What is Micro Finance Company Registration?
Microfinance Company is also known as a Micro Finance Institution. It is a type of Company that provides Financial Services like, Loans, Credit, Insurance, and Savings to small business entrepreneurs and small enterprises. Micro finance is a type of non – deposit accepting NBFC. It provides small financial support to people with low income and in rural and semi-urban areas. Micro Finance Companies are eligible to provide a loan or credit of up to 50,000 in a rural area and Rs. 1,25,000 in urban areas to small entrepreneurs, enterprises, and people with the low-income group. It provides loans to the small businessman, agriculturists, horticulturists, farmers, etc. without demanding any collateral security or marginal money. It can provide loansatreasonable rates prescribed by central government and Reserve Bank of India. Micro Finance Companies are a great support to rural and agricultural development and income and employment generation.
How to Start Microfinance Company Registration?
Microfinance company registration is divided into two broad categories:
- Private or Public Limited Company registration.
- Approval from Reserve Bank of India for starting the business of Micro Finance.
A microfinance company must have a minimum capital of Rs. 5 crores. For North east India, the minimum capital must be of Rs. 2 crores only. This amount is to be deposited in a bank account opened in the name of the company as fixed deposit.
Anyone who wants to register a Micro finance company needs to register a company first under the Companies Act, 2013. Once the company is registered and you have received certificates of incorporation under the Companies Act, 2013 you need to open a bank account in the name of the company and deposit an amount of 5 crores or 2 cores, as the case may be, as fixed deposit in the account. After depositing the amount of fixed deposit you need to make a proper application to Reserve Bank in prescribed format for NBFC – MFI, along with all the required documents. The application will be filed online and hard copies of all documents will be submitted to the regional office of Reserve Bank of India. After receiving the application and all the necessary documents the Reserve Bank of India will conduct a due diligence. If the apex bank is satisfied will the application and the documents, it will issue Certificates of commencement of business to the Micro finance company.
Checklist of Documents required to be filed with the application for MFC registration with an RBI:
- Certified true copy of Certificate of incorporation of businesses and Certificate of commencement of business of the concerned company.
- Certified copy of up to date Memorandum of Association and Article of Association.
- Certified true copy of Board Resolution in supporting the registration of the company as a micro finance company, along with a declaration that the company will comply with prescribed rules, regulation and compliances directed by Reserve Bank of India for a micro finance company.
- Bankers’ report related to dealing made with the company.
- An auditor’s report stating that the applicant company owns the minimum capital required.
- Certified copies of educational and professional qualification of all directors and experience certificate in the sector of Financial Services if any.
A Micro Finance Company can charge different rate of interest from different customers, but the variation between the minimum and maximum interest rates shall not exceed 4 per cent for individual loans.
Frequently Asked Questions
For obtaining Micro Finance Registration/ License, following listed are the steps included in the procedure –
- Apply for DSC and DIN – This is the first step towards obtaining the section 8 company registration.
- Apply for Name approval –This is the second step towards obtaining the registering of the section 8 company. Further, the name which ends with the words like Foundation, Sanstha etc. Furthermore, one can also use the term Micro Credit in the Company Name.
- Apply for the Central Government License – After the approval of company’s name, the next step is to apply for the Central government license. Under this step, all the required documents are needed to be prepared, even the income and expenditure account.
- Apply for the incorporation – After obtaining the Central government’s approval, the next step requires for the company incorporation. Under this step, a company is formed.
- PAN and TAN – Nowadays, the PAN (Permanent Account Number) and TAN is issued once the company is established. The physical copy of the PAN card is sent by way of speed post at the company’s registered office.
Following are the steps included in the process of starting a Small Finance Company –
- Deciding the business structure– There are three main kinds of business format on which a finance company could be worked and operated. These are – One Person Company (OPC), Limited Liability Partnership (LLP), and Private Limited Company. Now, choose the one that fits in your business type and is as per your own preference
- Registering for GST– A finance company is needed to get itself registered for GST (Goods and Service Tax) and obtain GST identification number (GSTIN) for the concerned business. The GST regime syndicates new taxes together with the old indirect taxes as well.
- Getting legal documents – In order to start a finance company, it is crucial to get the legal documents prepared and drafted so that the concerned business gets all the recognition.
- Obtaining Intellectual Property– Obtaining an intellectual property refers to the process of patenting and copyrighting one’s business idea and all the other associated symbols with it such as the trademark. With all these rights, one can protect and safeguard his business idea by registering them on his name.
- Obtaining Licensing – Licensing and regulation of a finance company depends upon the kind ofservice it offers. One needsto obtain its license in order to provide any of the financial services in any manner. Hence, licensing of the business turns out to be an important thing to be done.
Procedure for Registering a Finance Company in India
- Research about the Industry – First and foremost, it is important to have a good understanding and knowledge about the financial sector. Next, he is required to decide the type of finance company he or she wants to operate, as the Indian finance companies operate differently than the traditional banks and each of them have specific requirements.
- Apply for the Company Registration – After the concerned applicant has chosen his business model, he needs to apply for the finance company registration. For which he needs to visit a local branch of the Reserve Bank of India (RBI) or visit its official website. Now, download the application form for the NBFC registration and enter the required information and details. Next, he or she is required to upload the said form so that he or she can receive a reference number.
Visit a regional office of the RBI with the provided reference number and the registration form. If in case the concerned person meets the requirements mentioned in Section 45-IA of the RBI (Reserve Bank of India Act) of 1934, then the bank will issue him a Certificate of Registration within a period of five to six months.
Further, in order to determine what type of NBFC license suits the applicant needs. This will depend on the nature and type of business. One can easily start an asset finance company, a micro-finance institution, a loan company, and more.
No matter what the concerned applicant chooses, in India, registering a finance company is not going to be an easy task. So, he or she needs to be prepared to file out extensive paperwork and wait for a final decision. In the meantime, he can create a business plan.
- Assess the available Business Requirements – Depending on the size and nature of the concerned business, analyse the costs involved in setting up. Now, consider the utilities, salaries and wages, office space and marketing activities. In addition, the concerned individual will also require to invest in the advertising, web design and digital marketing.
Further, also determine the number of employees needed in the company. Also, decide whether the concerned individual is going to run the business all his alone or with a financial partner. For example, if a person is having a lending business, he or she could hire a mortgage broker, who will act as an intermediary between the concerned company and the borrowers in exchange for a fixed commission.
- Develop a Business Plan – Once the applicant has obtained the license, now write down about the short- and long-term goals, strategies, mission and product offerings. Moreover, also consider the market conditions and the potential competitors.
Various types of institutions offering microfinance are the commercial banks, credit unions, cooperatives, NGOs (Non-governmental Organizations)and some sectors of government banks. Further, the emergence of “for-profit” MFIs is rising in India. Also, these ‘for-profit’ MFIs are considered as Non-Banking Financial Companies (NBFC).
The role of a microfinance institution in the economic development is that it assists the needs of economically marginalized and weaker populations. In short, the main objective of a microfinance is to provide financial help for the livelihood, health care, small business creation,housing improvements and other needs ofthe marginalized and weaker population of our country, specifically the poverty and near-poverty level individuals residing in India and worldwide. Further, In India, the microfinance programme has played a crucial role by uplifting more than thirty crore people living below the poverty line (NABARD, 2005).
Following are the benefits attached to the concept of a Microfinance Company –
- It helps in encouraging the self-sufficiency and entrepreneurship
- Helps in the smooth access to funding
- Better overall loan repayment rate in comparison to the traditional banks.
- It helps in the strengthening of financial condition by meeting the cash needs of the needy people by providing a different type of loans such as the emergency loans, working capital loan, business loan, housing loan etc.
Following are the disadvantages attached to the concept of Microfinance –
- They deal with a low volume of money;
- They provide loans against no collateral security and at any times due to which the risk of non-payment can arise,
- Their bad debts are quite high;
- They cannot serve more than a certain count of customers.
- SKS Microfinance Ltd
- SpandanaSphoorty Financial Ltd (SSFL)
- Share Microfin Limited (SML)
- AsmithaMicrofin Ltd (AML)
- Shri KshetraDharmasthala Rural Development Project (SKDRDP)
- Bhartiya Samruddhi Finance Limited (BSFL)
- Bandhan
- Cashpor Micro Credit (CMC)
- GramaVidiyal Micro Finance Pvt Ltd (GVMFL)
- Grameen Financial Services Pvt Ltd (GFSPL)
Following are the features annexed with the concept of Microfinance –
- Microfinance Institutions shall be incorporated as per the provisions of the Companies Act 2013.
- Before starting the company’s operations, they must have a minimum amount of net worth as prescribed by the authority.
- They must have acquired the necessary license or permit.
- They are involved in the operations of providing a low amount of financing to the needy people of society.
