A Micro-Finance Company (which is also known as a micro finance institution) is a type of non-deposit taking NBFC (other than a Section-8 company), which deals with low amounts of financing to people with low incomes and located especially in rural and sub-urban regions. The micro finance companies are also regulated by the RBI Act of 1934.
This section gives concise information regarding what is micro-finance company, to help our site visitors of India and abroad. The section below give enlightening information about the registration procedure for starting a micro finance company anywhere in entire India, including the documents required for this purpose.
In India, the micro-finance companies (MFCs) are entitled to provide loans up to INR 50,000 individuals coming under low income group and residing in rural and semi-urban areas (where not easily accessible are regular banking facilities) of the country, such as small businessmen, farmers, agriculturists and horticulturists, etc., without demanding any collateral or marginal money. Such micro-finance institutions (MFIs) take only the reasonable rates of interest recommended by the central government and RBI. Also, these companies offer many lavish facilities to the borrowers regarding repayment. Generally, about 70% of the loan is provided for the purpose of income generation. Thus, these financing institutions are surely a great supporter to rural development, employment, and income generation.
Microfinance Company Registration
The process of a microfinance company registration can broadly be divided into two categories --- registration of a new public limited company, and getting approval of the Reserve Bank of India (RBI) for business operations as a micro-finance company.
The information about registering a public limited company in India may be found on other relevant webpages of this internationally popular and reliable legal website of India, well-based in Delhi. Here, informed are how to register a micro finance company with the RBI, and the minimum requirements for such a registration. It may also be noted that a MFC should have the membership of CIBIL [Credit Information Bureau (India) Limited].
A micro finance company (NBFC-MFI) must have a minimum net owned fund (NOF) of INR 5 Crore, after its incorporation as a public limited company holding equity share capital, (and not the preference share capital). For North-East India, this NOF has been kept at INR 2 Crore only. This amount is to be deposited in a freshly opened new bank account as a fixed deposit, free from all aliens. Then, a proper application is to be made to the RBI through the prescribed form for NBFC-MFI, together with submitting the documents mentioned below. On receipt of the application and documents, RBI will examine those and will conduct due diligence, and thereafter, will issue the certificate of commencement of business as an MFC.
Documents Required for Micro Finance Company RegistrationIn general, the documents required for micro finance company registration with the RBI cover the following documents:
- Duly certified copy of the Certificate of Incorporation and the Certificate of Commencement of Business of the concerned public limited company.
- Certified copy of the extract of the main object clause given in the MOA which relate with financial businesses, along with the up-to-data MOA and AOA of the applicant company.
- Board Resolution in favor of the registration of the applicant company as a micro-finance company, along with written declaration on behalf of the company that the applicant company shall follow all rules, regulations, and compliances directed by the RBI which are necessary for a micro-finance company of India.
- Banker's report related with the dealings made with the group/holding company/subsidiary/associate of the applicant company in forms of deposits, loans, fixed deposits, and NOF of the applicant company.
- Auditor's report in support of the minimum NOF of the applicant company. Details regarding the group/holding company/subsidiary/associate of the applicant company, and any investments of those in other NBFCs, as will be shown in the Performa Balance Sheet, will also be required from the auditor(s).
- Certified copies of the highest educational and professional qualifications of all directors of the applicant company, including their experiences (if any) in the sector of Financial Services.