Registering Micro Finance Company
Registering Micro Finance Company
Microfinance companies in India act as a cluster of banking services to help meet financial requirements for low-income people. The financial services include insurance, loans, money transfer, savings and remittances that are offered to low-income group individuals.
Objectives
- To give an opportunity to people in the low-income group to become self-sufficient
- Offer banking services at small monetary amounts
- To provide financial assistance to individuals who work in varied trades like transportation, fishing, carpentry etc.
- Offer financial assistance to small enterprises that can not afford any collaterals
- Increase the participation of women in generating sustainable livelihood
- Provide access to quality healthcare
- Increase and enrich the mode of livelihood for low-income individuals and creating opportunities for self-employment
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Roles of Microfinance Company
Microfinance is about lending funds to individuals who do not have access to capital. It allows individuals to become financially stable and work towards building a better lifestyle. The following sectors can avail Microfinance solution to improve and increase production:
- Small Business
- Artisans
- Transport and Professional Trades
- Agriculture and Allied Activities
Funding for Sustainable Livelihood
Microfinance creates opportunities for underprivileged to become entrepreneurs and can improve the standard of living. Opportunities for initiating business are more flexible as most of the microfinance companies offer loans without any collateral. The MFI helps the following member to improve livelihood:
- Villagers
- Micro entrepreneurs
- Indigent women
- Poor families and
- Economically-marginalised populations
Better Loan Repayment Rate
Since the interest rate for these loans is lower as compared with the traditional lenders, defaulting the loan is a rare occurrence. Hence, for many underprivileged, microloan acts as a logical choice to eliminate poverty.
Provides an Opportunity Savings, Future Investment and Educate Children
Due to the increased state of poverty, education is avoided due to the costs associated with it. By receiving microloan, the livelihood becomes more stable and their option of savings increases. Through savings, the individuals can create an opportunity for future investment, better education and health care.
Generates Job Opportunities
Microfinance helps individuals to create business leading for job opportunities. Increased labour helps the individual for better productivity and stable income.
Starting a Microfinance Company
Micro Finance companies are of two forms, they are:
- Micro Finance Institutions registered with RBI
- Section 8 Company
MFI Registered with RBI
MFI registered with RBI shall operate under Section 25 of the Indian Companies Act, 1956. The new registered MFIs should have a minimum net owned funds of Rs.5 crores.
Eligibility to Register
- One of the directors should have an experience of more than ten years in financial services
- Minimum Funds of Rs.5 crore and Rs.2 crore for registered in North-Eastern states
- Cannot accept security deposits
- It should have a CIBIL membership and Credit Information Companies membership
- It has to be a member of one of the self-regulatory organisations in the country
- Should not extend loans to microfinance sectors more than 10% of the total assets
Loan Process
- The first cycle of the loan shall be Rs.60,000, and the subsequent borrowing can be Rs.1 lakh
- Loans will be extended to those having an annual income less than Rs.1 lakh for rural areas and Rs.1,60,000 for semi-urban areas
Registration process of the company with RBI
Step 1: Register the brand name as a trademark
Step 2: Obtain the certificate of No Lien from the bank by depositing Rs.5 crore as FD
Step 3: Submit the DPR with documents and project report
Step 4: Complete RBI formalities and get certified copies
Step 5: Fill up the online application
Step 6: Submit a copy of the application to the Regional Office of RBI
Documents required
- Education/Professional qualification proof of the Director
- KYC and income proof of the director
- Proof of work experience in the financial sector
- Recent credit report of the directors
- Net worth certificate of the directors
- Memorandum of Association and Articles of Association
- Incorporation certificate of the company
- Banker’s Report about the company
- Banker’s Certificate of No Lien stating the Net Owned Fund
- Detailed Action plan about the products and risk assessment policy
- Structure plan of the organisation
Eligibility to Register Micro Finance Company through Section 8 (without RBI)
Micro Finance companies can operate as a not-for-profit and can be registered as trust, NGO, society or company. It does not require RBI approval or minimum funds for registration.
Registration Process
The registration process requires a minimum of two individuals. The directors of the company should have a Digital Signature Certificate (DSC) and Directors Identification Number (DIN).
Step 1: Prepare DPR
Step 2: Make an application (Form INC-1) for the approval of the name of Micro Finance company
Step 3: Make an application for Central Government license (Form INC-12)
Step 4: After the approval of the Central Government, file for the incorporation of the company
Step 5: Apply for PAN and TAN of the company
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Loan Process
The cost of registration is Rs.47,000 and allows the company to give unsecured loans to small businesses of Rs.50,000 and a loan for dwelling residence up to Rs.1.25 lakh. The company needs to comply with RBI guidelines on processing charges and interest rate.
Documents Required
- DPR
- Copy of PAN, Passport/Driving license/Aadhaar Card or Voter ID of the promoters
- Property documents
- Property ownership documents of the office
- Electricity bill for the last two months
- Lease deed or rent agreement of the property
- Income Tax returns of the promoters
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