How to Start a Microfinance Company in India?

What is a Microfinance Company?

A microfinance company is a type of nbfc (non banking financial corporations) which is engaged in money lending services for small borrowers or business owners. A microfinance company has to maintain a portfolio in which it contains 85% micro industries to qualify to be a MFC. This type of financial institution is best for small borrowers who don’t have reach to traditional capital sources such as banks, VCs and investor.

 

Who are Considered as Micros?

1. Income of borrower must not exceed 1 lakh in rural area and 1.5 lakh in urban areas.


2. Loan amount must not exceed 50k in first cycle and 1 lakh in subsequent cycles.


3. Loan extension doesn’t require any collateral.

It requires RBI approval to carry out microfinance operations.

 

How to Register a Microfinance Company?

Microfinance company registration is a complex procedure which takes months to complete. Firstly, the applicants are required to file company registration application and then they have to file application for RBI approval to carry out finance operations. Due to this; the registration procedure becomes complex and time consuming.

Here is microfinance company registration procedure in brief:

Company Registration

A microfinance company is required to be registered as a private or public limited company with initial paid up capital of 1 lakh INR.

Increase in Authorised and Paid Up Capital to 2 crores

To register a NBFC in India, company must have 2 crores of net worth. Therefore a MFC is required to raise its minimum paid up capital to 2 crores for further processing.

Get Bank Certificate for Deposit

MFC has to deposit 2 crores as fixed deposit in bank and obtain bank certificate which is to be deposited in RBI approval application form.

Document Submission for RBI Registration

Now comes the step to submit all required documents for microfinance company registration and RBI approval. Here is the checklist of documents for MFC registration and approval.

1. Certificate of Registration


2. MOA and AOA of company


3. Board resolution document


4. Bank certificate of net owned funds

Bankers Report for Company

File Online Application Form for microfinance company registration

Submit hard copy of company registration application along with required documents at regional RBI office.