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Micro_Finance_Company_Registration
Micro_Finance_Company_Registration

Micro Finance Company Registration

WHAT IS MICRO FINANCE COMPANY?


Microfinance companies in India are financial organizations that fulfill the finances requirements of the low-income people. The financial services such as insurance, loans, money transfer, savings and remittances that are offered to low-income group individuals.

These companies provide small loans and credit facilities to Small Medium Enterprise (SME) and other small organizations which find it difficult to secure loan facilities from banks and other large financial institutions. Micro finance companies registered under the provisions of the companies act, 2013.

Objectives of micro finance companies:


Objectives of micro finance companies:

  • To provide an opportunity to people in the low-income group to become self-sufficient

  • To encourages women entrepreneurship

  • Offer banking services at less monetary amounts

  • To provide financial assistance to individuals who work in different sectors like transportation, fishing, carpentry etc.

  • Offer financial assistance to small enterprises that cannot place any collateral

  • Provide access to quality healthcare

  • Increase and enrich the mode of livelihood for low-income individuals and creating opportunities for self-employment

  • Standardize the process of lending and brings the discipline in borrowing by low-income groups. This prevents over-borrowing and reduces complications arising out of debts.

ROLES OF MICROFINANCE COMPANY


Microfinance is about providing funds to individuals who do not have access to capital. It helps individuals to become financially stable and work towards building a better lifestyle.

  • Funding for Sustainable Livelihood

    Microfinance creates opportunities for less privileged to become entrepreneurs and can improve their standard of living. Opportunities for starting business are more flexible as most of the microfinance companies offer loans without any collateral.

  • Better Loan Repayment Rate

    Since the interest rate for these loans is lower as compared with the traditional lenders, defaulting in the loan repayment is a rare occurrence. Hence, for many underprivileged, micro loan acts as a better choice to eliminate poverty.

  • Provides an Opportunity for Savings, Future Investment and Education

    Due to the increased state of poverty, education is avoided because of the costs associated with it. By receiving microloan, the livelihood becomes more stable and their option of savings increases. Through savings, the individuals can have an opportunity for future investment, better education and health care.

  • Generates Job Opportunities

    Micro finance helps individuals to established business which creates job opportunities. Increased labor helps the individual for better productivity and stable income.

REGISTRATION OF MICROFINANCE COMPANY

Micro Finance companies can be registered under two forms, they are:

  1. Micro Finance Institutions registered with RBI

  2. Section 8 Company


  • MICRO FINANCE INSTITUTIONS REGISTERED WITH RBI

    MFI registered with RBI should operate under Section 25 of the Indian Companies Act, 1956. The new registered MFIs should have a minimum net owned fund of Rs.5 crores.


    Eligibility Criteria for Registration

    • One of the directors should have an experience of more than ten years in financial services

    • Minimum Funds of Rs.5 crore and Rs.2 crore for registered in North-Eastern states is required

    • Cannot accept security deposits

    • It should have a membership of CIBIL and Credit Information Companies

    • It has to be a member of one of the self-regulatory organizations in the country

    • Should not extend loans to microfinance sectors more than 10% of the total assets


    Loan Process

    The first shift of the loan shall be Rs.60,000 and the subsequent borrowing can be Rs.1 lakh
    Loans will be expand to those having an annual income less than Rs.1 lakh for rural areas and Rs.1,60,000 for semi-urban areas.


    Registration process of the company with RBI

    • Step 1: Register the brand name as a trademark

    • Step 2: Obtain the certificate of No Lien from the bank by depositing Rs.5 crore as fixed deposit

    • Step 3: Submit the DPR with documents and project report

    • Step 4: Complete the formalities of Reserve Bank of India (RBI) and get certified copies

    • Step 5: Fill up the online application

    • Step 6: Submit a copy of the application to the Regional Office of RBI


    Documents required

    1. Education/Professional qualification proof of the Director

    2. KYC and income proof of the director

    3. Work experience Proof in the financial sector

    4. Recent credit report of the directors

    5. Net worth certificate of the directors

    6. Memorandum of Association and Articles of Association

    7. Incorporation certificate of the company

    8. Banker’s Report about the company

    9. Banker’s Certificate of No Lien mentioning the Net Owned Fund

    10. Detailed Action plan about the products and risk assessment policy

    11. Structure plan of the organization


  • Registration of Micro Finance Company through Section 8 (without RBI)

    Micro Finance companies can work as a non-profit organization and can be registered as trust, NGO, society or company. It does not require RBI approval or minimum funds for registration.


    Registration Process

    The registration process requires a minimum of two individuals. The directors of the company should have a Digital Signature Certificate (DSC) and Directors Identification Number (DIN) with them.

    • Step 1: Prepare DPR

    • Step 2: Make an application for the approval of the name of Micro Finance Company

    • Step 3: Make an application for Central Government license

    • Step 4: After getting the approval of the Central Government, file for the incorporation of the company

    • Step 5: Apply for PAN and TAN of the company


    Loan Process

    The cost of registration is Rs.47,000 and allows the company to provide unsecured loans to small businesses of Rs.50,000 and a loan for residence up to Rs.1.25 lakh. The company needs to follow the RBI guidelines on processing charges and interest rate.


    Documents Required

    1. DPR

    2. Copy of PAN, Passport/Driving license/Aadhaar Card or Voter ID of the promoters

    3. Property documents

    4. Property ownership documents of the office

    5. Electricity bill for the last two months

    6. Rent agreement of the property

    7. Income Tax returns of the promoters