Microfinance Organizations provide financial services such as loans, savings, and insurance to needy people of the society and small business entrepreneurs. They will not be able to qualify for a standard bank loan.
The following key features of Microfinance Institutions:-
The Reserve Bank of India has formed a framework to provide essential legitimacy to the sector. The following are the advantages of Microfinance Institutions:-
Microfinance Institutions are a non-deposit taking NBFC which performs banking at a small level as a bank does. MFI occur at a minimal level if compared to NBFC. Microfinance institutions provides similar lending services as NBFC to the poor and weaker sections of the society who do not have admission to regular banking services.
For Microfinance Company Registration in India, there is a prerequisite of minimum paid-up capital of INR 5 crores. While in the case of the North-East region of India, the minimum paid-up share capital requirement is INR 2 Crore only. MFIs have to maintain 85% of qualifying possessions all the time. MFI has to stand by the guidelines issued by RBI for NBFCs in general with the terms & conditions of finances.
No company is allowed to carry the activities of Microfinance Company without obtaining the prior approval of RBI.
The first step is to register a company either one as Private or Public Limited Company under Companies Act, 2013. At first, the company can be incorporated with the capital of INR.1,25,000.
Raise paid-up share capital up to INR 5 Crore or INR 2 Crore. It must be raised up in the form of Equity Share Capital.
After registration of the business, the amount received should be deposited in a bank account as Fixed Deposits. A certificate shall be obtained from the bank. This certificate shall be attached to an application that will be given with the Reserve Bank of India.
The next step is to get all the certified copies and submit them with the Reserve Bank of India for carrying business Operations. Following are required-
An online application will be filed with the RBI for Microfinance Company Registration. After filing of an application, the company will get the CARN
A hard copy of the form along with the essential official papers has to be submitted with the regional office of the RBI. On receiving the application, Reserve Bank of India will conduct due diligence, and after satisfaction, RBI will issue a certificate of commencement of business.
Documents required from Directors and Shareholders are-
Microfinance covers the way for small scale businesses by providing them funds and admission to capital. It makes them economically capable of refining their lives. It provides loans to the fiscally unworthy such as those who cannot get checking accounts, lines of credit, or loans from banks.
Lack of the existence of microfinance companies, the groups are vulnerable and have an alternative to using loans with high rate of interest or may even borrow money relatives. Microfinance gives them an opportunity which they can utilize by investing in their business and as a result invest in themselves.
There are principally two ways for Microfinance Company Registration. One way is to form a company and then apply to Reserve Bank of India for support. The least requirements for Microfinance Company Registration is INR 5 crore net owned fund.
In India, finance institutions are authorized only by Non-Banking Finance Company (NBFC) and regulated by RBI. But, some business forms have been granted immunity by the ‘Reserve Bank of India’ (RBI) to do banking activities up to a specified limit. The RBI has published all Section 8 Companies to be involved in microfinance activities.