Microfinance companies are the financial institutions that offer small-scale financial services in both the forms – credit and savings, especially to the poor in rural, semi-urban and urban areas. These financial services are meant to help them in undertaking economic activities, mitigating vulnerabilities to income shocks, smoothening consumption, increasing savings and supporting self-empowerment.
Two type of microfinance companies can be registered in India
1. NBFC-MFI
2. Section 8 microfinance company
1. MICROFINANCE COMPANY REGISTRATION AS AN NBFC WITH RBI APPROVAL
i. APPROVAL OF RBI IS MANDATORY
ii. MINIMUM NOF IS RS. 5 CRORES
iii. One director must have experience of more than 10 years in financial services
iv. AND OTHER COMPANIES ACT 2013 AND RBI COMPLIANCE TO BE FOLLOWED.
2. SECTION 8 MICROFINANCE COMPANY
i. NO RBI APPROVAL REQUIRED
ii. NO MINIMUM NOF OR PAID-UP CAPITAL REQUIRED
iii. NO PRIOR EXPERIENCE REQUIRED
iv. COMPANIES ACT 2013 TO BE FOLLOWED AND IT MUST BE ALLIGNED WITH RBI NORMS, BUT NO NEED TO TAKE APPROVAL FROM RBI
NO RBI APPROVAL REQUIRED FOR SECTION 8 MICROFINANCE COMPANY
In India, finance businesses are approved only to Non-Banking Finance Companies (NBFC). However, some business forms have been granted an exemption by the Reserve Bank of India (RBI) to do banking activities up to a specified limit. The RBI by it’s master circular: RBI/2015-16/15 DNBR (PD) CC.No.052/03.10.119/2015-16 Dated July 01, 2015, has released all the Section 8 Companies involved in microfinance activities and are exempt from the provisions of RBI Act, 1934 As per Para 2 (iii), Sections 45-IA, 45-IB, and 45-IC of the Reserve Bank of India Act, 1934 (2 of 1934) shall not apply to any non-banking financial company which is
(a) Engaged in micro financing activities, providing credit not exceeding Rs.50,000 for a business enterprise and Rs.1,25,000 for meeting the cost of a dwelling unit to any poor person for enabling him to raise his level of income and standard of living; and (b) Companies registered u/s 8 of Companies Act, 2013.
BEST FEATURE OF SECTION 8 MICROFINANCE COMPANY
There is not any capital limit for such company, company can be started with capital of INR 10,000 only. Company can take interest up to 26% (2.75 times of average interest of top 5 banks) It’s a legal finance business, you can sue if defaulter is not making payment on time. Company can take loan from bank, financial institution and directors. Company can give unsecured loan.
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