Before knowing about Micro Finance Company, it is must to know what Micro Finance is. Micro Finance is a source of financial services for small entrepreneurs, small businesses and unemployed or low- income individual or group who may not able to access to banking and other related services. Basically this terms used for providing small loan to poor people or small businesses which are neglected by banks and other financial institutions.
A Micro Finance Company is a financial service provider company also known as a Micro Credit Organization which provides small loan, insurance, credit and savings which is not more than Rupees Fifty Thousand to small business owners, small entrepreneurs and household, those have not ability or eligibility for taking loan through formal banking channels and through other financial institutions. The purpose of establishing Micro Finance Company is to provide financial services to the micro-sector of the economy i.e. poor people, farmers, small traders and retailers in rural and semi-urban areas. It is also type of NBFC (Non-Banking Financial Institution) but not in reality.
There are two types of business models for Micro Finance activities:
• NGOs not for profit (Section 8 Company)
• For profit (MFI, NBFC)
No Minimum Capital- There is no requirement for minimum capital for incorporation of Micro Finance company under section-8 Company. However, In NBFC there is a requirement of minimum Share Capital.
No RBI Approval- RBI Approval is not required to start a company engaged in Micro Finance activities. However, such company has to follow RBI guidelines.
Interest Rate and processing fees- A Microfinance Company may charge upto 26% rate of interest and 1% processing fees on providing unsecured loans.
Opening of Branches- There is no specific limit to open branches of Micro Finance Company but it is advised to open in limited numbers.
Simple way to start – A Micro Finance Company is a easiest way to start a finance business which facilitates small loans less than RS. 50,000, insurance and credit to small businesses but cannot accepts deposits from general public.
There is two way to register a Micro Finance company in India.
• Through NBFC (It is required minimum capital for registration)
• Through Section-8 company (It is not required any minimum capital for incorporation)
The First Step to register Micro Finance company under Section 8 is processing of DSC & DIN for all person involved in formation of Company. DIN is known as director identification no which is a unique & specific numeric digit to identify directors & his directorship in other Company. It is more like a Permanent account number but only natural human beings can apply for DIN and not artificial person.
2nd Step is to file an application for reservation of Micro Finance company name to MCA in Form INC-1. When it is approved, it will available for a period of 60 days to proceed for final Registration. There are certain mandatory documents has to be executed or affidavits have to be drafted for further submission.
Next step is filing an application in Form INC-12 for Licence to Regional Director of your region for approval of financial Object or activities of your Micro Finance Company. Generally, MCA approve this form in 10-15 working days.
4th Step is to Submission of required documents in Form INC-7 to ROC for final registration of the application for further final Incorporation.
Final Step is to submit an application for processing of PAN Card of Micro Finance Company so that one can open a bank account to start the operational activities.