Section 8 Microfinance Company Registration: Process & Benefits


Lack of access to minor financial services is also one of the biggest obstacles faced by most individuals and small businesses in India. Conventional financial institutions tend to demand rigid paperwork and collatels thus, low-income citizens and rural business persons are not able to secure credit. Microfinance institutions fill this gap by offering micro loans and financial services to the underserved communities.


Micro finance company registration may be an opportunity to be profitable as well as socially significant whilst starting a financial inclusion business. The success of section 8 microfinance company registration is also preferred by many entrepreneurs and social organizations as it enables them to carry out micro-lending business and yet contribute to social betterment.


This manual elaborates the definition, classifications, requirements, documents, and procedure of registering a microfinance firm in India.

What does a Micro Finance Company mean?

A microfinance organization is a banking organization that offers microfinance loans and financial services to those who are not easily accessible to conventional banking services. These loans are usually provided to small business, self help groups, women in business and rural businesses.


The primary goal of microfinance is financial inclusion and assist individuals in advancing income and living standards. These firms tend to offer unsecured loans whose repayments are small and the terms are not rigid.


All entrepreneurs who intend to establish such financial services will be required to undergo the process of registration of the micro finance company in order to act legally in India.

Indian Micro Finance Company Registration

In India a microfinance can be registered in either of two ways:

1. NBFC- Microfinance Institution (NBFC-MFI)

Under this arrangement, the company has to be registered by the Reserve Bank of India (RBI). Such kind of registration of micro finance firms is appropriate to those businesses that intends to market themselves as large lending institutions.


Key requirements include:


  • RBI approval is mandatory

  • Minimum Net owned funds of 5 crore (2 crore in the North-East)

  • Compliance with strict regulations

  • Lending mostly involved microfinance operations

  • NBFC-MFIs are mostly profit oriented institutions which are closely regulated

2. Section 8 Microfinance Company

Section 8 microfinance company registration by the Companies Act, 2013 is another option which is popular. Non-profit organizations wishing to support the low-income groups through financial aid are mostly involved in using this form of structure.


Key features include:


  • Minimal registration by RBI is needed in most cases

  • No lowest capital requirement

  • Loans are offered in a regulated amount

  • Unable to accept deposits in the form of public


Eight companies are socially oriented with its objectives being poverty reduction, women empowerment, and rural development.

Advantages of registration of Micro Finance Company

The registration of a microfinance company has a number of benefits to the entrepreneurs and social organizations.

1. Ensuring Financial Inclusion

The microfinance institutions are the beneficiaries of people unable to take loan in the banks because of insufficient collateral or credit records.

2. Business Opportunities

Microfinance in India is developing fast and presents business openings to the investors and entrepreneurs.

3. Social Impact

A registered micro finance company assists small firms, women entrepreneurs and the rural population to develop economically.

4. Legal Recognition

By the right registration of micro finance company, the business becomes a legal entity and is accepted in the financial market.

5. Funding Opportunities

Banking, financial institutions and investors can provide funding to registered companies to undertake expansion.

Section 8 Microfinance Company Registration Eligibility

The entrepreneurs who opt to register section 8 microfinance company have to satisfy some eligibility criteria.


Significant conditions are:


  • At least 2 members and 2 directors

  • One of the directors has to be an Indian resident

  • Certain social objective like financial inclusion or rural development

  • India address Registered office address

  • Adherence to lending limit and regulations


These businesses have to work on the provision of small loans and helping the weaker parts of the society.

Paperwork To start Opinion Micro finance company

The following are the documents that are usually required to complete the process of registration of a micro finance company:

For Directors


  • PAN Card

  • Aadhaar/Id card or identity certificate.

  • Address proof

  • Passport-size photographs

  • Email ID and mobile number


For Registered Office


Electricity or utility bill

Rent agreement/ownership evidence

No Objection Certificate (NOC) of the owner of the property


Other Documents


  • Digital Signature Certificate (DSC)

  • Director identification Number (DIN)

  • Memorandum of association (MOA)

  • Articles of Association (AOA)


These paperworks assist in authenticated identity of promoters and legal form of the company.

Micro Finance Company Registration

Registration of a microfinance company tends to follow the following steps:

Step 1: Obtain DSC and DIN

The registration requires the directors to secure Digital Signature Certificates and Director Identification Numbers to commence the registration procedure.

Step 2: Company Name Approval

Request the name reservation by using the portal of the Ministry of Corporate Affairs (MCA).

Step 3: Draft MOA and AOA

Make the Memorandum of Association and Articles of Association about the company goals and organization.

Step 4: Company Incorporation

Register and submit incorporation could be done in the MCA portal and the Certificate of Incorporation received.

Step 5: License (where necessary) Approval

In case the company is registered as an NBFC, then the RBI permission needs to be obtained prior to the commencement of financial services.


After these procedures have been undertaken, the company is free to commence the micro-lending operations.

Reasons Why to choose Section 8 Microfinance Company Registration?

Section 8 microfinance company registration is more favored by many startups and NGOs since it provides a simple and low-cost structure.


Key advantages include:


  • No lowest capital requirement

  • Reduced compliance to NBFCs

  • Target the welfare of society and financial inclusion

  • Capacity to give unsecured loans at a reasonable scale


Due to these advantages, Section 8 companies are popular among the organizations that focus on the support of the economic development in rural and low-income regions.

Conclusion

The small financial services in India are on the increase and registration of micro finance company is a good venture opportunity to the entrepreneurs and social organizations. Regardless of whether you use the NBFC model or section 8 microfinance company registration, you should ensure that you adhere to the proper legal process and compulsory legal requirements.


Through the right planning and the guidance of an expert, you are able to develop a legally compliant microfinance institution; which is not only able to make revenue, but also help in financial inclusion and economic development.


Should you require the services of professional consultants such as the Lawgical India to help you to go through the registration process, then it is quite possible that the Indian legislation can be met without much hassle and time requirement.
Location: Ashok Cosmos Mall, Chilli Int Rd, Sanjay Palace, Sanjay Place, Naya Bans, Agra, Uttar Pradesh 282002, India

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