Money lending Microfinance Company
What is a Micro Finance Bank?
As the name suggests, Micro finance company provides finance to low-income groups. It’s a non-deposit taking, non-Banking finance company (NBFC). The loan amount ranges from 50,000 to 125,000
Registration of the Microfinance Bank is very simple in India. as a Section 8 company with MCA, can be started with a zero deposit. A microfinance company can give loans at inexpensive rates as per RBI guidelines. – want to start your Private company?
Purpose of the Micro finance company
To give an opportunity to people in the low-income group to become self-sufficient
Offer banking services at small monetary amounts
To provide financial assistance to individuals like transportation, fishing, carpentry etc.
Offer financial assistance to small enterprises that cannot afford any collaterals
Increase the participation of women in generating sustainable livelihood
Increase and enrich the mode of livelihood for low-income individuals and create opportunities for self-employment – want to start Nidhi Company?
Roles of Microfinance Bank or Company
Microfinance is about lending funds to individuals who do not have access to capital. It allows individuals to become financially stable and work towards building a better lifestyle. The following sectors can avail of Microfinance loans to improve and increase production:
- Small Business
- Artisans, professionals
- Transport and Professional Trades
- Agriculture and Allied Activities
Funding for Sustainable Livelihood
Microfinance creates opportunities for the underprivileged to become entrepreneurs and can improve the standard of living. Opportunities for initiating business are more flexible as most of the microfinance companies offer loans without any collateral. The MFI helps the following member to improve livelihood:
- Micro entrepreneurs
- Poor families and
- Economically-marginalized populations
Better Loan Repayment Rate
Since the interest rate for these loans is lower as compared with the traditional lenders, defaulting the loan is a rare occurrence. Hence, for many underprivileged, microloan acts as a logical choice to eliminate poverty.
Generates Job Opportunities
Microfinance helps individuals to create business leading to job opportunities. Increased labour helps the individual for better productivity and stable income.
Registration Microfinance Company
Micro Finance companies are of two forms, they are:
- Micro Finance registered with RBI
- Section 8 Company registered with MCA
Microfinance with RBI license should have a minimum net owned funds of Rs.5 Crore and One of the directors should have experience of more than ten years in financial services.
The New Microfinance business can be registered by a minimum of two individuals. The directors of the company should have a Digital Signature Certificate (DSC) and Directors Identification Number (DIN).
Step 1: Prepare the basic documents and Name finalization.
Step 2: Make an application for the approval of the name of Micro Finance company
Step 3: Make an application for a Central Government license (Form INC-12)
Step 4: After the approval of the Government, file for the incorporation of the company
The cost of registration is Rs.25,000 including all government expenses.
- Copy of PAN, Aadhaar Card of the promoters
- Rental agreement, NOC of the office, Electricity bill
- Income Tax returns of the promoters
How to register the micro-finance Companies in India?
A microfinance company can be registered in India in the form of a Section 8 company, as a Section 8 company does not need any minimum capital. Here is the process:
Prepare DSC & file for Name Approval:
The Name Approval is subject to complete check by the CRC. The name should be unique and must end with words like foundation, Forum, Association, Federation, Chambers, Confederation, council, society, club, institute, Academy, Organization. Moreover, a maximum of 2 names can be filed at one time.
Apply for DIN:
Director Identification Number is a Unique Number that is given to Existing Directors of the Incorporated Companies. This identification number is given by the Central Government to any individual, who is going to be appointed as a Director or to any Existing Director of a Company. Once the DIN Number has been received, the Director can apply the same for life irrespective of the company he/she works in. If you change the company it doesn’t change the DIN Number.
Certification of Incorporation:
The third step is to file for the “Certificate of Incorporation” along with all the necessary papers. The form is joined with all the necessary attachments like MOA, AOA, declarations, etc. The company has to pay the Stamp Duty Irrespective of the capital amount as the “Stamp Duty” is a state subject. Once the company is incorporated, you can start a microfinance business in India. But, please remember that you cannot take any deposit under section 8.
NO RBI APPROVAL
In India, finance businesses are approved only to Non-Banking Finance Companies (NBFC). However, some business forms have been granted an exemption by the Reserve Bank of India (RBI) to do banking activities up to a specified limit. The RBI by its master circular: RBI/2015-16/15 DNBR (PD) CC.No.052/03.10.119/2015-16 Dated July 01, 2015, has released all the Section 8 Companies involved in microfinance activities and are exempt from the provisions of RBI Act, 1934
As per the Reserve Bank of India Act, 1934:
(a) Engaged in micro-financing activities, providing credit not exceeding Rs.50,000 for a business enterprise and Rs.1,25,000 for meeting the cost of a dwelling unit to any poor person for enabling him to raise his level of income and standard of living; and
(b) Not accepting public deposits as defined in paragraph 2(1) (xii) of Notification No. 118 /DG (SPT)-98 dated January 31, 1998
Advantages of Micro Finance Company
- No minimum capital of 5 Cr
- No RBI approval
- The easiest way to start finance business
- Can charge up to 26% rate of interest
Acceptance of Deposits under Micro Finance Company
Deposits are not permitted to be accepted under a section 8 company. Moreover, the company has to invest its funds and start it’s operations. Further, the company may also raise funding by way of donations.
Want to start a Nidhi company where you can accept deposits?
If you are intending to register as an NBFC company and are ready to invest Rs.5 Crore into the business, then also deposits are not permitted to be taken. As per the RBI procedure, first, you are required to register as an NBFC non-deposit-taking company and then consequently apply for a deposit-taking status from the Reserve Bank of India (RBI).
Advise: if you are thinking to register a NBFC with RBI license, first start with a “microfinance company”, test your efficiency and then move forward.
Micro-credit loans under Micro Finance Company
Loans under microfinance companies are not very complicated. Most unsecured loans are given and are against monthly repayments or weekly repayments. Interest is charged often in the range of 20 -26%. Besides the following points are also important:
If no repayment is received within 90 days, then the same must be treated as a non-performing asset, though, provisioning norms do not apply to a section 8 company.
Legal Compliances for Micro Finance Company
RBI: The company is expected to comply with the RBI norms even if it is not required to register with it.
Company Act: A Section 8 company is also required to comply with the Companies Act,2013, in the same way, other companies do.
Advice: if you wish to start a lending business legally, go for Microfinance.
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