Finsure Consultants - Micro Finance Company Registration

The Micro Finance Company is basically an organization belonging to Financial Sector. That provide facilities for small-scale financial services like loan, credit or savings, etc. This type of companies introduced to facilitate the credit system to the small businesses, poor people and needy persons who don’t get bank loans due to complex system of banking. It is commonly named as Micro-Credit, Micro Benefit Organization. They can offer small loans to medium loans to the various small businesspersons, household persons who do not have access of loans through proper bank channel or they have not eligibility of bank loans. This type of Micro Finance Organizations provides small scale loans which is not more than 50,000.00 for rural areas and 1,25,000.00 for urban areas. The easiest way to register this type of companies is to register as section 8 company with the MCA. This type of organization can give the loans at lower rate of interest which is directed by Reserve Bank of India and The Government of India.

There are basically 2 types of Micro Finance Companies present in India.

1) Non-Banking Finance Company-Micro Finance: This type of companies to incorporate needs approval and to be registered with the Reserve Bank of India. Also, it must be maintained their net owned fund between Rs. 2,00,00,000.00 to Rs. 5,00,00,000.00 depending on their local states.

2) Micro-Finance Company: This type companies have not any such criteria to get approval and registration with the Reserve Bank of India. Also, there has no requirement of maintaining net-owned fund.

Please Note that Micro Finance (Section 8) Companies have several advantages over Non-Banking Financial Micro Finance Companies. Which are as follows:

1. No need for separate RBI approval and registration.

2. No such requirement to maintain Net Owned Funds.

3. Simple and Quick incorporation process.

4. Cost of incorporation is lower than NBFC MFI.

5. Legal compliances also are less from NBFC MFI.

Micro Finance Company Registration process in India gone through the following five simple & quick steps:

- - - Company all Directors PAN Card.
    - Company all Directors Aadhar Card.
    - Company all Directors Passport size Photograph.
    - Company’s Contact E-mail ID and Phone No.
    - Telephone Bill/Mobile Bill/Electricity Bill/Gas Invoice.
    - Latest 2 Months Bank Statement
    - Electricity Bill/Telephone Bill (Latest) of the registered office premises
    - NOC from Landlord. (If the office in rented space).

1. What does Micro Finance Company mean?

The term “Microfinance Company” denotes a company that facilitates lower income group which are distantly located especially in semi urban as well as rural areas and have no access to banking facilities by providing funds to them.

2. What is the purpose of a Microfinance Company?

The main aim of a Microfinance Company is to offer funds to lower income people and comes handy for those people who reside in semi urban as well as rural areas.

3. What are the benefits of a Microfinance Company?

The key benefits of a Microfinance Company are, it generates employment, facilitates rural development, no need of providing Collateral Security while obtaining a loan.

4. What are the pre-requisites for Microfinance Company Registration?

The term “pre-requisites” include a copy of the Main Object Clause called MOA, a Copy of Article of Association (AOA), DSC of Directors, DIN of the Directors, Specified Forms of registration, etc.

5. Have any option to a Section 8 Micro Finance Company to get registered u/s 12AA, 80G of the Income Tax Act?

Yes, a Section 8 Micro Finance Company can get registration u/s 12AA, 80G of the Income Tax Act. But you need to apply separately after the incorporation has been done. There have no automatic way to get registered with the incorporation.

6. What is the Maximum amount of Fund that can be lent by a Microfinance Institution?

A Microfinance Institution can lend up to Rs 50 thousand in rural areas and Rs 1.25 lakh in the urban areas who do not have normal banking facilities.

7. Who can be benefited from Microfinance Lending?

Normally, the people from lower income group of the society mostly benefited from a Microfinance Company, such as household persons, farmers, small business person, etc.

8. What are the restrictions regarding the Loan Processing Charges of MFI?

A Micro Finance Company is not eligible to impose more than 1% of the total loan amount as Loan Processing Charge.

9. What are the restrictions regarding the Interest Rate of MFI?

A Micro Finance Company is not eligible to levy a high rate of interest than the prescribed limit from its lender. Further, the variation between the two should not exceed 4%.

10. Are MFIs eligible to give loans for personal use?

Yes, a Micro Finance Company can give loans for personal use.

11. What are the Capital Requirements to Start Section Microfinance Company?

There is no minimum and maximum capital requirement, you can start with Rs.10,000 as well.

12. How much interest can be charged by a Micro Finance Company?

A Micro Finance Companies in some cases can charge interest up to 26 % p.a. on amount given to borrower.

13. Can a Section 8 Micro Finance company take deposits from public?

No, a Section 8 Micro Finance company is not allowed to take any kind of deposits from general public.

14. What type of loan can give a section 8 micro finance company?

A Micro Finance Company registered under section 8 of the companies act 2013 can only give Unsecured Loans to the Borrower.

15. How many persons needs to start a section 8 micro finance company in India?

As per the Law any two persons jointly can start a section 8 micro finance company in India. The both persons would be subscribers of AOA & MOA of the company.

16. There have any need to take the approval from RBI to start the section 8 micro finance company?

No, any such approval not needed with the RBI to start any section 8 micro finance company. But they have to complied them with the guidelines of the Reserve Bank of India.

17. Is there any Stamp Duty charges needs to pay at the time of Incorporation of a Section 8 Micro Finance Company?

No, you need not to pay stamp duty charges at the time of incorporation of a Section 8 Micro Finance Company. But in some state has given privilege on stamp duty charges on MOA & AOA of Micro Finance Company.

18. A trust can be a member of a Section 8 Micro Finance Company?

Yes, a trust can be a member of any Section 8 Micro Finance Company in India.