Microfinance Companies are financial businesses that specialise in providing small-scale financial services such as loans, credit, and savings. These businesses were created to make the credit system easier for small enterprises, who are unable to obtain a loan from banks due to their lengthy application process.
Microfinance institutions (MFIs) are financial entities that make small loans to persons who do not have access to traditional banking services. The term “small loans” is defined differently in different nations. Microloans are defined as loans of less than 1 lakh rupees in India.
In India, any finance business should ideally be limited to Non-Banking Finance Companies (NBFC). However, the Reserve Bank of India (RBI) has granted various company forms permission to engage in finance activities to a limited extent, allowing microfinance organisations to operate as Section-8 Companies. Thus, Micro finance Companies Registration can be done in two modes.
Non-Banking Finance Companies as Microfinance Company- A Non-Banking Finance Company (NBFC) is a financial institution that provides loans and other financial services to the poor. Typically, they operate in rural areas and among low-income persons in metropolitan areas, offering small loans.
Registration Procedure in Brief
- Register a Company
- Raise the authorised and paid-up capital to Rs. 2 crore.
- Get a certificate after depositing Rs.2 crore in fixed deposits.
- Obtain all certified copies and fulfil the remaining RBI requirements.
- Complete the online application.
- Send a hard copy of the application to the RBI’s Regional Office.
- For additional instructions, wait and coordinate with the Reserve Bank of India (RBI).
Section 8 Company– The easiest way to register a Micro Finance company in India is through a Section 8 Microfinance Company. If someone wants to form a microfinance company, they should start with a section 8 corporation. The RBI’s interest rate and processing charge standards must be followed by Section 8 companies.
Microfinance Companies’ Objectives
Microfinance institutions have grown in popularity in recent years and are now widely regarded as efficient tools for poverty alleviation. The majority of MFIs are well-run and have a good track record, while others are self-sufficient. The following are the primary objectives of microfinance institutions:
- Transform into a finance company that supports the development of sustainable communities.
- Assist in the supply of resources that benefit the poorest members of society. In this aspect, women are given special attention because they have been successful in establishing income-generating businesses.
- Examine the choices available to aid in the faster eradication of poverty.
- Increase the number of self-employment opportunities for the poor.
- Empowering rural people by teaching them basic skills that will enable them to start their own enterprises and generate revenue.
- It allows people to expand their current prospects – The presence of microfinance institutions that provide funds for small businesses has boosted the income accumulation of disadvantaged households.
- It makes credit more accessible – Microfinance options help people get credit when they need it the most. Customers rarely receive modest loans from banks; MFIs that provide microloans fill this void.
- It aids in the creation of work chances – Microfinance institutions assist in the creation of jobs in underprivileged communities.
- It allows for future investments– Microfinance increases the amount of money available to the poor. As a result, in addition to supporting these families’ fundamental necessities, MFIs also offer them with credit to build better houses, improve local healthcare facilities, and explore new business prospects.
- It helps the underserved in society — women receive the majority of the microfinance loans given by MFIs. Microfinance also benefits unemployed people and persons with impairments. These funding solutions assist people in gaining control of their lives by improving their living situations.
Compliance Requirements for Microfinance Company Registration
The following requirements must be met in order to register a microfinance company:
Compliance with the RBI
A microfinance company must adhere to this type of regulation in order to operate. Although a microfinance firm is exempt from RBI standards, the rules governing microfinance companies must be observed.
Companies Act, 2013
A section 8 company is used to start a microfinance company. The Companies Act of 2013 requires the section 8 corporation to comply with its obligations.