Microfinance Company Registration
A Microfinance Company is a small primary financial institution that provides small loans and other credit facilities to stakeholders. Such institutions offer loans to SMEs and other entities that have difficulty obtaining credit from banks. It is essential to register this institution with the relevant authorities.
Package inclusions:
Procedure for Microfinance Company Registration
Liaising with the Concerned Regulatory Authorities for Microfinance Company Registration
Documentation Support
Compliance Services
Microfinance Company Registration Process
Registration process:- The registration process for microfinance companies requires compliance with RBI guidelines for NBFCs.
Prepare DSC, DIN & Name Approval : The first step is to file for a 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 for incorporation, with all necessary documents attached, including the Memorandum of Association (MOA), Articles of Association (AOA), and declarations.
Features of a Microfinance Company
The following features must be present in an entity operating as a microfinance company:
The company must be registered under the Companies Act, 1956 or the updated Companies Act, 2013.
A microfinance institution must meet the required net worth.
The microfinance company must comply with securing the requisite license.
Microfinance companies typically cater to the economically disadvantaged segments of society.
Banking and other services are provided to underserved communities.
Microfinance companies typically serve clients in trades such as fishery and carpentry.
This company was established without requiring any collateral.
Minimum requirements of a microfinance company.
Documents Required for Microfinance Company Registration
Copy of PAN Card
Aadhaar Card
Address Proof (Bank Statement)
Ownership Proof (Electricity Bill, etc.)
Passport Size Photo
Utility Bill (Gas Bill, Electricity Bill)
NOC (Download Format)
Copy of PAN Card
Aadhaar Card
Address Proof (Bank Statement)
Ownership Proof (Electricity Bill, etc.)
Passport Size Photo
Utility Bill (Gas Bill, Electricity Bill)
NOC (Download Format)
Microfinance Company Registration – Can Securities Be Received?
It is important to note that microfinance companies are not allowed to accept any kind of deposits from the public. This rule also applies to Section 8 companies to ensure compliance with the law. Section 8 companies typically raise funds based on the requirements of their philanthropic and socially responsible activities. As a result, such companies focus on increasing their income through various forms of donations.
An alternative option is available. First, 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 RBI regulations.
Benefits of Microfinance Company Registration
The following are the benefits of securing microfinance company registration:
Self Sufficiency
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 long as the minimum compliance requirements are met.
Encourages Entrepreneurship
Starting this type of entity promotes entrepreneurship to fulfill business requirements.
Credibility
Providing different forms of loans increases credibility and public trust.
Funding
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.
Tax Benefits
When you register a microfinance company in India, you can enjoy numerous tax benefits.
nterest Rate Charged
Microfinance institutions have the freedom to charge higher 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.
How to Register a Microfinance Company?
The following process is required for microfinance company registration (MFI-NBFC):
Company Registration
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 organization can either be a private limited company or a public limited company. The authorized capital 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 and the appropriate sub-category. 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.
Capital Raising
In the next step for microfinance company registration, the company must raise capital of approximately Rs. 5 Crore or Rs. 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 Regarding 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 carried out by the company
PAN, TAN, and other forms of registration
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 AGILE-PRO, SPICE+MoA, 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.
Application
To register a microfinance company with the RBI, the applicant must complete an online registration process and obtain a unique 'Company Application Reference Number.'
Documents Required for MFI Registration in India
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.
Banker's Report
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.
Loans Provided by Microfinance Institutions
Microfinance companies typically provide small loans to individuals, especially in rural areas. These loans are usually unsecured, given that they are targeted at economically disadvantaged segments of society. However, the company is allowed to charge an interest rate in accordance with regulatory guidelines.
Interest Rate Limits: The interest rate charged by a microfinance company must not exceed a certain limit as prescribed by the regulations.
Reasonable Interest Rates: The interest rate charged by the MFI should be reasonable and in line with industry standards, ensuring that it is fair to borrowers.
Loan Repayment Compliance: The repayment terms and conditions for loans provided by an MFI must comply with the regulatory requirements for such institutions.