{"id":3099,"date":"2021-03-08T07:01:15","date_gmt":"2021-03-08T07:01:15","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=3099"},"modified":"2021-03-08T07:04:48","modified_gmt":"2021-03-08T07:04:48","slug":"advantages-and-disadvantages-of-micro-finance-company-registration","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/advantages-and-disadvantages-of-micro-finance-company-registration\/","title":{"rendered":"Micro Finance Company Registration: Advantages and Disadvantages"},"content":{"rendered":"\n<p class=\"has-drop-cap\">Micro Finance\nCompanies are the financial institutions that provide loans and advances to the\nlow- income group of people where the financial requirement is less as compared\nto the other sectors of the society. Such class of group generally do not have\nthe access to the traditional financial institutions such as banks. The Micro\nFinance Companies offer small loans to the various small households or\nbusinesses and is a huge support to all the agricultural and rural development\nincluding income and employment creation. The <strong><a href=\"https:\/\/swaritadvisors.com\/microfinance-company-registration\" class=\"text-primary\">Micro\nFinance Company registration<\/a><\/strong> can be done either as an NBFC or as a\nSection 8 company. This article will discuss about the micro finance company\nregistration and its advantages and disadvantages.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a54bab7bf636\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a54bab7bf636\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/advantages-and-disadvantages-of-micro-finance-company-registration\/#Why_is_there_a_need_for_Micro_Finance_Company\" title=\"Why is there a\nneed for Micro Finance Company?\">Why is there a\nneed for Micro Finance Company?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/advantages-and-disadvantages-of-micro-finance-company-registration\/#Micro_Finance_Company_registration_NBFC_and_Section_8_Company\" title=\"Micro Finance\nCompany registration (NBFC and Section 8 Company) \">Micro Finance\nCompany registration (NBFC and Section 8 Company) <\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/advantages-and-disadvantages-of-micro-finance-company-registration\/#Micro_Finance_Company_Registration_as_an_NBFC\" title=\"Micro Finance\nCompany Registration as an NBFC\">Micro Finance\nCompany Registration as an NBFC<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/advantages-and-disadvantages-of-micro-finance-company-registration\/#Documents_required\" title=\"Documents\nrequired\">Documents\nrequired<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/blog\/advantages-and-disadvantages-of-micro-finance-company-registration\/#Micro_Finance_Company_Registration_as_a_Section_8_Company\" title=\"Micro Finance\nCompany Registration as a Section 8 Company \">Micro Finance\nCompany Registration as a Section 8 Company <\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/blog\/advantages-and-disadvantages-of-micro-finance-company-registration\/#Documents_required-2\" title=\"Documents\nrequired \">Documents\nrequired <\/a><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/swaritadvisors.com\/blog\/advantages-and-disadvantages-of-micro-finance-company-registration\/#Advantages_and_Disadvantages_of_Micro_Finance_Company\" title=\"Advantages and\nDisadvantages of Micro Finance Company &nbsp;\">Advantages and\nDisadvantages of Micro Finance Company &nbsp;<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/swaritadvisors.com\/blog\/advantages-and-disadvantages-of-micro-finance-company-registration\/#Advantages\" title=\"Advantages \">Advantages <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/swaritadvisors.com\/blog\/advantages-and-disadvantages-of-micro-finance-company-registration\/#Disadvantages\" title=\"Disadvantages \">Disadvantages <\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/swaritadvisors.com\/blog\/advantages-and-disadvantages-of-micro-finance-company-registration\/#Conclusion\" title=\"Conclusion \">Conclusion <\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Why_is_there_a_need_for_Micro_Finance_Company\"><\/span>Why is there a\nneed for Micro Finance Company?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Micro\nFinance Companies are needed as it serves the following purposes:<\/p>\n\n\n\n<ul><li>It provides financial assistance to those\nenterprises which cannot place security or collateral. <\/li><li>It encourages and motivates women\nentrepreneurship. <\/li><li>It provides support to startups. <\/li><li>It also offers assistance for nominal amounts\nthat are generally funded as loans in hand. <\/li><li>It provides foe legal or formal status for the\nprocess of lending and therefore, brings discipline in borrowings by the low-\nincome groups. Through this, the over- borrowing is prevented and it reduces\nany complications arising out of the high future debts. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Micro_Finance_Company_registration_NBFC_and_Section_8_Company\"><\/span>Micro Finance\nCompany registration (NBFC and Section 8 Company) <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The micro finance company registration can be done as an NBFC or Section 8 Company:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" loading=\"lazy\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/03\/infographic-for-swarit-blog-1.png\" alt=\"Micro Finance Company registration (NBFC and Section 8 Company)\" class=\"wp-image-3101\" width=\"507\" height=\"304\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/03\/infographic-for-swarit-blog-1.png 750w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/03\/infographic-for-swarit-blog-1-300x180.png 300w\" sizes=\"(max-width: 507px) 100vw, 507px\" \/><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Micro_Finance_Company_Registration_as_an_NBFC\"><\/span>Micro Finance\nCompany Registration as an NBFC<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul><li>In order to register the Micro Finance Company as an NBFC, the first step is to form a public or a private company. Minimum of 7 members are required to form a <strong><a href=\"https:\/\/swaritadvisors.com\/public-limited-company-registration\" class=\"text-primary\">public limited company<\/a><\/strong> and a minimum of 2 members are required to form a private company.<\/li><li>The next step is to raise the required minimum net owned funds of Rs. 5 crore. The requirement is of Rs. 2 crore for the north-eastern region. <\/li><li>Once the capital is collected, it is required to be deposited in a bank as a fixed deposit and \u201cNo lien\u201d certificate is to be obtained for the same. <\/li><li>Further, the <strong><a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\" class=\"text-primary\">NBFC<\/a><\/strong> is required to fill an online application for the license and submit it along with all the necessary documents. The applicant must also submit the hard copy of the application and license at the regional office of the Reserve Bank of India (<a href=\"https:\/\/www.rbi.org.in\/\">RBI<\/a>). <\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Documents_required\"><\/span>Documents\nrequired<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<ul><li>Memorandum of Association (MOA) and Articles of Association (AOA). <\/li><li>Copy of Board Resolution. <\/li><li>Certificate of Incorporation of Company. <\/li><li>Copy of auditor\u2019s report and receipt of fixed deposit. <\/li><li>Banker\u2019s certificate of No Lien stating the net owned worth. <\/li><li>Company\u2019s Banker\u2019s report. <\/li><li>Directors recent credit report. <\/li><li>Directors net worth certificate. <\/li><li>Professional\/ educational qualification proof of the director. <\/li><li>Income proof and KYC of the director. <\/li><li>Work experience proof in the financial sector. <\/li><li>Organizational structural plan. <\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Micro_Finance_Company_Registration_as_a_Section_8_Company\"><\/span>Micro Finance\nCompany Registration as a Section 8 Company <span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul><li>The applicant is required to apply for the DSC\nand DIN. To authorize the E-form the DSC is necessary. <\/li><li>Further, the applicant is required to apply for\nthe name approval in the Form INC- 1. It is necessary that the name must\nsuggest that it is registered as a <strong><a href=\"https:\/\/swaritadvisors.com\/section-8-company-registration\" class=\"text-primary\">section 8\ncompany<\/a><\/strong>. Therefore, words like foundation, micro credit, sanstha etc\nmust be used. <\/li><li>Upon the name approval, the company is required\nto draft a MOA and AOA and file it along with all the necessary documents. <\/li><li>Lastly, the applicant is required to file all\nForm INC- 12 along with the incorporation certificate and relevant documents in\norder to obtain the license. <\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Documents_required-2\"><\/span>Documents\nrequired <span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<ul><li>Identity proof. <\/li><li>Address proof. <\/li><li>PAN Card of all the directors\/ promoters.<\/li><li>Photograph of all the promoters and directors. <\/li><li>Proof of rental agreement or ownership of registered\noffice. <\/li><li>No Objection Certificate (NOC) from the owner. <\/li><li>Applicable stamp duty as necessitated by the\nState. <\/li><li>Any other relevant documents as required.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Advantages_and_Disadvantages_of_Micro_Finance_Company\"><\/span>Advantages and\nDisadvantages of Micro Finance Company &nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Advantages\"><\/span>Advantages <span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul><li>Most of the micro finance companies take no\nsecurities or collateral for providing financial credit or loans. The less\npaper work and hassle free process makes it suitable option to approach micro\nfinance companies for quick fundraising. <\/li><li>Micro finance companies are not limited to\nprovide emergency credit only but it is also capable of disbursing working\ncapital loans, housing loans and business loans with minimum formalities and\nprocessing. <\/li><li>Micro Finance Companies works towards helping\nthe low- income groups and unemployed individuals by providing them with easy\nfinancial credit. <\/li><li>The Micro finance companies can provide the\nfunds for a startup, that is to an individual for setting up a business that\nhas minimum investment and offers sustainable profit in he long run. Therefore,\nit ensures self- sufficiency and entrepreneurship for the lower income group. <\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Disadvantages\"><\/span>Disadvantages <span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul><li>Unlike traditional financial banks, micro\nfinance company offer small loan amount and does not ask for securities or\ncollateral against the credit or loan. Therefore, the disbursement of large\nloan amount is practically not possible in this case. <\/li><li>The micro finance company since, do not follow\ntraditional bank footprints, it charges a very high rate of interest unlike\nbanks. Further, unlike banks the micro finance company collects funds through\nprivate equity to render the financial services. This means that micro finance\ncompany is under the relentless pressure to generate more profit for its\ninvestor, thereby forcing them to charge higher interest rates. <\/li><li>In the absence of compliance and working\nprotocols, the micro finance companies can adopt a harsh repayment approach\nwhich would be severe for those who would not be able to return the money in\nfinancial crisis. However, since these companies work under the strict\ncompliance, yet they could manipulate its customer unethically for repayment. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Micro Finance company registration involves simple process and is hassle free. The purpose of this type of entity is to take initiatives to serve to the low- income groups of the society. The above article has discussed fairly about the micro finance company registration and its advantages and disadvantages.<\/p>\n\n\n\n<p><strong>Also, Read:<\/strong> <mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/procedure-for-micro-finance-company-registration\/\">Step by Step Procedure for Micro Finance Company Registration<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Micro Finance Companies are the financial institutions that provide loans and advances to the low- income group of people where the financial requirement is less as compared to the other sectors of the society. Such class of group generally do not have the access to the traditional financial institutions such as banks. The Micro Finance [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":3100,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[59,56],"tags":[470],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/3099"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=3099"}],"version-history":[{"count":4,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/3099\/revisions"}],"predecessor-version":[{"id":3105,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/3099\/revisions\/3105"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/3100"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=3099"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=3099"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=3099"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}