NBFC (MFI) Registration & Requirements
Micro finance is a source of financial services for entrepreneurs and small businesses, it is a type of Non-Banking Financial Company (NBFC) which is in a business of micro credit finance to individuals and small business. It is also known as Micro Finance Institution (MFI).
In india there are two type of business models for micro-finance activities:
1. NGOs Not for profit (Trust, Society, Section 8 companies)
(Find my article on section 8 company registration here : https://taxguru.in/rbi/section-8-microfinance-companies-overview-requirements-registration.html )
2. For profit (NBFC MFI)
Here we will discuss about NBFC MFIs Registration and Requirements:
What is NBFC ?
Non-banking financial companies are financial institutions that provide certain types of banking services, but do not hold a banking license. Non-Banking Financial Companies are companies registered under the Companies Act and engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.
According to Section 45I (f) of RBI act, 1934
‘‘Non-Banking Financial Company’’ means–
“Therefore it is clear that NBFCs are need to be registered as a Company under Companies Act, 2013.”
“No company other than registered with Reserve Bank of India can do the business of Micro Finance Company.”
Non-Banking Financial Company – Micro Finance Institution (NBFC-MFI)
NBFC-MFI is a non-deposit taking NBFC that fulfills the following conditions:
1. NET OWNED FUND: NBFC-MFIs require minimum net owned funds of Rs 5 crore. (For NBFC-MFIs registered in the North Eastern region of the country, the minimum NOF requirement is Rs 2 crore.)
2. Not less than 85% of its net assets are in the nature of “qualifying assets.”
3. Further the income an NBFC-MFI derives from the remaining 15 percent of assets shall be in accordance with the regulations specified in that behalf.
4. An NBFC which does not qualify as an NBFC-MFI shall not extend loans to micro finance sector, which in aggregate exceed 10% of its total assets.
5. “Net assets” are defined as total assets other than cash and bank balances and money market instruments.
“Qualifying asset” shall mean a loan which satisfies the following criteria:-
1. Loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding Rs. 1,00,000 or urban and semi-urban household income not exceeding Rs. 1,60,000 ;
2. Loan amount does not exceed Rs. 60,000 in the first cycle and Rs. 1,00,000 in subsequent cycles;
3. Total indebtedness of the borrower does not exceed Rs.1,00,000 Provided that loan, if any availed towards meeting education and medical expenses shall be excluded while arriving at the total indebtedness of a borrower;]
4. Tenure of the loan not to be less than 24 months for loan amount in excess of Rs. 30,000 with prepayment without penalty;
5. Loan to be extended without collateral;
6. Aggregate amount of loans, given for income generation, is not less than 50 per cent of the total loans given by the MFIs
Procedure to Register the NBFC(MFI) in India
The requirement of RBI license make the NBFC registration process complex and time taking. The whole registration process could take couple of months to complete.
As we know that NBFCs are need to be registered as a Company under Companies Act, 2013, so we need to incorporate a Company before applying to RBI for license.
If you are willing to incorporate a Private Limited Company for your microfinance business it will required at least 2 (Two) Members to start with.
In case of Public Limited Company you will required at least 7 (seven) Members for Incorporation.
Required Documents :-
Process of Registration:
The article has been prepared considering the relevant Guidelines/Circulars/Notifications/Provisions of the RBI and Companies Act, 2013 and the rules made thereunder. Readers are requested to cross-check the provisions before acting upon the same. The author will not be liable for any damages or penalties caused.
Deepak Sharma is a Practicing Company Secretary at Jaipur (Rajasthan) The author has written articles relating to corporate matters. Some of the articles have been published on Taxguru.
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