Register Micro Finance (Credit) Company
118,000/- (inclusive of all taxes & fees)
- - Micro finance in 25 to 30 days with License.
- - Micro finance registration via section 8 Company.
- - RBI Approval not required.
Micro Finance Company
Know what is Micro finance Company and how it is registered.
What is a Micro Finance Company?
A Micro finance Company which is also commonly known as Micro credit organization deals in small loan which is less than Rs.50,000 to various household, small businesses who do not have access to formal banking channels or eligibility for loans.
How to register micro finance Company in India?
There are two option by which micro finance can be registered in India one is through NBFC and another through Section 8 company. NBFC require 5 crore capital but section 8 does not require any minimum capital. Here is the process:
# Prepare DSC and file Name Approval: The first step is to prepare DSC and DIN. This takes sometime one to two days. Thereafter, you need to file for name approval. The name should be unique and should end with words like foundation, sanstha etc.
# File for License: After getting name approved, the next step is to prepare all the documents and then apply for license to do Micro finance business in consonance with prescribed RBI guidelines.
# File for Incorporation: After getting the license, we need to file for incorporation and once company is incorporated, you can start the micro finance business in India. However, please remember that you cannot take any deposit under section 8.
Know the basics
Learn the basics about Micro Finance company & its compliance
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Documents Required for Micro Finance Company Registration
- Copy of PAN Card
- Aadhar Card
- Address Proof (Bank Statement, Mobile Bill, Telephone Bill)
- Passport Size Photo
For Registered Office
- Ownership Proof (Electricity bill etc)
- Utility Bill (Gas bill, Electricity bill)
- NOC(Download format)
Micro Finance Company Registration Process
Micro finance company registration process requires you to comply with the RBI guidelines which are prescribed for NBFC companies. But you don’t require minimum capital of Rs.5 crore, RBI registration and provisioning requirements.
# Step 1 - Prepare DSC. DIN & Name approval: The first step is to file for DSC, DIN and name approval. The name should be unique under which one word reflect your brand. Further, maximum 6 names can be filed at one time.
# Step 2 - Apply for License: The second and the most important part is to get license from the government to do the social work in India. This is done through e-form no.12 with proper application and attachments.
# Step 3 -File for incorporation: The third step is to file the incorporation along with all necessary documents.The form is attached with all the important attachments like MOA, AOA, declarations etc.
Time & Cost for Micro Finance Company Registration
The Total Cost Breakup
|Digital Signature Certificate (DSC)||2||1,998|
|Director Identification Number (DIN)||2||1,000|
|RD Approval Fees||-||2,000|
|MOA, AOA and Incorporation Fee||-||6,000|
|PAN and Tan Application||-||180|
|Professional Fee (Inclusive of Taxes)||-||14,822|
|Total Cost to Register Micro Finance Company in India||27,000|
Note: Stamp duty Extra for States: Punjab, Kerala and Madhya Pradesh.
Time for Micro finance Registration
It takes around 25 to 30 day to register a micro finance business if all documents are submitted on time.
Interest rates on Loans by Micro Finance Companies (NGO)
Interest Rates on loans
There are basically three types of charges that can be levied by the Micro Finance Company (MFI)
- # The interest Charge: The average interest rate should not exceed 26%.
- # The Processing charge: The processing charge should not be more than 1% of the gross loan amount.
- # The insurance premium: Only the actual cost of insurance for group, life, health etc to be charged and no extra is allowed as per RBI policy.
Calculation of rate of Interest for Micro Finance
The interest rates charged by Micro Finance Companies shall be lower of following:
- - Cost of funds plus 12% margin or
- - Average base rate multiplied by 2.75.
The average base rate was 9.35% as per press release on 1st April, 2017.
Mandatory Requirements for Micro Finance Company
There are basically two ways to register Micro Finance Institution (MFI). One way is to form a company and then apply to RBI for approval. The minimum requirements for Micro finance company is 5 crore net owned fund and strong profiles of promoters. The second way is to register a section 8 company (earlier section 25 company) & apply for central government licenses features of which are as follows:
- Maximum Rs.50,000 can be given for business purpose and Rs.125,000 for residential dwelling.
- No minimum net owned fund requirement. You an decide on your own
- No RBI approval is required since RBI has exempted this company from registration and some other conditions.
Acceptance of Deposits under Micro Finance Company
Deposits are not allowed to be accepted under section 8 company. Further, the company has to invest their own funds and start your micro finance business. Further, company may also raise funding by way of donations.
Even if you are planning to register a NBFC company and willing to invest Rs.5 Cr into the business, then also deposits are not allowed to be taken. As per the RBI procedure, first you need to register a NBFC non deposit taking company and thereafter apply for deposit taking status from the Reserve Bank of India (RBI).
Therefore, it advised if you planning to register your own NBFC, first start with section 8 company, test your skills and then move forward.
Micro credit Loans under Micro Finance Company
Loans under micro finance companies are not very complex. Mostly unsecured loans are provided and against monthly repayments or weekly repayments. Interest are charged mostly in the range of 20 to 26%. Further following points are also important which are as follows:
- NBFC can charge differential rate of interest to its customers but variance should not be more than 4%.
- The interest on loan to be charged on reducing balance method.
- Micro finance companies to display in all the offices or literature, the effective rate of interest.
- Companies should issue a loan card to each member stating interest rate, all other terms & conditions.
- Loans are also given in a self help groups (SHG) and other link programs.
- If no repayment is received within 90 days, then the same shall be treated as non performing asset, however provisioning norms are not applicable to section 8 company.
Mandatory Compliances for Micro Finance Company
There are many compliances which are to complied by the Micro Finance Company, however the most important compliances are as follows:
Company is required to comply with RBI norms even if it is not required to register with the reserve bank.
Section 8 company also needs to comply with the Companies Act in similar terms as any other company.
There are other laws as well which are to be taken care off like PMLA etc.
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What all a Micro Finance Company can do?
A Micro Finance can do
Unsecured loan upto Rs.50000 for business purpose & Rs.125000 for residential dwelling.
Can open branches as there is no specific restriction,however advised to open in limited numbers.
Can charge processing fee upto 1% of the loan amount.
Can charge Interest upto 26% as per calculation as stated above.
A Micro Finance cannot do
Cannot take profit from the company directly, but can take in the form of salary, official expenses etc.
Should not indulge into any other business, as RBI only exempt it for micro finance.
Cannot take deposits from general public.
Advantages & Disadvantages of Micro Finance Company
Advantages of Micro Finance Company
No minimum capital of 5 Cr
No RBI approval
Easiest way to start finance business
Can charge upto 26% rate of interest.
Disadvantages of Micro finance Company
Cannot accept deposits
Need to follow RBI guidelines
Cannot take profits from company
No gold loan type schemes
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