Different Ways to Establish Micro Finance Company

Before we discuss the different ways to establish Micro Finance Company, let us first understand Micro Finance Company. Microfinance companies come under the category of financial institutions that render budgetary aid to low-income groups. These sectors usually don’t access to traditional financial institutions such as banks and other financial institutions. If you want to establish such a company, then you have to apply for Microfinance Company Registration.

Apart from traditional banks, only Non-Banking Financial Companies (NBFCs) can render financial services as per RBI Provisions. But, Reserve Bank of India has surrounded some private companies to perform financial activities under specified circumstances. Scroll down to check more information regarding the different ways to establish Micro Finance Company.

What are the ways to establish Micro Finance Company in India?

Ideally, only an NBFC is authorized or legally approved by the Reserve Bank of India to conduct financial business, but there are some exceptions are provided by the Reserve Bank of India to specific companies to perform financial activities up to a specified limit.

There are two different ways to establish Micro Finance Company in India proposed by Reserve Bank of India, and you can check the same below:

• Registered NBFCs under RBI.
• Section 8 Company.

If you want to establish a microfinance company in India, you have to choose one option as we mentioned above as per your requirements.

Requirements for Microfinance Company Registration

There are two ways to establish Micro Finance Company or to register as a Microfinance Company wither through Section 8 Company or an  NBFC, but for that, you have to fulfil all the requirements as mentioned below:

• Requirements for Microfinance Company registration as an NBFC:

1. It is compulsory to get an approval of RBI.
2. The minimum Net Owned Funds (NOF) is INR 5 crores.
3. The director must have the experience of at least ten years in the field of financial services.
4. The limit on loans is a maximum of 10% of total assets.
5. It has to follow all the compliances of an NBFC.
6. It requires a minimum of two members for a Private Limited Company whereas, for a Public Limited Company, it requires a minimum of seven members.
7. The status of an organization is a profit organization.

• Requirements for Microfinance Company registration as a Section 8 Company:

1. It is not compulsory to get an approval of RBI.
2. There are no minimum Net Owned Funds.
3. No previous experience required.
4. Unsecured loan of Rs. 50,000/- to small business and loan up to Rs. 1.25 lakh to dwelling residence.
5. It has to follow all the RBI compliance, but they are less severe compared to Non-Banking Financial Company (NBFC).
6. It requires a minimum of two members for a Private Limited Company whereas, for a Public Limited Company, it requires a minimum of seven members.
7. The status of an organization is a profit organization.
8. It requires a minimum of two members.
9. The status of an organization is a Non-profit Organization.

Also, Read: What are the Major Risks Faced by Micro Finance Company in India?

Procedure of Microfinance Company Registration

As we mentioned above that there two different ways to establish Micro Finance Company and the Microfinance Company Registration process also varies considerably. Following is the process involved in the registration of Microfinance Company through two different ways:

Registration of Microfinance Company as an NBFC:

As an NBFC is one of the ways to establish Micro Finance Company in India. Follow the given instructions to register your company as an NBFC. Following is the step for registering Microfinance Company as an NBFC:

• Register a Company: For an NBFC business model, the applicant must register a company as a Private Limited or Public Limited Company in the first place. The criteria for the registration of the business model differ from each other. A minimum of two members and a minimum capital of Rs. 1 lakh for the Private Limited Company Registration and a minimum of seven members are required for the formation in case of Private Limited Company.
• Accumulate Capital: The succeeding step is to raise the required minimum net owned funds of Rs. 5 crores and for the north-east region, the requirement is of Rs. 2 crore.
• Deposit the Capital: After raising or accumulating the capital, make sure to transfer the specific capital to the bank account in the Form of FD or Fixed Deposit. Also, don’t forget to avail “No Lien Certificate” from the bank regarding this fund.
• Apply for the License: After completing all the above step, then you need to file an application online and upload all the scanned copies of the documents on the RBI website. In addition, the applicant must submit a hard copy of the documents at the regional office of RBI (Reserve Bank of India). You can check all the essential documents that go with the application form are as follows:

1. Submit MOA (Memorandum of Association) and AOA (Articles of Association).
2. Incorporation Certificate.
3. Submit a Board Resolution which is prepared in the board meeting.
4. Submit a No Lien Certificate issued by the bank.
5. Latest credit reports of the director.
6. KYC (Know Your Customer) of Director.
7. A detailed confidential report which is issued by the bank.
8. Certificate showing the professional and academic background of directors.
9. Submit an income proof of the director, such as wages, salary certificate, and tax statement.
10. Net worth certificate of the director.
11. Submit a copy of auditor’s report showing the receipt of the fixed deposit.

Registration of Microfinance Company as a Section 8 Company:

Section 8 company is also one of the ways to establish Micro Finance Company in India. Follow the given instructions to register your Section 8 Company. Following is the step for registering Microfinance Company as a Section 8 Company:

• Apply for DIN and DSC via SPICe+ Form: DSC or Digital Signature Certificate is allotted to the company’s shareholders and directors to verify the documents digitally. Whereas, DIN or Director Identification Number is assigned to the company director and is responsible for regular handling tasks. Always remember that DIN is an eight-digit alphanumeric number that comes with lifetime validity.
• Apply for Name Approval: After obtaining DSC and DIN, you have to apply for the name approval in the SPICe+ Form and submit it to MCA’s website (Ministry of Corporate Affairs) along with the required documents. It is compulsory to use terms like Microfinance or Sanstha in the name of the company.
• Obtain MOA and AOA of the Company: After that, the company should obtain MOA and AOA and file it with the following documents:

1. Submit a copy of PAN Card of all the directors.
2. Submit any Identity Proof of all the directors or promoters such as Aadhar Card, Passport, Driving License, Voter’s Id, and Driving License.
3. Address proof.
4. The latest passport-sized photograph of all the directors or promoters.
5. Rental Agreement or ownership proof of the registered office.
6. Applicable Stamp duty as required by the State.
7. Or any other documents required.

Conclusion

Above we discuss the different ways to establish Micro Finance Company in India. Suppose anyone wants to establish a microfinance company in India. In that case, they have to choose one of the options as we mentioned above and for the Microfinance Registration, it is compulsory to submit all the essential documents because if you fail to submit any important document, then there is no other way to approve your application by the authority.

Also, Read: Importance of Micro Finance Company Registration in India