Micro Finance Company Registration: Step by Step Guide

MudsAugust 19, 2022

580 9 minutes read

A micro finance company (MFC) is a business that offers financial aid and support to persons in rural areas, low-income groups, and socially undeveloped and backward segments of society. That is, offering financial services to individuals from all walks of life is the main objective of this company’s approach. However, you must first get a Microfinance Company Registration from the Reserve Bank of India to launch an MFC in India.

A section 8 business is not the same as a microfinance institution or corporation, referred to as a non-deposit-taking NBFC. A Microfinance Institution’s activities and affairs also governed and regulated by the Reserve Bank of India Act of 1934 and the directives made thereunder.

The Indian government developed microfinance organizations to offer the general people easy loans. Small and medium-sized businesses (SMEs) and companies with trouble getting loans from big banks and financial institutions can get funding through these groups. As a result, this kind of company is known as a micro-credit agency or a microcredit institution. This company was founded to give small businesses capital and loans.

The typical loan amount from a microcredit institution is between Rs. 50000 and Rs. 125000 in rural and Rs. 125000 in urban regions. A micro finance company may be easily established by establishing it as a section 8 business under the Companies Act of 2013.

The Function of Micro Finance Company

The following are the primary roles and duties of a microfinance institution:

offers financial support to low-income states.
This bank provides financial services to the community’s underdeveloped, rural, and rural regions.

Advantages of Micro Finance Company Registration

The key benefits of registering a microfinance corporation in India as follows:

Individual Independence: The Micro finance Company’s activities will be self-sufficient once they up and operating.
Financing: Getting the money needed to register a microfinance business is often easy.
Decreasing Repayment Rate: Microfinance businesses have a significantly higher payback rate than banks and other institutions. This would be for quick loans to people and other companies.
Reached Rural Areas: Microfinance companies can reach rural populations more easily. These companies can lend money to rural areas. These financial institutions typically considered to have a wider reach than large banks and corporations.
No Minimal Capital Needs: No minimum capital requirements to launch a microfinance enterprise.
Tax Advantages: Registering a microfinance firm in India involves several tax benefits.
There is a minimum compliance requirement for establishing a micro finance company. Hence there is no need for any RBI permission.

Interest Rate: Microfinance organizations typically free to impose high-interest rates. The interest rate charged by a microfinance institution may range from 20 to 25 per cent.

Promotes Entrepreneurship: Establishing this firm fosters entrepreneurship to satisfy the company’s demands.

Legal Entity in Its Own Right: A micro finance company must be registered by Section 8 of the 2013 Companies Act. As a result, each of the microfinance firm’s members is a separate legal entity.

Credibility: This kind of entity is seen as more credible by the general population. More loan kinds with more possibilities for distribution.

Rules Governing the Model of Microfinance Institution

The rules governing the model for microfinance institutions are as follows:

RBI Compliance

The rules controlling the affairs and activities of microfinance institutions were referred to as RBI Compliance.
Remembering that a micro finance company is exempt from the RBI’s regulations is also vital. The RBI’s requirements for Microfinance Companies must be followed, nevertheless.

Companies Act of 2013 Act

It should be noted that a Micro finance Company must adhere to the requirements outlined in the Companies Act 2013 if it is formed as a Section 8 Company.

Who may apply for an Indian microfinance firm registration?

In India, the following people are qualified for MFI registration:

Activities linked to agriculture.
Business ownership as an artist.
Trades in transportation and professional services.
small-scale businesses

Conditions for Obtaining an Indian MFC Registration

The prerequisites for acquiring an MFC registration in India are as follows:

The Companies Act of 1956 and the Companies Act of 2013 require the company to be registered.
The required Net Owned Funds amount is Rs. 5 crores (NOF).
It can only offer loans between Rs. 50,000 and Rs. 1.25 lakh.
Information about the promoters must be provided.
The Total NOF must be composed of 85% Qualifying Assets.
There is no prerequisite for capital.

Registration of Several Sorts of Microfinance Companies

The many MFC Registration options in India may be summed up as follows:

Registered with the RBI is a microfinance institution.

The applicant must first form a business under the Companies Act 2013 as either a Private Limited or Public Limited Company to register a Microfinance Company or Institution as an NBFC (Non-Banking Financial Company).
After that, the applicant firm must complete all the requirements for microfinance company registration, starting with the minimum capital needed and finishing with the actual filing of the registration application with the regional office of the Reserve Bank of India.

Organization for microfinance registered under Section 8

The applicant firm must first register for the Digital Signature Certificate (DSC) and Directors Identification Number (DIN) for all potential directors to establish a Microfinance Institution as a section 8 company in India.
After that, it must file a Name Approval Application in form INC – 1. To receive Microfinance Firm Registration, it is also necessary to draft the MOA (Memorandum of Association) and AOA (Articles of Association) for the company as mentioned above and to submit INC – 12 along with the necessary paperwork.

Financing a Microfinance Company Can Provide

A microfinance company often lends modest amounts of money to the underprivileged and rural parts of society. The company can charge interest at a rate that satisfies the standards even if these loans not secure.

The loans provided by the Microfinance Company generally include the following features:

The interest rate charged by a microfinance company should not exceed a specified threshold.
It should be noted that a microfinance institution must charge reasonable interest.
Additionally, the conditions for loans or cash grants must comply with Microfinance Company rules.

Documents needed to register a microfinance organization

The following paperwork is required for registering a microfinance company:

A duplicate of the business’s certificate of incorporation (COI).
Information on the Permanent Account Number (PAN) Card of the Applicant Entity.
Specifics on the upcoming Directors’ PAN Cards.
Digital Signature Certificates will be given to all prospective Directors (DSCs).
A Director Identification Number will be given to each nominee for a board of directors (DIN).
The most recent passport-sized photos are necessary for all of the nominated Directors.
A document was proving the address of the place where the company’s registered office is.
If the property is rented, a copy of the completely stamped Lease Deed or Rental Agreement.
A copy of the sale deed or ownership certificate is needed if the property is self-owned and being used.
A verified duplicate of the memorandum of association (MOA).
A copy of the company’s articles of incorporation that has been certified (AOA).
a verified duplicate of the banker’s report
A verified duplicate of the board resolution.
A replica of the auditors’ report showing the least amount of net owned funds (NOF).
A duplicate of the Compliance Certificate issued by an active Chartered Accountant.
The detailed business strategy of the applicant.
A replica of the Board of Directors’ most recent financial report.
A copy of the income verification for all prospective directors and key executive people.
There is a certificate of no objection from the business.
No Banker’s Lien Certificate
A duplicate of the business’s credit report.
A copy of the recommended director’s passport needs for Indian citizens. Foreign nationals must, however, provide copies of their passports that have been notarized or apostilled.
A certificate of net worth is needed for each prospective director.

Also highlighted is the need for the applicant firm to deliver all necessary records, which must be no older than two months.

The steps to take to register a microfinance organization in India

The steps needed to register a microfinance company in India are as follows:

How to start a micro finance company?

The first and most crucial step in obtaining Micro Finance Company Registration in India is for the applicant to form a company following the rules of the Companies Act 2013.
To incorporate, the applicant must also submit a SPICe + Form to the Ministry of Corporate Affairs.
It should be noted that a public or private limited company is the best business structure for this type of organization when a firm is first founded.
By the Companies (Incorporation) Act of 2015, the Ministry of Corporate Affairs also eliminated the requirement for a minimum capital to establish a business in India.

Service Plus SPICe

Because the entire registration process is performed online, the applicant may often easily complete the SPICe mentioned above, Plus Service.

You may also register through the service mentioned above for name reservations, Director Identification Numbers, Mandatory Issuance of Permanent Account Numbers, Tax Deduction & Collection Account Numbers, EPFO, ESIC, and other registration types.

After the procedure above is finished, the following compliances must be fulfilled as well:

The name must reserved if the firm formed as a new business entity.
All other legal requirements must met, including those relating to the Employee Provident Fund Organization (EPFO), the Goods and Services Tax (GST), the Income Tax, the Permanent Account Number (PAN), the Tax Deduction and Collection Account Number (TAN), the Bank Account, and the Professional Tax Registration (if necessary).

SPICe Plus software

The candidate must choose SPICE plus under the appropriate MCA services. The applicant will also sent to another website, where a fresh application submitted.
However, it should noted that selecting an existing application required if a corporation already in existence. The applicant must confirm that the business falls within the applicable category and subcategory.
A company’s operations and activities must fully disclosed. So, to pursue a certain set of activities, an application must specify the type of industrial activity.

Pay Attention to the Name Approval.

The applicant must utilize the auto-check to fulfil the requirements for the business’s name if the company pursuing microfinance company registration already has a name.

Any additional details relating to the firm name must delivered promptly. Parts A and B must finished and submitted together.

Along with the information above mentioned, the following information also submitted:

Name of the applicant’s business.
The location of the building used as the registered office.
The application form carries out operations.
The business handles registrations for PAN, TAN, and other numbers.
The business must do a preliminary examination of the registration procedure.

The information asked in Part B of the form must downloaded by the firm’s board of directors. The DSC (Digital Signature Certificate) must attached for each nominee director. However, it’s crucial to remember that every form downloaded must also include AGILE-Pro, SPICe+ MOA and AOA, URC-1, and INC 9, and they must all correctly connected and uploaded online. The applicant will prompted to submit the required money after receiving a request number. After that, the completed forms will processed.

Raise the Necessary Funds

Depending on the rules, the applicant firm must raise roughly Rs 2 crores or Rs 5 crores in the next phase of the microfinance company registration process.

Establish a Current Account

The next step would be for the directors of the application form to open a current bank account. A certificate certifying no lien has established will also required for the abovementioned process. An application filed to the regional office of Apex Bank for this kind of certificate.

How to make an application to the RBI

Then, all certified copies of the papers needed to secure microfinance company registration must be provided at the Reserve Bank of India’s regional office.

The following records, together with certified copies, have sent to the RBI regional office:

Copies of the Incorporation Certificate delivered to the ROC (Registrar of Companies).
A copy of the formally acknowledged Memorandum of Association (MOA).
A replica of the articles of association with a certified copy (AOA).
A replica of the FDR (Fixed Deposit Receipt).
A statement that there no liens on the NOF from the company’s lenders (Net Owned Fund).

Apply online

The applicant must now submit an online registration form to the Reserve Bank of India to register a microfinance company in India. A CARN (Company Application Reference Number) will subsequently supplied to the applicant for future usage.

Deliver a paper copy

In the last stage of the Microfinance Company Registration procedure, the applicant must provide the physical copies to the Reserve Bank of India’s designated regional office. Following submission, the RBI will assess and do due diligence to ensure the firm has complied with all criteria.

Conclusion

There is no disputing that the foundation of any registration procedure is paperwork. No matter if you’re applying for a trade license or a requirement to register your firm, if you don’t get it properly, the authority won’t be able to approve your application. This idea also applies to the registration of microfinance institutions. To know more about microfinance company registration fees, visit the muds management website. Stay tuned to our website for more information about startup India certificate and registration service.

The organization of documents for any registration procedure is a delicate matter that requires careful consideration. Having said that, if you have any questions concerning this subject, let our professionals answer them.