In India, MFI is not a new concept in the financial market. The government of India gives special attention to the development of rural credit due to the poverty in India. In India, the Microfinance industry has witnessed a tremendous growth in the last two decades.
Microfinance institutions are those type of financial institutions which provide loans and other financial services to poor sections of the society. Generally, they operate in rural areas and among the low-income group by extending small loans.
The Reserve Bank of India has extended its regulation and supervision to those Microfinance Institutions which qualify certain criteria. The main objective of the RBI is to make such MFIs healthy and stable.
Microfinance Institutions which are regulated by RBI and register themselves with RBI by fulfilling the accompanying conditions are called NBFC-MFIs or Non-Banking Financial Company-Microfinance Institutions.
Qualifying assets are loans which are provided by the NBFCs which fulfill the certain specifications such as:
Apart from the aggregate amount of loans extended for other purposes such as housing repairs, education, medical and other emergencies, the minimum fifty percent of loan should be given for productive purposes.
NBFC-MFI is allowed to charge a differential rate of interest to its customers however variance for individual loans cannot exceed 4 percent between the minimum and maximum interest rate. NBFC-MFI is not allowed to levy the prepayment penalty.
A customer should be aware of the components of loan pricing. NBFC-MFI can levy only following charges mentioned below:
Due to the heavy RBI compliances, there are many entities or business houses finds it difficult to obtain NBFC license for this now they are opting an indirect route to acquire NBFC through purchasing existing NBFC license of such entity which is not operational. This way is considered as one of the most efficient & less costly ways to obtain NBFC License.
Takeover process requires prior approval of the Reserve Bank of India whereas minor changes in the management or control are outside the purview of the approval but in case of significant changes, prior approval of RBI is required to be obtained.
The next step is to make an application to the RBI for the approval on the letterhead of the company along with the following required documents:
An application shall be submitted to the Regional Office of the Department of Non-Banking Supervision in whose control the Registered Office of the NBFC is located. All the queries raised by the RBI shall be timely answered in respect of the takeover so as to avoid any unforeseen delay in the approval. Usually, an application for NBFC takeover goes through a processing time of three to four months in the normal course of business.
For NBFC takeover acquirer can go through all the documents of the target company. For the purpose of takeover MOU (Memorandum of understanding) is signed between the target company and acquirer. For the reference of acquirer KYC documents and business plan for three years is prepared. There is also a requirement of submission of documents which were submitted to RBI.
After obtaining RBI approval, public notice is given in two newspapers as per the RBI regulations indicating such change of management and inviting any objections from the public if any.
On the 31st day of newspaper notice or as mutually agreed by all the parties, signing of Share Purchase Agreement and handing over of change of management, payment of remaining considerations etc. to be carried out.
In the balance sheet of the target company, all assets will be liquidated and liabilities will be paid off and Acquirer will get neat and clean bank balance in the name of the company which will be calculated as a net worth as on the date of the takeover.
Before acquiring acquirer must verify that target company has complied with all reporting requirements of the Registrar of Companies, Taxation authorities and Reserve Bank of India, with no tax obligations.
After this, information must be verified from the company master data on the website of the Ministry of Corporate Affairs and inspection can be done.
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