Micro Finance Company registration

The micro-finance industry is witnessing a high growth since financial inclusion program has been launched by the Reserve Bank of India (RBI) along with Central Government. Further, micro-finance business really supports people with financial help where the formal banking system is not available

What is a Microfinance business?

Small businesses and house woman don’t get the loan from the banks due to lack of proper facilities and documentation. To help them in the funding, various people often fund these business and house women in the small amount, usually less than Rs.50,000. This small funding is known as Micro finance business.

Legal Structure of Micro Finance Business

In India, ideally, any finance business is authorized only to Non-Banking Finance Companies (NBFC). However, some business forms have been given exemption by the Reserve Bank of India (RBI) to do finance activities up to a certain extent. In this article, we shall discuss only about the Micro Finance business. The two most ideal forms of business can run Micro Finance Institutions (MFI).

1. Non-Banking Finance Company (duly registered with RBI)
2. Section 8 Company

Non-Banking Finance Company (NBFC):

A company registered with RBI with a motive to run a microfinance institution is known as NBFC –MFI. Further, people generally believe that any NBFC is authorized to take deposits as well. However, the same is not true. All NBFC are not authorized to take deposits from the general people. Further, if any NBFC needs deposits, then it needs to get a separate status from the Reserve Bank of India (RBI). To get the deposit taking status, a separate application needs to be filed with the Reserve Bank of India (RBI).


Process of Micro Finance Company as NBFC

The procedure to register micro finance company as NBFC is little complex and costly. As per RBI, NBFC shall be registered only with the minimum net owned funds of Rs.2 Cr. This is the very basic requirement. Section 8 company needs to comply with RBI guidelines on interest rate and processing charges. Further, it is a completely legal and you can even sue the defaulter. Let us see the difference between Micro finance through Section 8 Company and NBFC.