MICRO-FINANCE COMPANY COMPLIANCES
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WHAT IS MICROFINANCE COMPANY ?
A microfinance firm is a business that provides small-scale financial services like loans, credit, or savings. Since small firms are unable to acquire bank loans due to the lengthy application process, these companies were established to streamline the credit system for them. It is frequently referred to be a micro-credit organisation as a result.
Numerous households and small enterprises that lack access to or are not eligible for standard banking services are given microloans by them.Rural residents are eligible for small loans of up to Rs. 50,000, whereas urban residents are only eligible for loans of up to Rs. 1,25,000. Establishing a Section-8 Company with the Ministry of Corporate Affairs (MCA) is the easiest way to start a Micro Finance Company in India. This may be done without investing any additional money or offering any kind of guarantee.
The RBI and the federal government may mandate a microfinance organisation to offer loans at low interest rates. They contribute significantly to all facets of rural and agricultural development, including the generation of money and jobs.In India, there are primarily 2 types of microfinance organisations that are permitted; the first type must be registered with the latter is a non-profit organisation that is registered as a section 8 company and does not require approval from the RBI.
MANDATORY CONDITIONS FOR MICRO FINANCE COMPANY
In essence, there are only 2 methods to join a microfinance company (MFI). One approach is to start a business and then ask the RBI for authorization. A “Microfinance company” must have promoters with active profiles and a net-owned fund of Rs. 5 crores in order to be eligible. The second choice is to apply to become a section 8 corporation. The second registration option is offered by LegalRaasta. Apply for permits from the central government, which come with the following characteristics:
- For business purposes, you may donate up to Rs. 50,000, and for a home, up to Rs. 1,25,000.
- There is no minimal amount for net owned funds. You can choose whatever you want.
- No RBI permission is necessary because the RBI has exempted this company from registration.
NO RBI APPROVAL
In India, only non-banking finance organisations are permitted to carry out financial transactions (NBFC). However, the Reserve Bank of India (RBI) has made an exception for particular business entities, allowing them to conduct banking activities up to a specific sum. The following was published by the RBI in its master circular: DNBR (PD) CC.No.052/03.10.119/2015-16, RBI/2015-16/15 As of July 1, 2015, all Section 8 firms involved in microfinance activities are free and exempt from the rules of the RBI Act of 1934.
Sections 45-IA, 45-IB, and 45-IC of the Reserve Bank of India Act, 1934 (2 of 1934), do not apply to any non-banking financial organisation that is
- Participating in microfinance operations and providing any poor person with credit up to Rs. 50,000 for a business venture and Rs. 1,25,000 to pay for the acquisition of a home in order to help him raise his level of income and standard of life; and
- Licensed in accordance with Section 25 of the 1956 Companies Act; and
- Refusing to accept public deposits as described in Notification No. 118 /DG (SPT)-98, dated January 31, 1998, paragraph 2(1) (xii).
Mandatory Compliances for Micro Finance Company
Some fundamental guidelines must be followed by the micro finance company. But the most significant compliances are as follows:
RBI COMPLIANCES
The corporation is still required to abide by the RBI’s guidelines even though it is not required to register with the RBI.
COMPANY ACT
Section 8 corporations are subject to the 2013 Corporations Act, which is applicable to all businesses.
ADDITIONAL
The Corporations Act, 2013, which applies to all firms, also applies to Section 8 companies.
INTRODUCTION TO SECTION 8 COMPANY COMPLIANCES:
According to the Companies Act of 2013, all Section 8 Company Companies must comply with the MCA (Ministry of Corporate Affairs). To promote, foster, and enhance endeavours in the arts, sciences, sports, business, humanitarian activities, etc., Section 8 Company was established. A Section 8 Company can be defined as a non-governmental organisation. They are allowed to be treated as “Limited Companies,” even though the word “Limited” is not put to the end of the names of these businesses. Simply said, Section 8 companies serve underdeveloped communities and sectors in India. These Corporations are not required to distribute any profits or dividends to their shareholders.
List of requirements for Section 8 company compliance
Appointment Of Auditor: A Section 8 firm must appoint an auditor to oversee their financial records on a yearly basis.
Maintaining Registers: The expectation for Section 8 companies is that they will maintain statutory records in registers. These registers are kept on an annual basis with the aim of evaluating the company’s performance on a yearly basis. The register contains details about members, loans, fees, and investments.
Maintenance Of Financial Statements: A Section 8 Company’s financial records are kept on an annual basis. The financial records are provided to the registrar after they have been prepared. Information found in financial documents includes the following:
- First Trading Account
- The Profit and Loss Statement
- Balance Sheet
Preparing Director’s Report: The Director’s Report must be submitted using Form AOC-4, according to Section 134 of the 2013 Companies Act. The goal of writing a director’s report is to provide shareholders with a sneak peek of the company’s financial situation and commercial operations. The “minutes of meetings,” which must be signed, must be kept at the registered office.
Income Tax Return Filing: Section 8 companies must file their income tax returns by September 30th of the next fiscal year, at the latest. It is crucial to file an income tax return in order to provide a comprehensive summary of the company’s earnings. However, the company can benefit from tax exemption if it is registered under Sections 12A and 80G.
Conduct Board Meeting: Every board meeting should take place twice a year, even for tiny businesses. There shouldn’t be more than 90 days between the two meetings.
Conduct Annual General Meeting: Every year, on or before September 30th, the Section 8 Company’s annual general meeting should be convened. The meeting must be attended by all of the directors, members, and auditors. They should be informed about the meeting with at least 21 days’ notice. To submit the report of the annual general meeting, use form MGT-15. Within thirty days following the meeting, the report must be sent in.
Financial Return Filing with the RoC: To submit the copy of financial statements, utilise E-form AOC-4. It must be submitted within 30 days of the annual general meeting’s date.
Annual Return Filing with RoC: The corporation submits its yearly return using Form MGT-7. Within 60 days of the Annual General Meeting’s conclusion, the annual return is filed. If there isn’t an annual general meeting for a given year, the annual return must be filed within sixty days of the day the annual general meeting should have taken place, which is September 30. It should be related to the notification that details the justifications for cancelling the annual general meeting.
Due Dates for filling Section 8 Company Compliances
The best way for a Section 8 Company to avoid a penalty is fairly simple; all the company needs to do is follow the compliances within the allotted time frame. Non-compliance might result in a penalty.
COMPLIANCES | DUE DATE |
Annual General Meeting (AGM) | 30th September |
AOC-4 | Within the 30 days of AGM |
MGT-7 | Within the 60 days of AGM |
Income Tax Return | 30th September |
FAQ
A microfinance firm is a type of institution that provides microcredit-based services. The majority of the time, this kind of business provides microcredit-based services for small-scale business owners in rural regions.
This type of Company doesn’t require making any prepayments.
NBFC MFI will ensure that compliance is maintained in relation to the recovery methods. The recovery system must not be conducted with force. An organized system for recovering must be observed. If the borrower doesn’t pay the loan within the time frame specified the officer can pursue the funds.
Net assets is the amount of current assets owned by the Company.
One of the primary clients to the MFI include SME and small-scale entrepreneurs in rural areas.
This registration for MFI is a way to make the MFI self-reliant in compliance with the requirements. In addition there aren’t any formal registration requirements with the RBI.
Both companies are distinct. Nidhi Company is registered under section 406 of the Companies Act. While an application to register to be submitted for Microfinance Company registration has to take into account the section 8 companies.
