MICRO FINANCE COMPANY

MICRO FINANCE COMPANY

In India, microfinance companies provide small loans and other financial services to low-income individuals, micro-entrepreneurs, and underserved populations who lack access to traditional banking services. These companies play a critical role in promoting financial inclusion and economic empowerment at the grassroots level.

Route 1: Registering as an NBFC-MFI 

This option is for entities that want to operate commercially and on a larger scale. 

Key requirements

• Company Incorporation: First, you must register a private or public limited company with the MCA under the Companies Act, 2013.
• Net Owned Fund (NOF): You must maintain a minimum NOF of ₹10 crore. For NBFCs incorporated after October 1, 2022, this is required from the outset.
  • For the North-Eastern region of India, the minimum NOF requirement is ₹2 crore.
• Experience: At least one director should have extensive experience (more than 10 years) in financial services. 

Registration steps

The process involves incorporating the company and depositing the minimum NOF in a bank, obtaining a "No Lien" certificate. A detailed project report (DPR) is required, followed by an online application for an RBI license and submission of hard copies to the RBI regional office. 

Route 2: Registering as a Section 8 Company

This option is for entities with a non-profit or social objective. A Section 8 MFC is exempt from the stringent RBI regulations and capital requirements that apply to NBFCs. 

Key requirements

• Company Incorporation: A minimum of two members are required to incorporate the company under Section 8 of the Companies Act, 2013.
• No minimum capital: There is no minimum capital requirement for this model.
• Social Objective: The company must have an objective to promote social welfare, such as providing microcredit to underserved communities. 

Registration steps

Steps include obtaining DSC and DIN for directors, applying for name approval, preparing and filing the Memorandum of Association (MoA) and Articles of Association (AoA), filing Form INC-12 for the Section 8 license, and submitting documents to the Registrar of Companies (ROC). 

Note: Recent restrictions by the MCA on registering new Section 8 companies for microfinance purposes have been noted. It is advisable to verify current regulations before proceeding. 

Key documents required

Documents needed for registration include identity and address proof for directors and shareholders, PAN cards, MOA and AoA, proof of registered office, a board resolution, and a certified copy of the Certificate of Incorporation. NBFC-MFIs also need a "No Lien" certificate for the minimum NOF and a business plan with financial projections.