What is a Micro Finance Company?
Micro Finance company, as the name suggests, is basically a financial institution that provides financial services to those who are from lower-income grade and unable to get a loan from banks due to their complex process. Financial services could be in the form of loan, credit, or savings. The Micro Finance companies offer small loans to all those who do not have access to traditional banking channels or eligibility for loans. The definition of “small loans” varies between countries. In India, Rs. 50000 for rural areas and Rs. 1 lakh can be considered as microloans.
How to register the microfinance Companies in India?
Although, only a Non-Banking Finance Company (NBFC) is authorized by the Reserve Bank of India (RBI) to conduct financial business but basically there are two types of microfinance companies that are allowed in India which have been given an exemption by the Reserve Bank of India to do finance activities up to a certain extent.
Following are the two most ideal forms of business that can run Micro Finance Institutions (MFI):
- Non-Banking Finance Company (NBFC) duly registered with RBI
- Section 8 companies (companies formed under Section 8 of the Companies Act 2013) which do not need RBI approval.
Process of registering Micro finance Company as NBFC:
Register a company: – The First and very important step to start any Company is to register the Company. The company can be registered as a Private Limited company or Public Limited Company. To form a private company, at least 2 members and a capital of Rs. 1 lakh is required and to form a public company, at least 7 members are required.
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Documents required to register NBFC as Private Limited Company:
- Copy of PAN Card
- ID Proof (Driving License, Passport, Adhaar Card, Voter ID)
- Address Proof (Bank Statement, electricity bill, Mobile Bill, Telephone Bill)
- Passport Size photo
- Rent agreement or ownership documents
- Electricity bill
- A copy of No Objection Certificate (NOC) from the owner
Raise Authorized and Paid-up Share Capital: – The next step is to raise authorized and paid-up capital. For the northeastern region, the requirement for NBFC is Rs. 2 crores and for the rest of India is Rs. 5 crores.
Deposit the Capital Amount in Fixed Deposit: – Next step is to deposit the capital in a bank as a fixed deposit. The Account should be freshly opened. Also, you need to obtain a ‘No lien’ certificate from the bank which will be needed when the application is filed with RBI.
Apply for License: – For filing the form, you need to visit the official website of RBI as it is an online application. Download the NBFC registration form, fill it, and submit it to the same website along with all the certified documents. Once you submit the form, the website would be provided with a Company Application Reference Number for the same.
A hard copy of the application must also be submitted at the regional office of Reserve Bank of India. The documents that must be submitted along with the NBFC at the time of filing are:
- Memorandum of Association and Articles of Association
- Incorporation certificate of the company
- Board resolution copy
- Copy of Auditor’s report of receipt of the fixed 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 certificate 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
Process of registering Micro Finance Company as a Section 8:
The micro finance can be registered in India by Section 8 of the Companies Act 2013 with Ministry of Corporate Affairs (MCA). Section 8 does not need any minimum capital. This is the simplest way to register a Micro Finance Company in India without charging any marginal money or guarantee security. As per Para 2 (iii), Sections 45-IA, 45-IB, and 45-IC of the Reserve Bank of India Act, 1934 (2 of 1934) must not apply to any non-banking financial company which is involved in activities:
(a) Engaged in micro-financing activities, giving credit not more than Rs. 50,000 for a business enterprise. And, Rs. 1,25,000 for meeting the cost of a housing unit to any poor person for letting him raise his level of income and standard of living.
(b) Licensed under Section 8 of the Companies Act, 2013
(c) Not taking public deposits as described in paragraph 2(1) (xii) of Notification No. 118 /DG (SPT)-98 dated January 31, 1998.
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Here is the process of registering Micro Finance Company as a Section 8:
Apply for Digital Signature Certificate (DSC) and Director Identification Number (DIN): – To form a Micro Finance company under Section 8, the first process is to apply for a Digital Signature Certificate (DSC) and Director Identification Number (DIN). The DSC is essential for authorizing the e-forms on the Ministry of Corporate Affairs (MCA) portal.
Apply for Company Name approval: – Now the next step is to apply for company name approval in Form INC-1. The name must suggest that it is registered as a Section 8 company so it must have the words Sanstha, Foundation, or Micro Credit.
File Memorandum of Association (MOA) and Articles of Association (AOA): – Once the name has been approved, the company must draft the Memorandum of Association (MOA) and Articles of Association (AOA) along with the necessary documents in e-Form INC 12 for the issuance of the license.
Apply for Central Government License: – Now the next step is to apply for a Central Government License. Now you need to prepare all other documents including the income and expenditure account.
Certificate of Incorporation: – A Certificate of Incorporation is issued by the Registrar of Companies along with a unique Company Identification Number (CIN) if the Concerned ROC is satisfied with the incorporation forms.
PAN and TAN: – Once the certificate of incorporation is issued, the Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) is allotted. The physical copy of the PAN card is sent via speed post at the registered office of the company.
Now your Micro Finance Company under Section 8 is formed and you can start your working.