How to Start a Microfinance Company Registration

registrtion process
service package

Overview of Microfinance Company Registration

Microfinance Company refers to the Company which facilitates low income group by providing funds to those who are distantly located especially in semi urban as well as rural areas and have no access to banking facilities. In other words, it can be considered as borrowing of funds by people found in semi urban as well as rural areas. It is worth noting here that it is considered as Non-Deposit Taking NBFC but is different from Section 8 Company. RBI Act 1934 governs Microfinance Company for its smooth functions. It means the guidelines and directions for Microfinance institutions are laid out by RBI Act 1934. Microfinance Companies are synonymously called Microfinance institutions too.

Purpose of Micro Finance Company

purpose of microfiance company
  • It provides funds to low income people.
  • It comes handy for those people who reside in semi urban as well as rural areas.

Benefits of Microfinance Company Registration

benefits of microfinance

Microfinance Company offers many benefits which are given below:

  • There is no collateral/mortgage money required for borrowing of funds
  • It helps to generate employment
  • Facilitates rural development
  • It also provides an opportunity to earn income

Requirements to Start a Microfinance Company/Institutuons

One must comply with following requirements to start Microfinance Institutions:

  • Companies Act 2013 or 1956 helps in incorporation of Microfinance institutions
  • The Authority prescribes the minimum net worth which is necessary to carry out the operations of Microfinance institutions
  • The required Permit/License must be obtained

Pre-requisites for Microfinance Company Registration

condition for microfinance company registration

There are certain pre-requisites for Microfinance Company Registration which are required and are given below-

  • Certification of Incorporation’s copy is required
  • Extract of main object clause specified in MOA’s copy is required
  • Fixed Deposit Receipt’s copy is required
  • Banker’s Certificate in regards to Net Owned Fund and Banker’s Report are required too.

Documents Required For Microfinance Company Registration

There are few documents which are required to be furnished for Microfinance institution Registration which are as follows:

All Directors and shareholders are required to furnish the following details:

  • Company’s Incorporation Certificate (copy)
  • Company’s MOA as well AOA (copy)
  • Bank Resolution which states proposed Microfinance Company Registration
  • Report from the bank
  • Report from Auditors which states minimum Net Owned Fund of an applicant of Company
  • Chartered Accountant’s Certificate that depicts information related to Group/Subsidiary/Holding/Associate Companies. Performa Balance Sheet is also furnished which states information about investment in other NBFC
  • Proposed Directors highest educational and professional qualifications (certified copy).

Procedure for Microfinance Company Registration

 

process of mmicrofinance company registration

The following the Procedure for microfinance company registration are as follows:

  • Registration of Company

    A Microfinance Company needs to be registered as a Public Limited Company or Private Limited Company which is a preliminary step. It is in accordance with Companies Act, 2013. The Company needs to be registered initially with INR 1, 00, 000 towards capital followed by a next step where capital is raised.

  • Capital is Raised

    Authorized as well as Paid Up capital is raised in this step. The amount of INR 2 crore or 5 crores is decided on the basis of the case. The amount that is raised in this step can be only through Equity Share Capital. Thsse capital can’t be raised through Preferential Share Capital which means a possibility of raising capital through Preferential Share is ruled out followed by a next step where the account is opened in the bank.

  • Account Opening in the Bank

    Once the company is incorporated, Fixed Deposit has to be opened with the bank. The Fixed Deposit’s amount will be the one which is received by the Company. Subsequently, the bank provides Certificate of no lien which must be accompanied with an Application. After attaching Certificate of lien and an Application, it must be submitted to RBI followed by a next step where Microfinance Company registers itself with RBI.

  • RBI Registration of Microfinance Company- 

    In this step, RBI needs the certified copies of the documents like Certification of Incorporation, extract of main object clause specified in MOA, Fixed Deposit Receipt, Banker’s Certificate as well as Banker’s Report. It is done so that Microfinance Company can carry out its business operations followed by filing an Application online.

  • Online Application Filing

    One must submit an online Application with RBI basis which Company Application Reference Number will be allotted to the Company followed by the last step of hard copy submission.

  • Submission of Hard Copy

    In the last step, one must approach Regional Office of RBI to submit an Application’s hard copy. Thereafter, Due Diligence will be carried out by RBI and if RBI satisfies itself, Certificate of commencement of business will be issued by it.

Limitations of Microfinance Company/Institutions

Up to INR 50,000 loan can be provided by Microfinance Company to people who have no access to regular banking facility. People like agriculturists, businessman, farmers and so on usually avail facilities of Microfinance Company. As already specified, it is mostly availed by low income group. Moreover, people who are located in far flung areas like semi urban as well as rural areas can approach Microfinance Company.

How can we help you to ease the process of Microfinance Company Registration?

Swarit Advisors is a one-stop service provider that can help you in enabling Microfinance Company Registration. Our team of professionals will guide you through out the Microfinance Company Registration. You just have to provide us with all your essential documents to obtain Microfinance Company Registration and rest assured we will sail you through.  We aim to strengthen the bond with our clients by giving quality services rather than focusing on gaining monetary benefits. Thus, avail our services for a hassle-free Microfinance Company Registration.

Why choose Swarit Advisors?

  • 20+ years of experience
  • Rank 1 in NBFC & Financial Advisory services
  • 150+ team of CA/CS/Lawyers
  • 8-star rating from our clients
  • 500+ cities served
  • In case of any questions or you wish to apply for Microfinance Company Registration.

FAQs of Micro Finance Company Registration

The term “Microfinance Company” denotes a company that facilitates low income group which are distantly located especially in semi urban as well as rural areas and have no access to banking facilities by providing funds to them.

The main aim of a Microfinance Company is to offer funds to low income people and comes handy for those people who reside in semi urban as well as rural areas.

The key benefits of a Microfinance Company are, it generates employment, facilitates rural development, no need of providing Collateral Security while obtaining a loan.

The term “pre-requisites” include a copy of the Incorporation Certificate, a copy of the Extract of Main Object Clause specified in MOA, a Copy of the Fixed Deposit Receipt, and Banker’s Certificate with respect to NOF and Banker’s Report.

A Microfinance Institution can lend up to Rs 50000 in the first cycle and Rs 1 lakh in the subsequent cycle to people who do not have normal banking facilities.

Normally, the people from low income strata benefit from a Microfinance Company, such as agriculturists, farmers, businessman, etc.

Any borrower who is having a Total Annual Income up to Rs 1.6 lakh in urban and semi-urban areas or Rs 1 lakh in rural areas.

The Minimum Loan Tenure for the Money Borrowed from MFIs is 24 months.

A Micro Finance Company is not eligible to impose more than 1% of the total loan amount as Loan Processing Charge.

A Micro Finance Company is not eligible to levy a high rate of interest than the prescribed limit from its lender. Further, the variation between the two should not exceed 4%.

Yes, a Micro Finance Company can give loans for personal use.

An MFI cannot grant more than 30% of the total loan as loan for personal use.

Yes, it is compulsory for a Micro Finance Institution to become a member of CIBIL.

The steps involved in the process to register a Micro Finance Company are, file an application for Name Approval, Apply for DIN and DSC, Incorporation Certificate, and an Online Application to RBI.

The term “Document” includes a copy of PAN Card, Aadhar Card, Address Proof, Passport Size Photo, Proof of Ownership, Utility Bill, and NOC.

Rs 1190000 is charged as the starting Registration Fee for a Micro Finance Company.

No, a Microfinance Company cannot levy Prepayment Penalty.

Yes, a Microfinance Company can give loans for emergencies.

An MFI cannot grant more than 50% of the total loan as a loan for an emergency.

The term “Net Assets” denotes the Total Assets other than money market devices and cash and bank balances.

The term “Qualifying Assets” denotes the loans disbursed to a borrower who is having an annual household income below Rs1,60,000 in urban and semi-urban areas or Rs 1,00,000 in rural regions.

No, there are no limitations imposed on the remaining 15% of the assets that an MFI holds.

The components considered for calculation are Expenses incurred towards interest payment + Processing Fees + Stamp Duty Charges + DD Charges – Interest Accrued on Security Deposit.

Yes, an NBFC-MFI is allowed to charge a differential rate of interest to its borrowers. However, the variance must not increase by 4%.

It is mandatory for all the NBFC-MFIs to maintain a “Capital Adequacy Ratio” inclusive of Tier I and Tier II Capital. However, the same shall not be below 15% of its aggregate risk weighted assets.

The total value of “Tier II Capital” at any point of time will not exceed 100% of the “Tier I Capital”.

No, the “Credit Concentration Norms” are not applicable to NBFC-MFI.

The term SRO stands for Self-Regulatory Organisation.

No, it is not necessary for an NBFC-MFI to become a member of an SRO. However, it is advisable to become a member of at least one Self-Regulatory Organisation.

The RBI or Reserve Bank of India has made it compulsory for the NBFC-MFI to clearly display in all of its offices and in the directions issued by it and on its official website, the “Effective Rate of Interest” being charged by it.

No, the pricing regulation, including the variance norms, do not apply to the Non-Qualifying Assets.

A borrower needs to pay only three charges for the pricing of loans, which are Interest Charge, Processing Charge, and Insurance Premium.

No, a Micro Finance Institution cannot charge any other component, except the three prescribed for determining the Pricing of Loan.

The Reserve Bank of India or RBI has the authority to regulate and issue directions for the Micro Finance Institutions in India.

Yes, MFIs or Micro Finance Institutions charge more interest than traditional banks.

The reasons are that an MFI offers small and collateral free loan, so it requires intensive assessment for determining the credit worthiness of the client. Moreover, a small loan tends to be expensive in terms of the process than large ones.

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