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REGISTER A MICROFINANCE COMPANY

Keynotes on Microfinance Company Registration

It takes 10 to 15 days for Microfinance Company Registration
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.

Microfinance Company Registration Procedure in India :

Company Registration -
The first step in MFI (Microfinance Institution) registration is to incorporate a company either as Private Limited Company or Public Limited Company according to Companies Act, 2013. At first, the company can be incorporated with the capital of Rs. 1,00,000.

Raise Capital -
The next step is to raise authorized and paid up share capital up to Rs. 5 Crore or Rs. 2 Crore as the condition may be. It must be raised in the type of equity Share Capital and not Preference Share Capital.

Opening Bank Account -
After registration of the company, the amount obtained shall be deposited in a bank account in the form of Fixed Deposit. After this, a certificate of no lien shall be acquired from the bank. This certificate shall be attached with an application that will be submitted with the RBI.

Application for Microfinance Company Registration with RBI -
The next step is to get all the certified copies and submit it with the RBI for performing business Operations. Following are needed to be submitted :

Copy of an extract of the main object clause in MOA

Copy of Certificate of Incorporation

Bankers Certificate of no lien in relation to Net Owned Fund

Copy of fixed deposit receipt

Bankers Report

File Online Application -
An online application will be filed with the RBI for Microfinance Company Registration. After filing of an application, the company will obtain Company Application Reference Number.

Submission of Hard Copy -
Once an online application is filed, a hard copy of the application with the required documents will be submitted with the regional office of the Reserve Bank of India. On obtaining the application, RBI will carry out due diligence and after satisfaction, RBI will give a certificate of commencement of business.

Necessary Documents for MFI Registration in India :

Certified copy of Memorandum and Articles of Association (MOA & AOA) of the Company

Duly Certified copy of Certificate of Incorporation of a company

Board Resolution corresponding to the proposed Microfinance company registration

Report of Banker

Auditors report about receiving of the minimum net owned fund (NOF) of the applicant company

A certificate of Chartered Accountant about details of associate/group/ holding companies/ subsidiary with the details of investments in other NBFCs as displayed in the Performa Balance Sheet

A certified copy of the professional qualification and highest educational of all the proposed directors of an applicant company

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


Interest rates on Loans by Micro Finance Companies like NGO

Basically, there are three kinds of charges that can be imposed by the Micro Finance Company.

The interest Charge – The average rate of interest should not be exceeded by 26%.

The Processing Charge – The processing charge should not exceed 1% of the gross loan amount.

Insurance Premium – Only the actual cost of insurance for life, group, health and others is to be charged and none of extra money is permitted according to RBI policy.

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%.

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 Microfinance Company Registration

For Microfinance Institutions in India, Reserve Bank of India has made a policy structure to offer required authority to the sector.

Following are the advantages of Microfinance Institutions :

It encourages entrepreneurship and self-sufficiency

Easy access to funding

Improved general loan repayment rate as compared to traditional banks

It strengthens the financial state by meeting the credit requirements of needy individuals by offering a different kind of loans for example business loan, emergency loans, housing loan, working capital loan etc.

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

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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