Over the last decade, India has significantly expanded its micro-lending ecosystem, giving millions of low-income households, small businesses, and self-help groups (SHGs) much-needed access to credit. One of the popular structures that many budding entrepreneurs and NGOs tend to use to form organizations is opening micro finance companies, specifically through section 8 company registration, which is affordable, legally compliant, and suitable for enterprises of social impact.
If you are planning to set up a micro-lending business, it is important to understand the regulatory framework, eligibility rules, and registration procedures. Lawgical India has this comprehensive guide that covers everything regarding micro finance company registration, benefits, and requirements as per the law, and the step-by-step procedure of formation.
What is Micro Finance Company (MFC)?
A Microfinance Company (MFC) is a specialized financial institution offering small-amount collateral-free loans to individuals and groups who generally have no access to the bank's credit. The mission is to financially include economically disadvantaged classes through credit access.
In India, an MFC can operate through:
● NBFC-MFI structure (requires funding of ₹5 crore),
or
● Section 8 Company Microfinance Model, which is the most preferred due to lower capital requirements and simpler compliance.
Section 8 Registration is the popular route followed by nearly all start-ups, as operating under this has no heavy RBI capital norms for a microfinance institution.
Why Go the Section 8 Route For Micro Finance Company Registration?
One of the key reasons why startups choose section 8 company registration for microfinance is because Section 8 companies exist for non-profit purposes and are allowed to lend money as microcredit without being classified as NBFCs (subject to certain restrictions on lending).
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Advantages of Section 8 Micro Finance Company Registration
Here are some of the main advantages of registering under Section 8:
1. Approval from RBI Not Required
Unlike NBFC-MFI entities, Section 8 microfinance companies do not require any prior RBI approval. This drastically cuts down on time, money, and compliance burdens.
2. Low Starting Capital
The best part is that you can begin with very little capital, unlike the NBFC MFIs' ₹5 crore. This allows micro finance company registration to become highly accessible for social entrepreneurs.
3. Compliance Friendly
Compared to NBFC regulations, compliance norms under the Companies Act, 2013, are simpler for section 8 companies.
4. Legally Recognised
Although a Section 8 microfinance company will be nonprofit, it enjoys high credibility and legal backing, which makes fundraising easier.
5. Tax Advantages
Under the Income Tax Act, Section 8 companies qualify for many different tax exemptions.
Eligibility Criteria for Microfinance Company Registration
Before proceeding to register a micro finance company, ensure that your entity is qualified on basic eligibility criteria. Some of these include:
1. Minimum Number of Members
● At least two directors and two shareholders are required for a private company.
● A Section 8 company can be registered as a private or public limited entity.
2. Social Objective
Your mission should be so stated that it is explicit in terms of financial inclusion, women's empowerment, and rural development through micro-lending.
3. Compliance to Lending Rules
Section 8 microfinance companies must comply with:
● Loan ceilings (generally below ₹50,000 for self-help or income-generating activities)
● Cannot accept any public deposits
● Only unsecured loans
● Particular interest rate caps (according to state money-lending laws)
4. Section 8 Company Registration Approval Mandatory
To be legally compliant in operation, your company should obtain from the Registrar of Companies (RoC) a license under Section 8 of the Companies Act, 2013.
Documents Required for Micro Finance Company Registration
The registration of microfinance companies is carried out through the Section 8 route. Some documents are mandatory:
1. PAN and Aadhaar of all directors
2. Passport-size photographs
3. Address proof (electricity bill/rental agreement)
4. Digital Signature Certificate (DSC)
5. Director Identification Number (DIN)
6. Draft Memorandum of Association
7. Draft Articles of Association
8. Declarations for social objectives
9. Business plan for micro-lending
Lawgical India can help you prepare all the above documents with 100% accuracy.
Step-by-Step Process of Micro Finance Company Registration
The licensing process and registration into Section 8 involve a number of legal steps. Here is a comprehensive view:
Step 1: Application of DSC
DSC is a necessity for all directors since all documents for microfinance company registration are filed online.
Step 2: Obtain DIN for Directors
A Director Identification Number is to be uniquely issued to each of the directors by the MCA.
Step 3: Name Reservation (RUN Form)
Pick a name that is not readily available and is relevant to your objective. The name should also conform to the MCA naming guidelines.
Step 4: Drafting of MoA and AoA
These documents include your vision of microfinance, operating models, and rules of governance.
It is crucial to include objectives of lending and financial upliftment since this strengthens your application for registration of section 8 company.
Step 5: Filing of Application for Section 8 Registration
Application must be made in Form INC-12 with
● Business Plan
● Financial Projections
● Social Incentive Structure
● Declarations from Directors
It is the duty of the RoC to see that your company is truly concerned with nonprofit micro-crediting.
Step 6: Certificate of Incorporation Issued
Once approved, the RoC shall issue:
● Section 8 Company License
● Certificate of Incorporation
● PAN & TAN
From this date, you are legally considered a micro finance company.
Step 7: Apply for Local State Approvals that are Required
Some states require:
● Money Lender's License
● Registration under Shops & Establishments Act
● State-level micro finance approval
● Lawgical India assists in all these auxiliary registrations.
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Compliance Requirements after Registration
Once registration is done, a Micro Finance company shall be required to remain compliant:
1. Annual Filings with the MCA
AOC-4 and MGT-7 to be filed.
2. Board Meetings & Minutes
A company is required to have its periodical meetings.
3. Proper Loan Documentation
Document fair records on borrowers, repayment schedules, and loan agreements.
4. Taxes
ITR filing and audits.
5. Non-Distribution of Profits
Profits must be reinvested into microfinance or social activities under section 8 company registration.
Why Choose Lawgical India for Micro Finance Company Registration?
Lawgical India carries out the micro finance company registration and section 8 company registration, offering a full range of services from:
- Name reservation
- Section 8 licensing
- MCA documentation
- Compliance Management
- Customized Microfinance Business Plan
- Assistance for State Money Lending Licenses
Our experts secure a seamless, fast, and fully compliant incorporation procedure.
Frequently Asked Questions (FAQs)
1. What is the minimum capital required for micro finance company registration?
If registered under section 8, there is no requirement for minimum capital. You can start with any reasonable capital approved in the MoA.
2. Is RBI approval required for a Section 8 microfinance company?
No. A microfinance company under Section 8 doesn't need an RBI approval as long as it adheres to the given limits in lending and it does not take public deposits.
3. Is interest charged by a Section 8 company on loans?
In that case, yes, A Section 8 Microfinance Company may charge simple interest per the respective state laws.
4. How many days does it usually take for the registration process of the micro finance company?
On average, about 20-30 working days depending upon RoC processing time, the accuracy of documents, and state-level approvals.
5. Can a Section 8 microfinance company make a profit?
It may generate a surplus, but profits shall not be distributed to the members. All profits must be reinvested for microfinance.
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