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
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.
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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
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
Photocopy of PAN card
Photocopy of Aadhaar card
Passport Size Photo
Address Proof such as mobile bill, bank statement, telephone bill
Proof of ownership like electricity bill and others
Utility bill such as electricity bill and gas bill
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.
The rate of interest charged by Micro Finance Companies should be which one is lower :
Average base rate multiplied by 2.75%
Cost of funds along with 12% margin
According to press release on 1st April, 2017, the average base rate was 9.35%.
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.
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.
There are a number of compliances that are needed to be complied by Micro Finance Company. Following are the most important compliances :
Section 8 company requires fulfilling the Company Act like any other business.
Company is needed to meet the terms and conditions of RBI even if this is not important to register with the RBI.
There are certain other laws that are to be satisfied also such as PMLA and others.
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.
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.
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
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.
Following documents are important for Micro Finance Company Registration procedure :
Certified MOA and AOA
Certified COC and COI
Board Resolution Certificate stating that the norms mentioned in RBI Act, 1934 are followed
Certified copies of highest educational qualifications of the directors
Let us know the benefits of a Micro Finance company :
Improved payment rates
Micro Finance Company has following disadvantages :
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.
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.
The clients are either above or below poverty line that cannot access to financial services from other financial organizations like Bank.
The new rate of interest is 19.25% to 20% that was effective from 10th April 2018.
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
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