Microfinance companies, as the name suggests, are financial institutions that provide finances to low-income groups, where the finance requirement is lesser as compared to other sectors of the society. These sectors generally do not have access to traditional financial institutions such as banks and other financial institutions. These companies are introduced to ease the credit system for small businesses as they don’t get a loan from banks due to their complex process. They offer small loans to various small businesses or households that do not have access to formal banking channels or eligibility for loans.
The simplest way to register a Micro Finance Company in India is to register the Section-8 Company with MCA (Ministry of Corporate Affairs). Without charging any marginal money or guarantee security. It can give loans at inexpensive rates as directed by the RBI and central government. They are a huge support to all rural and agricultural development including income and employment creation. There are basically 2 types of microfinance companies that are allowed in India, one is which has to be registered with the RBI and another is the non-profit type, which is registered as section 8 company and does not need RBI approval.
In India, there are many institutions like banks that grant loans to finance businesses. So why do we need microfinance companies? The need arises as it serves the following purposes:
1. It provides financial assistance to enterprises that cannot place collateral.
2. It encourages women entrepreneurship.
3. It provides start-ups with much-needed support.
4. It helps even for nominal amounts which generally are funded as hand loans.
5. It formalizes the process of lending and hence brings about discipline in borrowing by low-income groups. This prevents over-borrowing and reduces complications arising out of high future debts.
The Services which are included in our package are as Follows:
✅ Digital Signatures of 7 Subscribers
✅ DIN of Directors
✅Filing of Spice form
✅Issue of Incorporation Certificate along with PAN and TAN
✅Memorandum of Association
✅Articles of Association
✅Provisional PF ESI Registration
✅GST Registration
✅MSME Registration
Ideally, only a Non-Banking Finance Company (NBFC) is authorized by the Reserve Bank of India to conduct financial business. However, certain exemptions are provided by RBI to businesses to perform financial activities up to a specified limit.
Therefore, a microfinance company registration can happen in the following two ways:
1. Non-Banking Finance Companies (NBFC) duly registered with RBI.
2. Section 8 companies (companies formed under Section 8 of the Companies Act 2013).
1. Pan Card of all Directors and Subscribers
2. Identity Proof i.e. Voter Id Card/ Driving License/ Aadhar Card/ Passport of all Directors and Subscribers
3. Address Proof i.e. Bank Statement, Mobile bill, Telephone bill of all Directors and Subscribers
4. Passport Size Photographs of all Directors and Subscribers
5. Current Electric Bill/ Utility Bill as Registered Office Proof
6. Rent Agreement if Applicable
Step -1 Arrange all Required Documents:
The first step is to arrange all the documents and send the same over the email / WhatsApp to us. Once all the Documents are Received, we will Start the Further Process.
Step -2 DSC and Name Availability:
The Next Step is to Start the Further Process of Digital Signature and Checking the Name availability.
Step-3 Preparation of Documents:
The Next Step is Preparation of Documents to be Submitted at Department.
Step-4 Filing of Spice Form:
The Next Step is Submission of Spice 32 Form at Department.
1. No Minimum Capital of Rs 5 Crore
2. No RBI Approval
3. Provides a Way to Funding
4. Offers reasonable services for small businesses
5. Minimum Compliances
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 Requirement | Not Mandatory |
| 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 | It has to adhere 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 minimum of 7 |
Minimum of 2 members |
| Status of organization | Profit organization | Non-profitable organization |
Q1. What is a Micro Finance Company?
Microfinance company is also named as microcredit. It is a financial service that gives loans, savings, and insurance to entrepreneurs and small business owners who don’t have access to traditional sources of capital, like banks or investors.
Q2. Can Micro Finance Companies Provide loans for personal use?
Yes, the loan can be provided for the personal purpose of the borrowers by Microfinance companies, the still aggregate amount cannot exceed 30% of the total loan.
Q3. Does the prepayment penalty be imposed by micro finance companies?
No, the prepayment penalty cannot be imposed by Microfinance companies.
Q4. What are the limitations of interest rate and loan processing charges of Micro Finance Companies?
Microfinance Companies are not available to charge a higher rate of interest from the directed rate of interest and most variation cannot exceed 4% while if we talk about loan processing costs then it cannot exceed 1% of the gross loan amount. Microfinance Companies can levy loan insurance charges individually.