MICROFINANCE COMPANY REGISTRATION
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Keynotes on Microfinance Company Registration
A Microfinance Company, also known as a Micro Credit Organization, provides small loans, typically under ₹50,000, to individuals, households, or small businesses that lack access to traditional banking channels or are not eligible for standard loans. These organizations play a crucial role in empowering underserved communities and supporting their financial needs.
At Law Sarathi, our dedicated team of professionals specializes in Microfinance Company registration, ensuring a seamless and hassle-free process. Our mission is to provide exceptional customer satisfaction through transparency, affordability, and reliable services.
As leading consultants for Microfinance Company registration, we go beyond just completing the registration process. We believe in building long-term relationships with our clients by offering outstanding after-sales support to address their evolving needs. Partner with us to establish your Microfinance Company and take the first step toward empowering others financially.
1. Company Registration: The first step in registering a Microfinance Institution (MFI) is to incorporate a company under the Companies Act, 2013. The company can be set up as either a Private Limited Company or a Public Limited Company with an initial capital of ₹1,00,000.
2. Raise Capital: Next, the company must raise its authorized and paid-up share capital to either ₹5 crore or ₹2 crore, depending on specific requirements. This capital must be raised through equity shares, as preference shares are not permitted.
3. Opening a Bank Account: After incorporation, the raised capital must be deposited into a bank account as a fixed deposit. The company must then obtain a certificate of no lien from the bank, which will be required for the application process with the RBI.
4. Application for Microfinance Company Registration with RBI: Once the bank certificate is obtained, the company can proceed with its application to the Reserve Bank of India (RBI). The following documents need to be submitted:
5. Filing the Online Application: An online application is filed with the RBI for Microfinance Company registration. After submission, the company will receive a Company Application Reference Number.
6. Submission of Hard Copy: After filing the online application, a hard copy along with all the required documents must be submitted to the regional office of the RBI. The RBI will conduct a due diligence check, and once satisfied, it will issue a Certificate of Commencement of Business.
At Law Sarathi, we make the process of Microfinance Company registration smooth and hassle-free. Contact us today to get started with expert guidance and end-to-end support for your MFI registration.
Microfinance companies typically impose three types of charges:
Interest Charge – The average rate of interest charged should not exceed 26%.
Processing Charge – This fee should be capped at 1% of the total loan amount.
Insurance Premium – Only the actual cost of insurance, such as life, group, or health coverage, can be charged. No additional fees are allowed, as per RBI guidelines.
Microfinance companies must charge an interest rate based on the lower of the following two calculations:
As of the press release on April 1, 2017, the average base rate was 9.35%.
Under a Section 8 Company, accepting deposits is not permitted. The company must use its own capital to initiate microfinance operations. Additionally, funding can be increased through donations.
If you wish to register an NBFC (Non-Banking Financial Company) and invest ₹5 crore, you cannot accept deposits at the outset. According to the RBI (Reserve Bank of India) regulations, you must first register as a non-deposit-taking NBFC. Once this registration is complete, you can then apply for deposit-taking status from the RBI.
If you’re considering registering your own NBFC, it is advisable to start as a Section 8 Company. This allows you to assess your skills and capabilities before progressing further.
Microfinance companies typically offer loans with relative ease. They provide unsecured loans with repayment terms set on a weekly or monthly basis, and interest rates generally range from 20% to 26%. Additionally, the following features are important:
Interest Calculation: The interest on loans is calculated using the reducing balance method.
Differential Interest Rates: NBFCs can apply different interest rates for customers, but the difference must not exceed 4%.
Loan Cards: Each member of the company should receive a loan card outlining all terms, conditions, and applicable interest rates.
Effective Interest Rate Display: Microfinance companies must display the effective rate of interest in all their offices.
Non-Performing Assets: If repayment is not made within 90 days, the loan will be classified as a non-performing asset. However, these provisioning rules do not apply to Section 8 companies.
Microfinance companies must adhere to various compliance requirements. The most important ones include:
Company Act: As with any other business, a Section 8 company must comply with the provisions of the Company Act.
RBI Compliance: The company must meet the terms and conditions set by the RBI, even if registration with the RBI is not mandatory.
Other Regulations: Additional laws, such as the Prevention of Money Laundering Act (PMLA), must also be satisfied.