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REGISTER A MICROFINANCE COMPANY

Keynotes on Microfinance Company Registration

Microfinance Company in 10 to 15 days.
Completely online service - No physical presence required
No minimum capital requirement

MICROFINANCE COMPANY REGISTER

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What is a Micro Finance Company?

A Micro finance company is usually called Micro Credit Organization which deals in common loan. It is less than Rs. 50000 to different small companies and households that have no access to banking channels or not eligible to get loans.

How to perform Micro Finance Company registration in India?

Micro finance company can be registered in India by using a couple of options. The first option is via NBFC and another one via Section 8 Company. 5 crore capital is required by NBFC but there is not any minimum requirement of capital by Section 8. Let us know the procedure in detail :

Make DSC and Approval of file name –
At first DSC and DIN is to be made. This takes 1 to 2 days approximately. Thereafter, it is recommended to do filing for completing name approval. The name must be unique and needs to end with words such as foundation etc. At one time, maximum 6 names can be filed.

Filling for License –
Once the name gets approval, the next step is to make all the documents. Now it is necessary to apply for license to perform Micro finance business according to prescribed guidelines of RBI. This is performed via e-form no. 12 with proper attachments and application.

Filing for Incorporation –
Once the license is obtained, it is necessary to perform filing for incorporation. As soon as the company is incorporated, it is possible to begin the micro finance business in India. This is important to remember that no deposit can be taken under section 8.

Documents needed for Registration of Micro Finance Company

FOR SHAREHOLDERS OR DIRECTORS :


Photocopy of PAN card

Photocopy of Aadhaar card

Passport Size Photo

Address Proof such as mobile bill, bank statement, telephone bill


FOR REGISTERD OFFICE :


Proof of ownership like electricity bill and others


Utility bill such as electricity bill and gas bill


NOC


Approval of RBI for Microfinance Company

You need to make application for RBI approval to start its operations regarding Microfinance Company in India. Let us know the list of documents for RBI application for the registration of Micro Finance Company :

Certified copy of AOA and MOA of the business

Certified copy of COI and COC

Bank certificate for net owned funds

Photocopy of FD receipt

Audit report along with financial balance sheet

Procedure of Micro Finance Company Registration

Micro finance company registration procedure needs you fulfilling the guidelines of RBI that are prescribed for NBFC companies. According to RBI registration and guidelines, there is no need of any minimum capital or Rs. 5 crore in this case.

Step 1 – Make DIN, DSC and approval of Name –
The first step is to complete filing for DIN, DSC and name approval. The name must be unique and it should reflect the object of your brand. Besides, 6 names can be filed at a time.

Step 2 – Application for License –
The next and most vital part is to obtain license from the government in order to perform social work in India. This is accomplished through e-form 12 along with proper attachments and application.

Step 3 – Filing for Incorporation –
The last step is to perform filing the incorporation with all important documents like AOA, MOA, declarations and others.

Time and Cost for Micro Finance Company Registration

Number of Items Qty Price
Director Identification Number (DIN) 2  
Digital Signature Certificate (DSC) 2  
Fees of RD Approval -  
Approval of Name 1  
Application for PAN and TAN -  
AOA, MOA and Fee for Incorporation -  
Professional Fee (Including Taxes) -  
Total Cost to Register Micro Finance in India    

Notes

Extra stamp duty for the following states is applicable :

Kerala, Punjab and Madhya Pradesh

Calculation of rate of Interest for Micro Finance

The rate of interest charged by Micro Finance Companies should be which one is lower :

Average base rate multiplied by 2.75%
Or
Cost of funds along with 12% margin

According to press release on 1st April, 2017, the average base rate was 9.35%.

Essential Requirements for Micro Finance Company

Following two ways are there to register a Micro Finance Institution :

Formation of a company and apply to RBI for approval. Minimum needs for Micro finance company is 5 crore net owned fund along with sound profiles of promoters.

The second way is to complete registration of a section 8 company and also make application for the various features of central government licenses as follows :

There is no need of any minimum net owned fund so it can be decided according to specific needs.

Maximum Rs 50000 can be allotted for business purpose and Rs 125000 can be used for residential dwelling.

No need of any RBI approval as RBI has given exemption to this kind of company regarding its registration and other conditions.

Accepting Deposits under Micro Finance Company

Under Section 8 Company, there is no permission to accept deposits. Besides the company needs to invest their own capital and commence your micro finance business. In addition, funding may be enhanced by collecting donations.

If you want to register a NBFC company and want to make an investment of Rs 5 crore into it, there is no acceptance to deposits. According to RBI process, NBFC non deposit taking Company should be registered initially. Afterwards application must be done for deposit taking status from the RBI (Reserve Bank of India).

If you plan to make registration of your own NBFC, it is suggested to begin with Section 8 Company. Skills are required to be tested and then move further.

Micro Credit Loans provided under Micro Finance Company

Under Micro Finance Companies, loans are not very difficult. Unsecured loans are given against weekly or monthly repayments. Interests are imposed mostly in between 20% to 26%. In addition, following features are also crucial :

The interest on loan is to be imposed on reducing balance method.

Differential rate of interest to the customers can be imposed by NBFC but difference should not exceed 4%.

A loan card should be issued to each member of the companies narrating all the terms and conditions and rate of interest.

The effective rate of interest must be shown by the micro finance companies in all the offices

If there is not any repayment within 90 days, same should be considered as non performing asset. Although rules of provisions are not applicable for Section 8 companies.

Compulsory Compliances for Micro Finance Company

There are a number of compliances that are needed to be complied by Micro Finance Company. Following are the most important compliances :

Company Act
Section 8 company requires fulfilling the Company Act like any other business.

RBI Compliance
Company is needed to meet the terms and conditions of RBI even if this is not important to register with the RBI.

Other
There are certain other laws that are to be satisfied also such as PMLA and others.

What a Micro Finance Company can do and cannot do?

A Micro Finance Company can perform the following :

It can provide unsecured loan up to Rs 50000 for business purpose and Rs 125000 for residential dwelling.

A processing fee up to 1% can be imposed on the loan amount.

Although branches can be opened as no particular restrictions are there yet, it is suggested to open in limited numbers.

Maximum interest up to 26% can be charged according to calculations.

A Micro Finance Company cannot do the following :

It cannot treat into any other business since it is exempted by RBI for micro finance.

Profit cannot be taken directly from the company but can be taken as official expenditure, salary and others.

It is not possible to take deposits from common public.

Advantages of a Micro Finance Company

Approval of RBI is not required

There is not any minimum capital of 5 Crore

Rate of interest can be charged up to 26%

Simplest way for commencing finance business

Disadvantages of Micro Finance Company

RBI rules are required to be followed

Deposits cannot be accepted

There is not any type of scheme for gold loan

Profits cannot be taken from the company

One Click Business Solutions Private Limited

At One Click Business Solutions Private Limited, we have energetic team of professionals to take care of your microfinance company registration. Our motto is to offer complete customer satisfaction with complete transparency and cost-effective price. We believe that clients should get services after sales took place. That's why we are committed to offer wonderful after sale service to coup with the needs of our clients.

Frequently Asked Questions about Micro Finance Company

Ques: What is known as a Micro Finance Company?

Micro finance company provides the representatives of the poor level of the population who are not enormously poor with credit and other convenient services. A Micro Finance Company is a kind of NBFC that cannot have acceptance to get deposits. However, they can execute small lending tasks to finance the low-income group of the people such as agriculturist, farmers, horticulturist and others.

Ques: What are the documents needed for the registration of a Micro Finance company?

Following documents are important for Micro Finance Company Registration procedure :

Certified MOA and AOA

Certified COC and COI

Audit report

Board Resolution Certificate stating that the norms mentioned in RBI Act, 1934 are followed

Certified copies of highest educational qualifications of the directors

Ques: What are the advantages of a Micro Finance Company?

Let us know the benefits of a Micro Finance company :

Continuity

Improved payment rates

Better access

Ques: What are the disadvantages of a Micro Finance Company?

Micro Finance Company has following disadvantages :

Higher cost

Limited growth

Strict regulation

Ques: How is the regulation procedure of Micro Finance Companies?

RBI regulates these companies according to the master circulars regarding NBFC-MFIs. These depend on the RBI circular no: DNBS (PD) CC No: 395/03. 10.38/2014-15.

Ques: Why interest rate is higher as compared to traditional bank?

The rate of interest in Micro Finance Business is more than traditional banks as small loans are likely to be more costly to process as compared to bigger ones.

Ques: Who are known as the clients of the Microfinance Companies?

The clients are either above or below poverty line that cannot access to financial services from other financial organizations like Bank.

Ques: What is known as rate of Interest imposed on the loan?

The new rate of interest is 19.25% to 20% that was effective from 10th April 2018.

Ques: What criteria are there to get loans from MFIs?

Following criteria are there to acquire loans from Micro Finance Companies :

Total debt of the clients should not be more than Rs 100000

Client is not permitted to borrow from more than one MFI

Client should have their own house

Earning activity of client is compulsory

A bank account of client is essential

Documents of ID and proof of client are mandatory

Ques: What are the Maximum and minimum loan amounts?

For on-ward borrowing :

Rs 50 lakhs to 50 crores

For Women borrowing :

Rs 15 lakhs to Rs 35 lakhs

For Micro-entrepreneurs

1 Lakh to 10 Lakhs



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