Microfinance Company: Concept and Process for Registration
The country like India mostly belongs to low and middle-income groups. Even though, it is always anticipated that the nation will end up being a superpower leaving behind China. However, it is a proven fact that demons like unemployment and poverty obstruct the growth of the country. Though, several governmental and non-governmental schemes have been unleashed to wipe out poverty and to spawn employment opportunities. Yet, their ambit is limited only to a narrow scope of the population.
In today’s scenario, there has been a rapid increase in the demand for commercial and personal finance. While the banks are principally concentrating on the organized sector, especially the big corporate houses having good credit ratings, these, Microfinance Institutions (MFI’s) are emerging as a ray of hope for the lower and middle- income strata. People belonging to these income groups do not have any medium to the normal banking channels. Further, the banking sector alone is not enough to cater to the financial needs of all the sectors of the populations. So, to furnish the increasing demand for finances, the microfinance companies are emerging with a prospect to increase its operations. Further, because of fewer rules and regulations and ease of doing activities makes microfinance institutions as worthwhile business options. So, except on account of capital requirement, the process for Microfinance Company’s registration is similar to other NBFC’s registration.
In India, there are various kinds of microfinance institutions operating; mainly are Grameen Bank Model and Rural Cooperatives, SHG (Self Help Group), JLP (Joint Liability Group). Financial Inclusion of the smallest person in society is the main objective of the Microfinance Company. Hence, Microfinance Institutions provides financial assistance such as savings, insurance, and loans to the needy group in the society and also to the small entrepreneur, who usually are not able to meet the criteria for the standard bank loan.
Meaning of Microfinance Companies
Microfinance is a secondary banking structure aimed at providing both banking and financial services to the low-income strata of the society, who do not have any other access to financial services. At last, microfinance aims to give needy people a prospect to become self-reliant by providing a way to save their income and to get insurance at a cheaper rate.
Objectives of the Microfinance Company
- To provide financial and banking services to the needy people to raise their standard of living.
- To develop and grow the backward section.
- To provide financial help to the small productive income generation businesses, so that they can generate employment for the poor, especially women.
- To encourage self- employment in the backward and rural areas.
- To launch various social schemes to provide vocational skills and also to promote the efficient use of the available resources.
Focus Areas of the Microfinance Company
- Efficient and effective use of available resources.
- Financial help to the backward section.
- Automation of the operations to increase the growth of Microfinance Companies.
Characteristics of the Microfinance Company
Following are the key features of the Microfinance Company –
- These institutions are incorporated under the Companies Act, 2013.
- Before commencing the operations, these institutions required to have a minimum net worth as prescribed by the authorities.
- Need to obtain a necessary permit or license.
- These institutions must be involved in providing a low amount of financing to the low-income strata of society.
Advantages of the Microfinance Company
In India, the Reserve Bank of India (RBI) has created a policy framework for the Microfinance Institutions to provide required authenticity to the sector. Following are the few advantages of the Microfinance Company –
- Microfinance Company helps in promoting entrepreneurship and self-sufficiency.
- Easy access to funding
- Better rate for overall loan repayment in comparison to the traditional banks.
- Microfinance Company helps in raising the financial condition, by meeting the credit requirements of the low-income people, by providing different types of loans such as the housing loan, business loan, emergency loans, working capital loan, etc.
Types of Legal Structure for the Registration of Microfinance Company
Following are the types of legal structure for the registration of Microfinance Company.
- NBFC-MFI – Registration of NBFC-MFI is to be obtained from Reserve Bank of India (RBI) under the Reserve Bank of India. The net worth required under this legal structure is the rupees five crores, but rupees two crores in case of the northeastern state.
- Societies - Registration of Societies as per the Society Registration Act, 1860. The registration process for this legal structure is a very easy plus there is no minimum capital requirement.
- Trust - Registration of Trust as per the Indian Trust Act, 1882. The registration process for this legal structure is a very easy plus there is no minimum capital requirement.
- Cooperative Societies - Registration of the cooperative societies as per the Cooperative Societies Act, 2002. The registration process for this legal structure is a very easy plus there is no minimum capital requirement.
- Section 8 - Registration as per the Companies Act, 2013. The registration process for this legal structure is a very easy plus there is no minimum capital requirement.
Documents Required for the Registration of the Microfinance Company
Following are the document required from all the Directors and Shareholders of the Company –
- Certified copy of Incorporation Certificate of the Company.
- Certified copies of the Memorandum of Association (MOA) and Article of Association (AOA).
- Banker’s Report
- Board Resolution regarding the registration of the proposed Microfinance Company.
- Auditors Report regarding the applicant’s minimum net capital owned (NOF).
- A duly signed certificate from a Chartered Accountant regarding the details of the group/ holding/ subsidiary/associate companies along with the particulars of the investments made in other Non-Banking Financial Companies (NBFC’s) as per the prescribed format.
- A duly certified copy declaring the educational and professional qualification of all the proposed directors.
Requirements for the Registration of the Microfinance Company
- Minimum paid-up capital of worth rupees five crores, whereas for the Northeastern states, the minimum paid-up capital requirement is of rupees two crores.
- Microfinance Companies have to maintain eighty-five per cent of the qualifying assets.
- Need to abide by the rules and regulations issued by the Reserve Bank of India.
- It is significant to mention that obtaining approval from the Reserve Bank of India is a must for commencing the business affairs of the company.
Procedure for the Registration of the Microfinance Company
- Company Registration - The first step in the registration of a Microfinance Institution is to get a company registered either as Public Limited Company or Private Limited Company as per provisions of the Companies Act, 2013. Initially, a company can be incorporated with the capital of Rupees one lakh. After completing company’s registration, we can move towards the next step.
- Raise Capital - The next stage is to raise the authorized and paid-up share capital up to Rupees five crores or rupees two crores as the case may be. Further, capital should be raised only in the form of Equity Share Capital and not in Preference Share Capital.
- Opening of a Bank Account - After incorporation, the amount received shall be deposited in the form of a Fixed Deposit in a bank account. Then a certificate of no lien shall be acquired from the bank. Lastly, this certificate shall be annexed with an application, which will be submitted with the Reserve Bank of India.
- Application for the registration - The next step is to acquire all the certified copies and then submit it with the Reserve Bank of India for carrying out business affairs. Following are the documents required to be submitted- Copy of Incorporation certificate, Copy of an extract of the object clause in the Memorandum of Association, Copy of fixed deposit receipt, Bankers Certificate of no lien regarding the Net Owned Fund, Bankers Report.
- Filling of an Online Application - For the registration of Microfinance Company, an online application shall be filed with the Reserve Bank of India. After filling of the application, an application reference number will be provided for the future reference.
- Hard Copy Submission – After filling of application, a hard copy of the application annexed with the required documents shall be submitted with the RBI’s regional office. After receiving the application, Reserve Bank of India will carry out due diligence and, after due satisfaction, Reserve Bank of India will issue a certificate for the commencement of business.
To sum up, we can say that the micro finance institutions act as a medium for the growth of the financial market. They act as the foremost source of finance for the backward sector. It acts as a helping hand not only for the backward sector but also for