Microfinance Company Registration

The term Microfinance Company (MFC) refers to an entity engaged in providing financial assistance and support to rural communities, low-income groups, and underprivileged sections of society. The primary objective of this business model is to ensure that banking facilities are accessible to all segments of the population. However, to start an MFC in India, obtaining a Microfinance Company Registration from the RBI is mandatory.

Furthermore, a Microfinance Institution or Company is a Non-Deposit Taking NBFC and is distinct from a Section 8 Company. The operations and affairs of a Microfinance Institution are governed and regulated by the provisions of the Reserve Bank of India Act, 1934, and its associated guidelines.

Role of Microfinance Institutions

The key responsibilities of a Microfinance Institution include:

·         Providing financial assistance to low-income groups

·         Extending banking facilities to rural, semi-rural, and underprivileged communities

Benefits of Obtaining Microfinance Company Registration

The key advantages of acquiring Microfinance Company Registration in India are:

·         No requirement for collateral security when borrowing funds

·         Facilitates employment generation

·         Contributes to rural development

·         Provides opportunities for income generation

·         No mandatory minimum capital requirement

·         Offers favorable interest rates for repayment

·         Aims to empower individuals financially

Regulations Governing Microfinance Institutions

The regulatory framework for Microfinance Institutions includes:

RBI Compliance:

Microfinance Companies must adhere to RBI guidelines concerning their operations and financial activities. While some exemptions apply, compliance with RBI regulations is necessary.

Companies Act, 2013:

If an MFC is registered as a Section 8 Company, it must comply with the provisions outlined in the Companies Act, 2013.

Eligibility for MFI Registration in India

The following entities are eligible for MFI registration:

Agricultural enterprises

Artisan businesses

Professional and transport trade

Small-scale businesses

Requirements for Microfinance Company Registration

The prerequisites for obtaining Microfinance Company Registration include:

The company must be registered under the Companies Act, 1956 or 2013

Minimum Net Owned Funds (NOF) of Rs 5 crore

Loan offerings between Rs 50,000 and Rs 1.25 lakh

Details of promoters must be provided

85% of the total NOF must be qualifying assets

No minimum capital requirement

Types of Microfinance Company Registrations

There are two primary types of Microfinance Company registrations in India:

RBI Registered MFIs:

To establish an MFI as a Non-Banking Financial Company (NBFC), an applicant must register as a Private Limited or Public Limited Company under the Companies Act, 2013. Compliance with all RBI norms, from minimum capital requirements to the final registration process, is mandatory.

Section 8 Registered MFIs:

To start a Microfinance Institution as a Section 8 Company, the applicant must first obtain a Digital Signature Certificate (DSC) and Directors Identification Number (DIN) for all proposed directors. The registration process involves submitting Form INC-1 for name approval, drafting MOA (Memorandum of Association) and AOA (Articles of Association), and submitting Form INC-12 along with necessary documents.

Types of Loans Provided by Microfinance Companies

Microfinance Companies primarily offer small loans to rural and underprivileged communities. Although these loans are unsecured, they follow regulated interest rates and compliance guidelines:

1.       Interest rates must not exceed regulatory limits

2.       The interest must be reasonable

3.       Loan offerings must align with Microfinance Company regulations

Documents Required for Microfinance Company Registration

The necessary documents for Microfinance Company Registration include:

·         Certificate of Incorporation (COI)

·         PAN Card details of the entity and directors

·         Digital Signature Certificates (DSCs) for all directors

·         Director Identification Number (DIN)

·         Passport-sized photographs of directors

·         Registered office address proof

·         Lease Deed or Rental Agreement (if rented premises)

·         Sale Deed or Ownership Certificate (if self-owned property)

·         Memorandum of Association (MOA) and Articles of Association (AOA)

·         Banker’s Report

·         Board Resolution copy

·         Auditor’s Report showing minimum NOF

·         Compliance Certificate from a Chartered Accountant

·         Business Plan of the applicant company

·         Latest financial report of directors

·         Income proof of key managerial personnel and directors

·         No Objection Certificate (NOC) from the company

·         Banker’s Certificate for No Lien

·         Credit Statement of the company

·         Passport copy for Indian directors (notarized/apostilled for foreign nationals)

·         Net worth certificate for directors

All documents must be updated within the last two months

Process for Obtaining Microfinance Company Registration in India

The steps involved in registering a Microfinance Company in India are:

1. Register a Company:

The applicant must register the company under the Companies Act, 2013, using the SPICe+ form via the Ministry of Corporate Affairs (MCA). The ideal structure for this business is either a Private Limited or Public Limited Company. The Companies (Incorporation) Act, 2015, has removed minimum capital requirements for incorporation.

2. SPICe Plus Service:

This service provides an integrated platform for company registration, including name reservation, Director Identification Number (DIN), PAN, TAN, EPFO, ESIC, and other necessary registrations.

3. Application in SPICe Plus:

The applicant must apply via the SPICe+ portal under MCA services, selecting the appropriate category and sub-category for the company.

4. Name Approval Check:

If the company already has a registered name, the applicant must complete the name verification process. Additional information, such as the company’s operational details and location, must also be provided.

5. Compliance Verification:

Once the registration form is submitted, a pre-scrutiny check is conducted. Directors must download and sign the required forms, including AGILE-Pro, SPICe+ MOA, and AOA, using Digital Signature Certificates (DSCs).