NABARD has defined microfinance as “provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban and urban areas provided to customers to meet their financial needs; with only qualification that (1) transactions value is small and (2) customers are poor.”
A micro finance institution is an organization that offers financial services to low-income populations, and almost all give loans to their members, and many offer insurance, deposit and other services, and therefore the organisations that finance on a larger scale are regarded as microfinance institutes. They are those that offer credits and other financial services to the representatives of poor strata of population (except for extremely poor strata).
A MFI can be registered as a NBFC or as a Section 8 Company.
Incorporation of MFIs as NBFC:
1. A company needs to be incorporated under provisions of Companies Act, 2013, whether public or private.
2. Open a bank account in company’s name after incorporation and maintain Net Owned Funds upto Rs. 5 Crore in the form of share capital, or Rs. 2 Crore in case of North-Eastern States.
3. Since an MFI is regulated by RBI, the same therefore needs to be registered with RBI after incorporation as per first step.
4. File following list of documents with RBI as given below:
– Certified Copies of Incorporation Certificate
– Certified copies of the extract of main object clause as provided in MoA
– Copy of Board Resolution stating that:
-The company isn’t carrying any type of NBFC activity or won’t do it unless it gets the certificate of registration from RBI;
-The company hasn’t accepted any public deposits, and if it does so in future, it will mandatorily seek RBI’s approval regarding the same;
-The company has formulated ‘Fair Practices Code’ as per RBI guidelines, any other required confirmation which RBI wants to seek from such company need to be stated.
-The company will be a member of all the Credit Information Companies and will be a member of at least one Self-Regulatory Organisation
-The company will adhere to the regulations regarding pricing of credit, Fair Practices in lending and non-coercive method of recovery as per RBI Guidelines
-The company has fixed internal exposure limits to avoid any undesirable concentration in specific geographical locations
-The company is not licensed under Section 25 of the Companies Act, 1956 / Section 8 of the Companies Act, 2013.
– Copy of Fixed Deposit receipt & bankers’ certificate of no lien indicating balances in support of Net Owned Funds
– For companies already in existence, the Audited balance sheet and Profit & Loss account along with directors & auditors report or for the entire period the company is in existence, or for last three years, whichever is less, should be submitted
– Copy of the certificate of highest educational and professional qualification in respect of all the directors
– Copy of experience certificate, if any, in the Financial Services Sector (including Banking Sector) in respect of all the directors
– Banker’s report in relation to applicant company, its group/subsidiary/associate/holding company/ related parties, directors of the applicant company having substantial interest in other companies, and also such report should be about the dealings of these entities with these bankers as a depositing entity or a borrowing entity.
– Roadmap for achieving 85% qualifying assets.
5. Now submit an online application by downloading the same from RBI’s official website and therein fill up such application and submit the same with all the necessary documents for further verification and registration process, and after uploading the same, a Company Application Reference Number will be provided.
6. Submit the hard copy of the application to Regional Office of the RBI along with the Company Application Number and supporting documents.
7. The last step is co-ordinating with RBI on timely basis, comply with necessary instructions, after which RBI will provide the Certificate of Registration.
Note: The process prescribed is Ad Verbatim as per the same given under RBI Act and its Rules that govern Micro Finance Institutions. Readers are accordingly advised to visit the official website/ Act to remain update with all the formalities and concerned information regarding incorporating MFI.
Disclaimer:- The entire contents of this document have been prepared on the basis of relevant provisions and rules and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information.