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Microfinance Company Registration

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Microfinance Company Registration

 

Microfinance companies are those financial institutions that provide finances to help meet requirements for low-income people who do not have access to conventional banking and related services. The financial services include insurance, loans, money transfers, savings, and remittances.

What are the features of Microfinance Company Registration?

  • Microfinance Organizations must be incorporated as per the Companies Act 2013
  • Before starting the firm, they must have a minimum net worth as prescribed by the relevant authority. (Minimum capital of Rs. 5 crores. For Northeast India, the minimum capital must be Rs. 2 crores only)
  • Loans provided between Rs.50,000 to Rs.1,25,000/-
  • Established with the primary motive of not providing any form of collaterals.
  • Microfinance companies are prohibited from accepting any form of deposits from the public.
Types of Microfinance Companies

Prerequisites for Microfinance Company Registration

To register as a microfinance company either through an NBFC or Section 8 company, some prerequisites must be met. The requirements are as detailed below:

Prerequisites

NBFC

Section 8 Company

Approval of RBI                 

Mandatory

Not Required

Net owned funds

Minimum 5 crores

No minimum requirement

Director experience

 

One director must have experience of more than 10 years in financial services

No prior experience required

Limit on loans

Maximum of 10% of total assets

Unsecured loan of Rs 50,000 to small business Loan up to Rs1.25 lakh to dwelling residence

Complexity of Microfinance Company Registration

All processes involved in forming a company have to be performed.

Relatively simple as it is registered as a non-profit organization

Adhering to Compliances

Adherence to all compliances of an NBFC.

Adhere to compliance of RBI, but they are less stringent in comparison to NBFC

No. of members

For a private limited company minimum of 2 For a public limited company, a minimum of 7

Minimum of 2 members

Status of organization            

Profit organization

Non-profitable organization

Microfinance Company Registration as an NBFC

Given the differences in the two models for forming a microfinance company, the registration process also varies considerably. The following are the steps involved in the registration of a microfinance company through an NBFC:

  • Register a company: To be registered as an NBFC microfinance company, the first step is to form a private or a public company. To form a private company, at least 2 members and a capital of Rs 1 lakh is required. To form a public company, at least 7 members are required.
  • Raise capital: The subsequent step is to raise the required minimum net owned funds of Rs 5 crore. For the northeastern region the requirement is of Rs 2 crore.
  • Deposit the capital: On collection of capital, the next step is to deposit the capital in a bank as a fixed deposit and obtain a ‘No lien’ certificate for the same.
  • Apply for license: Finally, the NBFC must fill an online application for the license and submit it along with all the certified documents. A hard copy of the application and license must also be submitted at the regional office of Reserve Bank of India. The documents that must be available with the NBFC at the time of filing are:
  • Memorandum of Association and Articles of Association
  • Incorporation certificate of the company
  • Board resolution copy
  • Copy of Auditor’s report of receipt of fixed deposit receipt
  • Banker’s Certificate of No Lien stating the net owned fund
  • Banker’s report about the company
  • Recent credit report of the directors
  • Net worth certificate of the directors
  • Education/professional qualification proof of the director
  • KYC and income proof of the director
  • Proof of work experience in the financial sector
  • Structure plan of the organization

Microfinance Company Registration as a Section 8 Company

The other option is to register a company as a Section 8 company. The procedure to be followed for the same is as follows:

  • Apply for Digital Signature Certificate (DSC) and Director Identification Number (DIN): To form a company, the first process is to apply for a DSC and DIN. The DSC is essential for authorizing the e-forms.
  • Apply for name approval: The next step is to apply for name approval in Form INC-1. The name must suggest that it is registered as a Section 8 company. So it must have the words sanstha, foundation or micro credit.
  • File Memorandum of Association (MOA) and Articles of Association (AOA): Post the name approval; the company must draft the MOA and AOA and file it along with necessary documents.
  • File all relevant documents: The last step is to file all relevant documents along with the incorporation certificate, and Form INC -12 to obtain a license. The primary basic documents required for registering a company under both the models are:
  • PAN Card copy of all directors/promoters
  • Documents for identity proof
  • Documents for address proof
  • Photograph of all directors/promoters
  • Proof of ownership of registered office or rental agreement for the same
  • NOC from the owner
  • Applicable stamp duty as mandated by the state
  • Any other documents as required