8 microfinance company has multiple benefits—whether in terms of compliance flexibility or social impact. Let’s see why this is the choice among the entrepreneurs and NGOs:

1. No RBI Approval Required

While grants are sought for NBFCs, for Section 8 microfinance companies, there is no prior approval needed from the Reserve Bank of India. This takes away a huge impediment, leading to an easier path toward registration. 

2. Lower Capital Requirement

Compared to a minimum of ₹ 5 crore as capital for NBFC-MFIs, Section 8 microfinance company registration in India has no specified capital requirement—making it suitable for small organizations and startups.

3. Legal Recognition and Credibility

Registration under Section 8 of the Companies Act, 2013, provided legal status unto them and increased public confidence in microfinance operations. 

4. Tax Benefits

Such companies can be provided tax exemptions under section 12AA and section 80G of the Income Tax Act, given they obtain the necessary registration from the Income Tax Department.

5. Purpose-Driven Approach

With respect to community development and financial inclusion, profit-making is not so much of a goal as doing all the things that commercial financial entities claim that they do in their operational mandate. 

Eligibility Criteria for Section 8 Microfinance Company Registration

You must check the eligibility criteria listed below before the application is submitted.

●      The company has at least two directors (one must be a resident of India).

●      A minimum of two shareholders is needed. 

●      The company has a charitable or social objective: for example, supporting education, livelihood, women's empowerment, or economic development. 

●      The profit is to be reinvested into the objectives and not distributed in the form of dividends. 

●      The company name should include the terms "Foundation," "Society," "Association," "Microfinance Foundation," etc.

Documents Required for Section 8 Microfinance Company Registration in India

The following is a checklist of documents required for registration and for making your process easier for future aspects Lawgical India provides the detailed requirement: 

1) PAN Card of all directors and shareholders 

2) Aadhaar Card/Passport/Voter ID for identity proof 

3) Passport-size photographs 

4) Address proof (electricity bill/rent agreement/property documents) 

5) Digital Signature Certificate (DSC) of all proposed directors 

6) Director Identification Number (DIN) 

7) Memorandum of Association (MOA) and Articles of Association (AOA) 

8) Detailed project report specifying objectives of the company 

9) Proof of registered office address with NOC from owner 

Step-by-step Process of Registration of Section 8 Microfinance Company

A step-by-step explanation of obtaining Section 8 microfinance company registration in India: 

Step 1: Obtain DSC and DIN

The first step is to obtain the Digital Signature Certificate (DSC) and Director Identification Number (DIN) for all proposed directors via the MCA portal.

Step 2: Name Approval

Apply with the RUN (Reserve Unique Name) service on the MCA portal. The name should generally reflect the company's objectives, for example, ABC Microfinance Foundation. 

Step 3: Drafting of MOA and AOA

Draft the Memorandum of Association (MOA) and Articles of Association (AOA) defining the company's vision, mission, and operational framework. 

Step 4: Filing of INC-12 for Obtaining License

Submit the application in INC-12 to the Registrar of Companies (ROC) along with enclosures for the purpose of obtaining the Section 8 license. 

Step 5: Incorporation Filing

After the license is approved, SPICe+ (INC-32) should be filed for actual incorporation of the company with all required attachments. 

Step 6: Receive Certificate of Incorporation

Upon successful verification, the registrar will issue a certificate of incorporation, after which registration of your Section 8 microfinance company is completed. 

How Does a Section 8 Microfinance Company Function?

After registration, the company can start disbursing microloans, typically ranging between ₹10,000 and ₹50,000, to individuals and groups. The company must:

●      Keep proper records of loans granted and repayments. 

●      Charge reasonable interest rates alone (not exceeding RBI guidelines for NBFC-MFIs).

●      Utilize the funds only for developmental and charitable purposes. 

●      Keep their operations transparent to enjoy credibility. 

Key Compliance Requirements After Registration

While Section 8 microfinance companies enjoy several exemptions, they have to adhere to certain post-registration requirements as follows: 

●      Conduct regular board meetings and annual general meetings (AGMs). 

●      File annual returns and financial statements with the Registrar of Companies. 

●      Keep proper books of accounts and get them audited every year. 

●      Apply for 12AA and 80G registration for income tax exemptions. 

●      Follow the reporting norms under MCA for compliance with legal requirements.

Benefits of Section 8 Microfinance Company Registration in India

●      Financial Inclusion: Empowers the most marginalized sections of society to have access to small-scale credit.

●      Simplified Legal Procedure: Less stringent when compared with NBFC registration.

●      Support Facilities of the Government: Has an eligibility to apply for funding from various government grants.

●      Public Trust: Work under the Companies Act, 2013, with full transparency.

●      Tax Reliefs: We were able to save largely due to tax exemptions.

Differences Between NBFC-MFI and Section 8 Microfinance Company

Frequently Asked Questions (FAQs)

1. What is the minimum capital requirement for a Section 8 microfinance company registration?

There is no fixed minimum capital requirement for Section 8 companies; however, the capital should be sufficient to fulfill the company's stated objectives.

2. Does a Section 8 microfinance company need RBI approval?

No. A Section 8 does not require the RBI's approval because it is a non-profit and does not accept public deposits.

3. Can a Section 8 company earn profits?

Yes, they can earn profits; however, these profits need to be reinvested for use towards the company's objectives and not distributed among shareholders.

4. How long does it take to register a Section 8 microfinance company in India?

Usually, it takes 25-30 working days to attain authorization, depending on documentation and government approvals.

5. Can a Section 8 microfinance company raise funds or donations?

Yes. It can receive donations and grants as well as CSR funding from individuals, corporations, and government bodies to fulfill its objectives.