Step by Step Procedure for Micro Finance Company Registration

Step by Step Procedure for Micro Finance Company Registration
| Updated: Mar 06, 2021 | Category: Microfinance Company, RBI Advisory

Micro Finance Company is a company that provides financial services like credit, loans, savings and insurance to small business entrepreneurs and small enterprises. It provides small financial support to the low income groups in the rural and semi- urban areas, that is, it is eligible to provide loans up to Rs. 50000 in rural areas and Rs 125000 in urban areas to the small enterprises, entrepreneurs, and low income group. It provides credits to agriculturists, small businessman, farmers, horticulturists and etc. Micro Finance Company registration is important and can be done either as NBFC or as Section 8 Company. This article will talk about the step by step procedure for micro finance company registration in India.

What is a Micro Finance Company?

As stated about in the introduction, Micro Finance Company is a financial institution that provides finances to the low income groups. Such group of people generally do not have access to traditional financial institutions such as banks and other financial institutions. The micro finance companies provide loans and advances without demanding any collateral security or marginal money. It acts as a greater support to the agricultural and rural development and generation of income and employment.

Role and Objectives of Micro Finance Company

The role of micro finance is related to lending funds to those who do not have access to capital. It allows the individuals to become financially stable and work towards building a standard life. The artisans, small businesses, transport and professional trades and agriculture and allied activities can avail financial assistance from micro finance companies to improve and increase its production. The objectives of micro finance companies are as follows:

  • To offer banking services but as small monetary amounts.
  • To help the people belonging from low- income group to become self- sufficient.
  • Help increase the participation of women in generating sustainable livelihood.
  • To give financial assistance to the individuals who does activities such as fishing, transportation, carpentry and etc.
  • Provide financial assistance to small enterprises who cannot afford collaterals and securities.
  • Provide an opportunity to have access to quality healthcare.
  • Creating opportunity for self- employment.

Also, Read: Start Microfinance Company in India: A Complete Business Plan

Procedure for Micro Finance Company Registration as an NBFC

The following steps are involved in the micro finance company registration as an NBFC:

  • The first step in the micro finance company registration as an NBFC is to form a private company or a public limited company. At least 2 members or shareholders and a minimum of 7 members are required to form a public company.
  • Further, a minimum net owned fund of Rs. 5 crore is required to be raised. For the north-eastern region the minimum requirement is of Rs. 2 crore.
  • Once the capital is collected, it is required to deposit the capital in the bank as a fixed deposit (FD) and obtain a “No lien” certificate for the same.
  • Lastly, the NBFC is required to fill an online application for license and submit such application along with all the required documents. A hard copy of the license and the application should also be submitted at the regional office of the Reserve Bank of India.

What are the Documents required for the micro finance company registration as an NBFC?

Following documents are required in order to register micro finance company as an NBFC: –

  • Copy of Board Resolution
  • Memorandum of Association and Articles of Association.
  • Company’s Incorporation Certificate.
  • A copy of Auditor’s report and fixed deposit receipt.
  • The banker’s report about the company.
  • The banker’s certificate of the ‘No lien’ stating the net owned worth.
  • The latest directors credit report.
  • Directors net worth certificate.
  • Qualification proof of the director.
  • Income proof and KYC of the director.
  • Work experience proof in the financial sector.
  • The organization’s structure plan.

Procedure for Micro Finance Company Registration as Section 8 Company

The following is procedure for micro finance company registration as Section 8 Company:

  • In order to register a micro finance company as section 8 company, the first step is to apply for DSC and DIN. It is important to apply for DSC to authorize the e- forms.
  • Further, application for name approval must be made in Form INC- 1. It is necessary that the name must represent that it is registered as a Section 8 Company. Therefore, words like foundation, sanstha and etc. must be used.
  • Once the name approval is done, the company is required to draft the Memorandum of Association (MOA) and Articles of Association (AOA) and file it along with all the required documents.
  • The final step is to file the Form INC- 12 along with the certificate of incorporate and all the relevant documents.

What are the Documents required for the micro finance company registration as Section 8 Company?

Following documents are required in order to micro finance company registartion as Section 8 Company:

  • Documents related to identity proof.
  • Documents related to address proof.
  • Copy of PAN (Permanent Account Number) Card of all the directors and promoters.
  • Photograph of all the directors and promoters.
  • Proof of rental agreement or ownership of registered office.
  • No objection certificate (NOC) from the owner.
  • As mandated by the State, an applicable stamp duty.
  • Any other relevant documents as required.

Conclusion

The RBI regulates and controls the activities of the Micro Finance Company. The micro finance company has been witnessing a very high growth and the purpose of it is to provide the financial assistance to the low income groups so that they can have a sustainable and stand lifestyle. The step by step procedure for micro finance company registration has been discussed in detail in the above article. And it is necessary to register the micro finance company so that it can achieve its objective for which it has been established.

Also, Read: Differences between Microfinance Companies and NBFCs

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Japsanjam Kaur Wadhera is an Advocate and has completed her BA.LLB (Hons) and has experience of writing various research papers during her college time. Earlier she was working as an Associate Advocate in a reputed Law Firm. She has an extreme interest in writing legal content and her core area falls under legal enactments, tax and finance.

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