Overview of Micro Finance Company Registration

The Microfinance Company means a company that offers financial assistance to the low income strata, rural people, and backward section of the society. In other words, we can state that a Microfinance Company assists those who do not have access to banking facilities.
Further, it shall be noteworthy to state that a Microfinance Company or Microfinance Institution is a Non-Deposit Taking NBFC and is different from a Section 8 Company. The operations and management of an MFI are governed by the provisions of the RBI Act 1934 and guidelines issued there under.

Role of Microfinance Company

The key role of a Microfinance Company can be summarised as:
Offers Financial Assistance to Low Income People;
Provides Banking Facilities to Rural, Semi Rural, Backward Section of Society;

Benefits of Microfinance Company Registration

The key benefits of Microfinance Company are as follows:

Does not require Collateral for Lending Funds;
Facilitates Employment Generation;
Assists in Rural Development;
Provides Opportunity to Earn Income;
No Minimum Capital Requirements;
Offers better Rate of Repayment;
Make people Self Sufficient;

Who are Eligible to Obtain a Loan from MFI

The ones eligible to obtain a loan from MFI are as follows:
Agricultural Activities;
Small Scale Businesses;
Professional and Transport Trade;
Artisan Business;

Requirements of Microfinance Institution Registration

The basic requirements to start a Microfinance Institution in India are as follows:
Must have registration under the Companies Act 2013 or Companies Act 1956;
Should have Net owned funds of Rs 5 crores;
Can provide loans only between Rs 50 thousand to Rs 1.25 lakh;
Must furnish details on Promoters;
Out of the total Net Owned Funds, 85% must be the Qualifying Assets;
No Minimum Capital Requirement;

Types of Microfinance Institutions

The different types of Microfinance Institution are as follows:

RBI Registered Microfinance Institutions

To register a Microfinance Company as an NBFC, the applicant needs to incorporate a Private Limited or Public Limited Company under the provisions of the Companies Act 2013. After that, he/ she needs to follow all the steps required for a microfinance company registration, ranging from the minimum capital requirement to the filing of the application at the regional office of the RBI.

Section 8 Registered Microfinance Institutions

To register a Microfinance Company as a section 8 company, the applicant company needs to first apply for DSC (Digital Signature Certificate) and DIN (Directors Identification Number) for all the proposed directors. After that, it needs to file an application for Name Approval in form INC – 1. Further, it need to draft the Memorandum of Association and Articles of Association for the company and need to file INC – 12, together with the required documents to acquire license.

Mandatory Compliance for Microfinance Institution

The mandatory compliance for Microfinance Institution are as follows:

RBI Compliance

The term RBI Compliance means the guidelines issued for the operating Microfinance Companies. It shall be relevant to state that there is no need for a Microfinance Company to satisfy the RBI requirements, but it needs to adhere to the RBI Rules concerning it.

Companies Act 2013

If in case a Microfinance Company is registered as a Section 8 Company, then, in that case, it needs to comply with the requirements specified under the Companies Act 2013.

Documents required for Microfinance Company Registration

The documents required to obtain the Microfinance Company Registration in India are as follows: A copy of the Company’s Incorporation Certificate;
PAN (Permanent Account Number) Card of the Applicant Company;
PAN Card of the Directors;
DSC (Digital Signature Certificates) for Directors;
DIN (Director Identification Number) for Directors;
Latest Passport-sized photographs for all Directors;
Address Proof for the place being used as the Registered Office;
A copy of the Rental Agreement or Lease Deed, in the case of Rented Property;
A copy of the Ownership or Sale Deed, in the case of Self Owned Property;
Certified copy of the MOA (Memorandum of Association);
Certified copy of the AOA (Articles of Association);
Banker’s Report;
A copy of the BR (Board Resolution) passed;
Auditors Report showing the minimum Net Owned Funds;
Compliance Certificate from a Chartered Accountant;
Structured Business Plan of the Entity;
Financial Report pertaining to Directors; Income Proof of the KMP (Key Managerial Personnel) and Directors;

Procedure for Microfinance Company Registration

The steps involved in the process to obtain Microfinance Company Registration are as follows:

Register a Company

In the first step of the procedure to obtain Microfinance Company Registration, the applicant requires to get a company registered under the Companies Act 2013. Further, the term company includes both Public Limited Company and Private Limited Company.
Also, it will be relevant to state that the Ministry of Corporate Affairs has removed the requirement of having Rs. 1 lakh as the Minimum Capital.

Gather the Required Authorised Capital

In the next step of the procedure, the applicant requires to raise the NOF (Net Owned Funds) of Rs 5 crores or Rs 2 crores (in the case of north eastern state). Such an NOF will be considered as the authorised capital.
However, it shall be considerate to state that the said authorised capital can only be raised through issuing Equity Shares and not by issuing Preference Share Capital.

Open a Bank Account

The applicant requires to open a bank account with any scheduled bank for making an FD (Fixed Deposit). The amount of the FD will be the one received by issuing equity shares.
After that, the concerned scheduled bank will grant a “Certificate of No Lien” to the applicant, which it requires to annex with the application form, to submit the same with the Apex Bank, i.e., Reserve Bank of India.

Apply for Microfinance Company Registration

To obtain the Microfinance Company registration, the applicant needs to furnish the certified copies of the following with the RBI:
Certificate of Incorporation;

Extract of the Object Clause as specified in MOA;
Fixed Deposit Receipt;
Banker’s Certificate;
Banker’s Report;

File Online Application for Registration

To obtain Microfinance Company Registration, the applicant must file an online application for the same with the RBI. The apex bank will issue an ARN (Application Reference Number) against the form submitted.

Furnish the Hard Copy

In the last step, the applicant will require to visit the Regional Office of the RBI to submit the Hard Copy of the Registration Form.
After the submission of the form, the authorities designated by the Apex Bank will carry out the procedure of Due Diligence. If the authorities are satisfied with the documents and form submitted, they will issue a Certificate of Commencement (COC) to the applicant.
Once the applicant has received the Certificate of Commencement, it can start carrying out the functions of a Microfinance Institution.

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