Microfinance Company is a small primary financial institution that provides small loans and other credit facilities to stakeholders. Such financial institutions would provide loans to SMEs and other form of institutions that easily don’t get credit facilities from banks. It is important to register this institution with the concerned authorities.
Procedure for Microfinance Company Registration
Liaising with the concerned regulatory authorities for microfinance company registration
The registration process for micro finance companies requires compliance with RBI guidelines for NBFCs.
Prepare DSC. DIN & Name approval : The first step is to file for Digital Signature Certificate (DSC), Director Identification Number (DIN), and name approval. The proposed name should be unique and reflect your brand in a single word. Additionally, a maximum of 6 name options can be filed at once.
Apply for License : The most important step is to obtain a government license to perform social work in India with the proper application and attachments.
File for incorporation : The third step is to file the incorporation with all necessary documents attached, including MOA, AOA, and declarations.
Copy of PAN Card
Address Proof (Bank Statement)
Ownership Proof (Electricity bill etc)
Passport Size Photo
Utility Bill (Gas bill, Electricity bill)
It is important to note that microfinance companies are not allowed to accept any kind of deposits from the public. Therefore, this rule applies to section 8 companies as well, in order to comply with the law. Section 8 companies typically raise funds as per the requirements of their philanthropic and socially responsible activities. As a result, such companies focus on increasing their income through various forms of donations.
There is an alternative option available. Firstly, the company needs to be registered as a Non-Deposit taking company in accordance with the guidelines of the Reserve Bank of India (RBI). Once the registration process is completed, you can apply for permission to accept deposits as per the RBI's regulations.
The following are the benefits of securing Microfinance Company Registration
Once the microfinance company is established, its operations will be self-sufficient.
Better Repayment Rate
Microfinance companies have a better repayment rate than banks and financial institutions for small loans provided to individuals and businesses.
No Minimum Capital Requirements
It is not mandatory to fulfill any minimum capital requirements for setting up a microfinance company.
No RBI Approval
There is no requirement for RBI approval to establish a microfinance company as the minimum compliance requirement.
Starting this type of entity promotes entrepreneurship to fulfill business requirements.
Providing different forms of loans increases credibility and public trust.
Registering a microfinance company can often be a straightforward process for obtaining funding
Reach to Rural Areas
Microfinance companies have better access to rural areas and can provide loans to these areas, making them more accessible than large banks and industries.
When you register a Microfinance company in India, you can enjoy numerous tax benefits.
Interest Rate Charged
Microfinance institutions have the freedom to charge high interest rates, typically ranging from 20% to 25%.
Separate Legal Entity
Under the provisions of the Companies Act, 2013, a microfinance company must be registered as a separate legal entity from its members.
The following process is required for microfinance company registration (MFI-NBFC)
The first and foremost step for a Microfinance Company is to register as a company under the provisions of the Companies Act, 2013. To do so, The SPICE+ Form must be utilized. At the time of registration, the type of business structure chosen for this form of organization can either be a private limited company or a public limited company. The capital authorized for the entity can be as low as Rs. 1,25,000/-.
Application in SPICE Plus
To apply for a new application, the applicant needs to click on SPICE Plus listed under the respective MCA services. If the company already exists, they should click on the existing application. Next, the applicant should select the correct category of the company. It's important to also select the sub-category of the company. Once this is done, the applicant will be redirected to another page to complete the application process.
All activities carried out by the company must be specified for microfinance company registration.
In the next step for Microfinance company registration, the company has to raise about Rs 5 Crore or 2 Crore as per the requirements.
Microfinance Company Registration- Apply to RBI
All certified copies of the microfinance company must be submitted to the RBI. The following documents or certified copies should be included:
Incorporation Certificate- Copies
Memorandum of Association and Articles of Association
Certificate from Bankers Related to No Liens on the Net Owned Fund.
Submission of Hard Copy
After this process, the applicant must submit hard copies to the respective regional RBI office for scrutiny and due diligence.
Opening a Bank Account
In the next step, the applicant needs to open a bank account. To complete this process, an RBI application must be submitted for a no-lien certificate.
SPICE Plus Service
The applicant can easily carry out the registration process online. The service includes name reservation, issuance of DIN, mandatory issuance of PAN, TAN, EPFO, ESIC and other forms of registration as required. Once the registration process is complete, the following compliances must be fulfilled:
If a new company is being formed, its name must be reserved.
All compliances related to EPFO, GST, Income Tax, PAN, TAN, bank account, and professional tax registration (if required) must be carried out in compliance with applicable laws.
Check For Name
To register a microfinance company, the applicant needs to ensure that the company's name is available. To do so, they must click on the 'auto check' option. Additionally, all other necessary information related to the name of the company must be submitted. Both part A and part B of the registration process should be completed. The following details should also be submitted along with the above information:
Name of the company
Location of registered office of the company
Activities which are carried out by the company
PAN , TAN and other forms of registrations have to be carried out
It would be useful to carry out a pre-scrutiny check for the above process related to registration
To complete the process, all the details mentioned in Part B of the PDF need to be downloaded. Additionally, the digital signature certificates of the directors must be affixed to the forms. You will need to download all the necessary forms, including the AGILE-PRO, SPICE+MoA and SPICE+AoA, URC-1 and INC-9, and link and upload them online. After this, a request number will be generated. You will need to make the payment, following which the information provided in the forms will be processed.
In order to register a Microfinance company with the RBI, the applicant must complete an online registration process and obtain a unique 'Company Application Reference Number'.
The documents required for registering a Microfinance company in India are similar to those required for registering a Section 8 company.
Duly tested copy of Company Incorporation certificate
Regarding functions related to a microfinance company, the board passed a resolution.
Bankers Certificate related to No Lien
A certificate of 'Chartered Accountant' is required for company members or executives, along with details of investments in other NBFCs as shown in the Performa Balance Sheet.
Permanent Account Number: PAN for Indian Citizens
ID proof such as an Aadhaar card, voter ID, passport, or driving license of directors and shareholders is mandatory for registration.
Copy of the rent agreement- If the premises is rented then a copy of the rent agreement must be provided
Directors and Key Management Executives are required to provide Know Your Client (KYC) or income proof details.
Net worth certificate of the directors
Credit Statement of the Directors and Key Management Executives
Detailed Structure and Plan of the Organisation
When submitting documents, please ensure that they are not older than two months.
Please find a copy of the Memorandum and Articles of Association (MOA & AOA) for the company.
Report from auditors related to ‘minimum net owned fund (NOF) of the entity or the applicant entity
Educational Certificates and other certificates related to the key management executives and shareholders of the company
Passport size photograph: Not more than ten months old photo of directors and shareholders
Address proof: Electricity bill, water bill, bank statement, gas or telephone bill of shareholders and directors
It is necessary to provide utility bills like electricity and water bills, along with bank statements of the registered office.
No Objection Certificate from the Company
Financial Report related to the Directors
Detailed information about the risk evaluation process for Microfinance Company Registration.
Indian nationals must provide proof of their passport. Foreign nationals must submit notarized or apostilled copies of their passport.
Usually, a small amount of loans would be provided by a Microfinance Company. As these loans are provided to the rural sectors of the society, such loans would not be secured. However the company is capable of charging interest rate in accordance with the requirements.
The Interest rate charged by a microfinance company must not exceed a particular level.
The interest rate charged by a MFI must be reasonable.
The requirements of the loans being paid must comply with the requirements related to an MFI.