Microfinance Company Registration: Guide to RBI Compliance (2024)

Overview of Microfinance Company Registration

The term Microfinance Company (MFC) basically means an entity that is engaged in providing financialassistance and help to the rural people, low income strata, and the backward and undeveloped sectionof the society. That means the main objective of this business model is to offer access of thebanking facilities to every section of the society. However, to start a MFC in India, one needs tofirst acquire a Microfinance Company Registration from the RBI.

Further, it shall be noted that a microfinance institution or a company is a Non Deposit Taking NBFCand is separate and distinct from section 8 company. Also, the operations and affairs of aMicrofinance Institution are governed and regulated by the provisions of the Reserve Bank of IndiaAct 1934 and the directions issued thereunder.

Role for Microfinance Institution

The key role and responsibilities of a Microfinance Institution are as follows:

Renders Financial Assistance to the Low Income Strata;
Offers Banking Facilities to the Rural, Semi Rural, and Backward Areas of Society;

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Regulations Governing the Model of Microfinance Institution

The regulations governing the Model of Microfinance Institution can be summarised as:

RBI Compliance

The term RBI Compliance denoted the guidelines passed concerning the affairs ans operation of theMicrofinance Companies.

Companies Act 2013

It shall be noted that if a Microfinance Company is incorporated as a Section 8 Company, then itneeds to abide by the requirements prescribed under the provisions of the Companies Act 2013.

Who are all Eligible to Acquire MFI Registration in India?

The ones who are eligible to obtain MFI Registration in India are as follows:

Agricultural Activities;
Artisan Business;
Professional & Transport Trade;
Small Scale Businesses;

Perquisites for Obtaining MFC Registration in India

The perquisites for Obtaining MFC Registration in India can be summarised as:

The company must have a registration under the provisions of the Companies Act 1956 and 2013;
It should have the Net Owned Funds (NOF) of Rs 5 crores;
It is eligible to offer loan only between Rs 50 thousand to Rs 1.25 lakh;
Need to Furnish details concerning Promoters;
85% of the Total NOF needs to be the Qualifying Assets;
Does not require any amount of minimum capital;

Different Types of MFC Registration in India

The different types of MFC Registration applicable in India can be summarised as:

RBI Registered MFIs

To incorporate a Microfinance Company or Institution as an NBFC (Non Banking FinancialCompany), the applicant requires to get a company registered either as a Private Limited orPublic Limited Company under the Companies Act 2013.

Thereafter, the said applicant company requires to comply with all the steps needed forobtaining microfinance company registration, starting from the minimum capital requirementto the actual filing of the application for registration at the regional office of theReserve Bank of India.

Section 8 Registered MFIs

To start a Microfinance Institution in India, as a section 8 company, the applicant companyrequires to firstly apply for acquiring the Digital Signature Certificate (DSC) &Directors Identification Number (DIN) for all the proposed directors.

Thereafter, it needs to furnish an application for obtaining Name Approval in form INC– 1. Also, it requires to draft of the MOA (Memorandum of Association) & AOA(Articles of Association) for the said company and the need to submit INC – 12, alongwith the needed necessary papers to acquire Microfinance Company Registration.

Types of Loans Provided by Microfinance Company

Usually, a Microfinance Company provides a loan of small amounts to the rural and backward sectionsof the society. These loans are, although not secured, the company is capable of levying interest ata rate that meets the requirement.

Further, the key features of the loans provided by the Microfinance Company are as follows:

Necessary Papers required for Obtaining Microfinance Company Registration

The necessary papers required for obtaining Microfinance Company Registration are as follows:

A copy of the Certificate of Incorporation (COI) of the Company;
Permanent Account Number (PAN) Card details of the Applicant Entity;
PAN Card details of the proposed Directors;
Digital Signature Certificates (DSCs) for all the proposed Directors;
Director Identification Number (DIN) for all the proposed Directors;
Latest passport sized photographs for all the proposed Directors;
Address Proof for the premise being utilised as the Registered Office of the company;
A copy of the duly stamped Lease Deed or Rental Agreement, in the case property being used isRented;
A copy of the Sale Deed or Ownership Certificate, in the case property being used is the SelfOwned Property;
A certified copy of the Memorandum of Association (MOA);
A certified copy of the company’s Articles of Association (AOA);
A copy of the certified Banker’s Report;
A duly certified copy of the passed Board Resolution;
A copy of the Auditors Report displaying the minimum Net Owned Funds (NOF);
A duly certified copy of the Compliance Certificate from a Practising Chartered Accountant;
A Structured Business Plan of the Applicant Company;
A copy of the latest Financial Report concerning Directors;
A copy of the Income Proof of all the Key Managerial Personnel (KMP) and proposed Directors;
No Objection Certificate from the Company;
Bankers Certificate regarding No Lien;
A copy of the Credit Statement of the company;
A copy of the Passport if the proposed director is an Indian National. However, in the case ofForeign Nationals, apostil or notarised copies of the passports is required to be submitted;
Net worth certificate for all the proposed directors;

Also, it shall be taken into consideration that the applicant company needs to furnish all therequired necessary papers, but the same must not older than a period of 2 months.

Process for Obtaining Microfinance Company Registration in India

The steps involved in the process for obtaining Microfinance Company Registration in India are asfollows:

Register a Company

In the first and foremost step of the process for obtaining Microfinance Company Registration inIndia, the applicant needs to register a company under the stipulations of the Companies Act 2013.

Further, for the purpose of incorporation, the applicant needs to file a SPICe + Form with theMinistry of Corporate Affairs.

Also, it shall be noted that when the company is initially incorporated, the best type of businessstructure which is utilized for this type of organisation will either be a public limited company ora private limited company. Further, through Companies (Incorporation) Act 2015, the Ministry ofCorporate Affairs have removed the requirement of the minimum capital required for incorporating acompany in India.

SPICe Plus Service

Usually the above mentioned SPICe Plus Service will be easily carried out by the respective applicantas the whole procedure of the registration procedure is online.

Further, the said service will offer name reservation, Director Identification Number, MandatoryIssuance of the Permanent Account Number, Tax Deduction & Collection Account Number, EPFO, ESIC,and other forms of registration which are required.

Furthermore, the compliances as follows have to be duly carried out after the completion of the aboveprocess:

If the company has been incorporated as a new business entity, then, in that case, the name hasto be reserved;
It shall be noted that all the other compliances concerning the EPFO (Employee Provident FundOrganisation), GST (Goods and Service Tax), Income Tax, PAN (Permanent Account Number), TAN (TaxDeduction and Collection Account Number), Bank Account, and Professional Tax Registration (ifrequired) needs to be carried out in accordance with the required law.

Application in SPICe Plus

The applicant needs to click on the SPICE plus under the relevant MCA services. Further, theapplicant will be redirected towards another page, wherein he/ she needs to apply for a newapplication.

However, it shall be noted that if a company is already existing, then, in that case, an existingapplication is required to be clicked on. After that the applicant is needed to check on the correctcategory and sub category concerning the company.

All the activities & operations that are carried out by a company have to be clearly mentioned.Therefore, if an applicant is going for a particular set of activities, then, in that case, it needsto specify the type of industrial activities as well.

Check for the Name Approval

If the company, which is applying for Microfinance Company Registration already has a name present,then, in that case, the applicant is required to click on the auto check to fulfill the requirementsconcerning to name of the company.

Further, all the other information in respect to the name of the company needs to be duly furnished.Both the part A and B must be submitted.

Furthermore, the details as follows are required to submitted, together the details mentioned above:

Name of the Applicant Company;
Location of the Premise being used as the Registered Office;
Operations which are carried out by the applicant company;
PAN, TAN, and other registrations that are carried out by the company;
The company needs to carry out the process of pre-scrutiny check concerning registration;

The directors of the company need to download all the particulars specified in Part B of the form.After that, it need to affix DSC (Digital Signature Certificate) for all the proposed directorsaccordingly. However, it shall be noteworthy to note that all the forms which are downloaded mustinclude AGILE-Pro, SPICe+ MOA, and SPICe+ AOA, URC-1, and INC 9, and all of them must be properlylinked and uploaded online. After that, a request number will be generated and the applicant needsto make the payment as required. Lastly, the forms filed will be processed.

Raise the Capital Required

Further, in the next step of the process for Microfinance company registration, the applicant companyneed to raise about Rs 2 crores or 5 crores as per the requirements.

Open a Current Bank Account

In the further step the directors of the applicant company would require to open a current bankaccount. Also, a certificate concerning the no lien created will be required for the process abovementioned. An application will further be presented at the regional office of the Apex Bank for thistype of certificate.

Apply to RBI for Microfinance Company Registration

Next, all the certified copies of the necessary papers required for the process of acquiring microfinancecompany registration, have to be furnished at the regional office of the Reserve Bank of India.

Further, the necessary papers and certified copies that are required to be filed at the regional office ofthe RBI are as follows:

Copies of the Incorporation Certificate received by the ROC (Registrar of Companies);
A duly certified copy of the Memorandum of Association (MOA) and;
A duly certified copy of the Articles of Association (AOA);
A copy of the FDR (Fixed Deposit Receipt);
A Certificate from Bankers of the company concerning No Liens on the NOF (Net Owned Fund);

File an Online Application

Now, the applicant is required to file an online registration with the Reserve Bank of India forobtaining Microfinance Company Registration in India. After that the applicant will be provide anCARN (Company Application Reference Number) for future reference.

Furnish the Hard Copy

In the last step of the process for Microfinance Company Registration, the applicant is required tosubmit the hard copies at the specified regional office of the Reserve Bank of India. Further, aftersubmission, the RBI will carry out the procedure of scrutiny and due diligence to confirm that thecompany has satisfied all the requirements.