Microfinance Company Registration

The Microfinance Company is the financial institution that gives small-scale financial services in the form of loans, credit, or savings. These companies are initiated to ease the credit system for small businesses as they don't get a loan from banks due to their complicated method. Hence, it is commonly named as a Micro-credit company or organization. They offer small loans to several small businesses or households that do not have access to formal business channels or eligibility for loans.

They give small loans that are less than Rs.50,000 for rural regions, and for urban, it is Rs.1,25,000. The easiest way to register a Micro Finance Company in India is to register the Section-8 Company by MCA (Ministry of Corporate Affairs). Outwardly charging any marginal money or ensure security. It can give loans at reasonable rates directed by the RBI and central government. They are extensive support to all rural and agricultural development, including income and job creation.

There are two types of microfinance organizations that are allowed in India; one is which has to be registered with the RBI, and added is the non-profit type, which is listed as section 8 company and does not need RBI approval.

Microfinance Institutions give financial services such as loans, savings, and insurance to needy personalities of the society and small business contractors who will not be able to pass for a standard bank loan.

Salient Features of Microfinance Institutions

Microfinance Institutions must be included as per the Companies Act 2013 or 1956.
Before starting operations, they must have the least net worth as designated by the authority.
They must have received the necessary license or permit.
They are included in the low amount of financing to the needy frames of society.
Offer banking assistance at small monetary amounts
To provide financial support to individuals who work in varied trades like 'transportation,' 'fishing,' 'carpentry,' etc.
Offer financial support to small enterprises that cannot afford any collaterals
Increase the participation of women in generating sustainable livelihood
Provide access to quality healthcare
Enhance and enrich the mode of maintenance for low-income individuals and building opportunities for self-employment

Obligatory Conditions for Micro Finance Company

There are principally two ways to register the Micro Finance Institution. One way is to create a company and then apply to RBI for support. The least necessities for Microfinance Company is Rs.5 crore net owned fund and active sketches of promoters. The other way is to register a section 8 company.

The essential and highest Rs.50,000 can be given for business purposes and Rs.125,000 for household dwelling.
No least net controlled fund requirement.
No RBI support/approval is needed since RBI has released this company from registration and some different conditions.

Non - Approval from RBI

In India, finance institutions are authorized only to Non-Banking Finance Companies (NBFC) and regulated by RBI. However, some business forms have been granted immunity by the 'Reserve Bank of India' (RBI) to do banking activities up to a specified limit. The RBI by its chief circular: "RBI/2015-16/15 DNBR (PD) CC.No.052/03.10.119/2015-16" Dated July 01, 2015, has published all Section 8 Companies involved in microfinance activities.

Receiving of Securities under Micro-Finance Company

Deposits are not advised to be accepted under section 8 company. Furthermore, the company has to advance its funds and start your microfinance company.
Moreover, the company may also raise funding utilizing contributions as donations.
Yet if you plan to register an NBFC company and available to invest Rs.5 Crore into the business, then also securities are not permitted to be exercised. As per the RBI scheme, first, you expect to register an NBFC non-deposit-taking company and, consequently, demand for deposit-taking status from the Reserve Bank of India (RBI).