An Ultimate Guide on the concept of Microfinance Company

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Guide on Microfinance Company

 

Microfinance Company Registration

Microfinance Company are synonymously called the Microfinance institutions. These institutions provide financial services like loans, savings, and insurance to the deprived section of the society and also to small business entrepreneurs who are not able to qualify for a standard bank loan. Thus, it can be considered as the borrowing of funds by those people who are residing in semi-urban as well as in rural areas. Further, it is significant noting here that this company is considered as a Non-Deposit Taking NBFC but is different from the Section 8 Company. Furthermore, the RBI Act, 1934 governs and administers Microfinance Company for its smooth functioning. Lastly, it means that all the guidelines and directions relating to Microfinance institutions are specifically laid out by the RBI Act 1934. 

Features of Microfinance Institutions

Following listed are the features of Microfinance Institutions – 

  1. The Microfinance Institutions are incorporated as per the provisions provided under the Companies Act 2013.
  2. Before commencing with the company’s operations, the company must have a minimum net worth as prescribed by the authority.
  3. The company must have obtained the required license or permit.
  4. They provide finance to the needy people of society.

Benefits of obtaining Microfinance Company Registration

Following listed are the benefits attached with the concept of a Microfinance Company Registration – 

  1. There is no need for any collateral or mortgage money for the borrowing of funds
  2. It helps in generating employment
  3. Facilitates rural development
  4. It also provides opportunities to earn income

Requirements for starting a Microfinance Companies

Following are the requirements which one needs to comply before starting Microfinance Company – 

  1. Companies Act, 2013 helps in the incorporation of this company
  2. The company must have the minimum net worth prescribed by the authority, which is necessary to carry out the operations of a Microfinance institution
  3. The required Permit or License must be obtained by the company

Pre-requisites for obtaining Microfinance Companies Registration

Following listed are the prerequisites for obtaining the registration of Microfinance Company – 

  1. Copy of the Certification of Incorporation is required
  2. Copy of the Extract of the main object clause specified in MOA (Memorandum of Association) is required
  3. Copy of the receipt of Fixed Deposit is required
  4. Banker’s Certificate regarding the Net Owned Fund along with the Banker’s Report are required too

Documents Required for obtaining Registration of Microfinance Company

Following are the documents required for obtaining Registration of Microfinance Company – 

  1. Duly certified copy of the Certificate of Incorporation of the concerned company
  2. Duly certified copy of the Memorandum of Association and Articles of Association (MOA and AOA) of the Company
  3. Board Resolution in relation to the registration of the proposed Microfinance company 
  4. Banker’s Report
  5. Auditors report regarding the receipt of the minimum net owned fund (NOF) of the applicant company
  6. A certificate of the practising Chartered Accountant regarding the details and particulars of the group or associate or subsidiary or holding companies together with the details of the investments in other NBFCs (Non-Banking Financial Corporations) as shown in the Performa Balance Sheet
  7. A certified copy of the highest educational and professional qualification regarding all the proposed directors of the applicant company.

Procedure for obtaining Registration of a Microfinance Company

Following are the steps involved in the Process of obtaining Registration of Microfinance Company – 

  1. Company Registration – The first step for obtaining the registration of Microfinance Institution (MFI) is to register the concerned company either as the Private Limited Company or as the Public Limited Company as per provisions of the Companies Act, 2013. Initially, the concerned company can be registered with the paid-up capital of Rs.1, 00,000. After obtaining company registration, the applicant can proceed to the next step.
  2. Raise Capital – The next step in the process is to raise the authorized and paid-up share capital up to Rupees five Crore or Rupees two Crore as the case may be. Further, the capital raised should be in the form of the equity Share Capital and not in Preference Share Capital.
  3. Opening of the Bank Account – After the successful incorporation of the company, the amount received from the shareholders are required to be deposited in a bank account in the form of a Fixed Deposit. After this, the next step it obtains a certificate of no lien from the bank. Further, this certificate is required to be annexed with an application which is to be submitted with the RBI.
  4. Application for the Registration of Microfinance Company with RBI (Reserve Bank of India) – The next step is to obtain the certified copies and to submit it with the RBI (Reserve Bank of India) for carrying out business operations. Following are the required documents which are to be submitted with the application –
  • Copy of the Certificate of Incorporation
  • Copy of an extract of the main object clause in MOA
  • Copy of fixed deposit receipt
  • Banker’s Certificate of no lien in relation to the Net Owned Fund
  • Bankers Report
  1. File Online Application – The concerned online application will be filed with the Reserve Bank of India (RBI) for obtaining Microfinance Company Registration. Further, after the due filing of the application form, the company will get a Company Application Reference Number.
  2. Hard Copy Submission – In the last step, the applicant must approach the Regional Office of RBI (Reserve Bank of India) in order to submit the hard copy of the application form. Thereafter, the process of Due Diligence will be carried out by the RBI and if in case the RBI is satisfied with the documents and the application form submitted, it will issue a Certificate of commencement of the business.