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Micro Finance Company

 Micro Finance Company

Micro Finance Company is a type of Non-Banking Financial Company (NBFC) which is in a business of micro (small) credit to a special type of borrowers. It is also known as Micro Finance Institution (MFI). A company is said to be in the business of Micro Finance if it holds at least 85% of the Micros in the nature of qualifying Micros.

Qualifying Micros are described as follows:

  •  Borrower™s income in the rural area should not exceed Rs.1 lakh and Rs.1.60 lakh in case of Semi-urban areas.
  •  Loan amount should not exceed Rs.50,000 in the first cycle and Rs.100,000 in subsequent cycles.
  •  Total indebtedness of the borrower does not exceed Rs.100,000/-.
  •  Loan to be extended without collateral.
  •  Loan to be extended without collateral.

Micro Finance is a very famous type of business in the rural and semi-rural areas. Let us see how we can proceed on to register for Micro Finance company.

Important Note: No company other than registered with Reserve Bank of India can do the business of Micro Finance Company. Even the Nidhi Companies are not allowed to do so.

Procedure to Register the Micro Finance Company (MFI) in India

The procedure to register a Micro Finance Company is complex as it involves the license from the Reserve Bank of India (RBI) and since RBI is involved in this process, the whole process could take months to complete.

However, the license of Reserve Bank of India (RBI) is so valuable that waiting for months is a real worth. Let us understand the procedure in brief:

#Step 1: Register a Company:

This is the first step to register the Micro Finance Company (MFI) in India. It could be a private limited company or a public limited company. Once you have registered a company, then we can proceed for next step. Further, initially, a company could be registered with Rs.1 lakh capital.

#Step 2: Raise Authorised and Paid-up Capital to two Crores:

The next step is to raise the share capital both authorized and Paid up to Two Crores Rupees. This is because to register an NBFC in India, the minimum net worth required is Rs.2 crore.

#Step 3: Deposit Rupees Two Crore in Fixed Deposit and obtain Certificate:

After raising the capital amount, the next step is to deposit the sum of Rs.2 crore in Fixed Deposit and obtain a certificate of no lien from the bank. This shall be attached with the application when filed with the Reserve Bank of India (RBI).

#Step 4: Get all the certified Copies and complete the requirement checklist for RBI registration:

Once, you are done with step 3, the next step is to complete the requirement list for RBI registration. The requirement for Micro Finance Company Registration is as follows:

  1.  Certified Copies of Certificate of Registration
  2.  Certified copies of an extract of only the main object clause in the MOA relating to the financial business.
  3.  Copy of Board resolution
  4.  A copy of Fixed deposit receipt & bankers certificate of lien indicating balances in support of Net Owned Funds (NOF).
  5.  Bankers Report for applicant company, group companies.

#Step 5: Fill online application:

The next step is to fill the online application for NBFC registration as a Micro Finance Company (AFC). Once the online application is filed, the company gets a Company Application Reference Number.

#Step 6: Submit the Hard Copy to the Regional Office of Reserve Bank of India (RBI) office:

Once the application is filed, a hard copy of the application along with all the necessary documents are to be sent to the regional office of the Reserve Bank of India.

Documents Required initially to start the Business

If you are willing to register a Private Limited Company for NBFC registration, then you shall need at least two persons to start with. The minimum documents required for registration are as follows:

  •  Copy of PAN CARD
  •  ID Proof (Driving License, Passport, Aadhaar Card, Voter ID) – any one
  •  Address Proof (Bank Statement, electricity bill, Mobile Bill, Telephone Bill) anyone
  •  Passport Size photo

Apart from the above, we need the following documents for registered office registration:

  •  Rent agreement or ownership documents
  •  Electricity bill
  •  A copy of No Objection Certificate (NOC) from the owner.

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