Microfinance Company Registration
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What is Micro Finance Company?
Microfinance is an avenue of financial assistance for small and entrepreneurial businesses and entrepreneurs. It is a form of Non- Banking Financial Company (NBFC) providing microcredit loans for small and individual businesses as well as the general public. It is also referred to as a Micro Finance Institution (MFI). In India there are two kinds of microfinance models that are used in business activities:
1. Non-profit NGOs that are not for Profit (Trust Society Section 8 companies, etc.)
2. For-profit (NBFCMFI)
Concepts of Section 8 Micro Finance Company
An NGO may be registered as a company in Section 8 of Companies Act, 2013 (earlier section “25” of the Companies Act, 1956) and is registered as a Trust and a Society. Trusts and societies are governed and registered by the state’s laws and regulations. However an organization registered under section 8 has been registered in the Companies Act, 2013 and controlled by the Ministry of Corporate Affairs.
A company’s standing is constantly recognized as a top priority as compared to trust or the society. Thus, Section 8 companies have more credibility with Government departments, donors and other parties.
Section 8 Businesses and RBI Approval for Microfinance: In India finance companies are restricted by Non-Banking Finance Companies (NBFC) and are overseen by RBI. Non-banking finance companies are required to obtain approval from RBI and follow RBI guidelines. But, certain business forms have been granted an exemption from RBI. Reserve Bank of India (RBI) to carry out finance activities to a certain degree.
The Reserve Bank of India, through its master circularRBI/2015-16/15 DNBR (PD) CC.No.052/03.10.119/2015-16 Dated July 01, 2015, has exempted all Sec 25 Companies engaged in microfinance activities.
As per Para 2 (iii):
The sections 45-IA and 45-IB as well as 45-IC in the Reserve Bank of India Act (1934)(2 of 1934) do not apply to any financial institution that is not a bank that includes:
(a) involved in micro-financing and providing credit that is not more than the sum of Rs. 50000 for a business venture and the equivalent of Rs. 1,25,000 to cover the expenses of a living unit for any low-income person in order to help him increase his income and living standard and
(b) Authorized to operate under Section 25 of the Companies Act 1956; and
(c) Refusing to accept deposits from public banks as defined by section 2(1) (xii) in Notification No. 118/DG (SPT)-98 that was issued on 31 January 1998.
Microfinance registration requirements
A minimum of two persons are needed to register a Section 8 Company.
Documents Required:
- Recent passport size photos of all Directors/Promoters
- Copy of PAN of all Promoters/ Directors
- Identity Proof: Voter ID/ DL/ Passport/ Aadhar
- Address Documentation Address Proof: Bank Statement/Telephone Billor Electricity Bill (not more that 2 month)
- The property ownership documents of the registered office:
- Property Documents or Rent Contract or Lease Deed, if the office premises are taken for rent
- Electricity Bill (not longer that 2 month)
- Other documents will be written by professionals (CS or CA)
Loan Limits For MFIs:
- A borrower who lives in a rural area with an annual income that is not more than Rs.1,00,000. Or urban or semi-urban household incomes not more than the amount of Rs. 1,60,000 are eligible;
- The amount of the loan will not exceed the amount of Rs.60,000 in the initial cycle, and the amount will not exceed Rs. 1,00,000 in the subsequent cycles;
- The total debt of the borrower should not exceed the sum of Rs.1,00,000
- The loan’s tenure is not to be shorter than 24 months in the case of the amount of loan greater than Rs.30000 with no penalty for prepayment;
- A loan to be extended with no collateral
- The aggregate amount of loans that are used to generate income, must not be less than 50%% of all loans provided by the MFIS
- The loan is repayable in monthly, fortnightly, or monthly installments, at the discretion of the borrower.
Section 8 Microfinance Company Registration Process
- First obtain Digital Signature Certificate (DSC) and Directors Identification Number (DIN)
- Filing of Form INC-1 for Reservation of NameAfter INC-1 has been approved, submit form INC-12 to the registrar with a request for a subsection (1) authorization. 8. A licence will be issued by the Registrar using Form INC-16.
- Filing of paperwork with the registrar of incorporations, including forms (This is the same procedure for a public company that is limited by shares)
- The registry will issue the certificate of incorporation.
Section 8 Companies Compliances:-
| Sr. No. | Compliances | Due Date | Remarks |
| 1 | Formula MBP-1 (Disclosure of the nature of) Attachment to the form spice INC-32 for the purpose the incorporation Company | 1st April in every year | To be presented by each Director to the Company at the Board’s first Meeting that is held every Financial Year. |
| 2 | Form DIR-8 (Notice of non-disqualification of Directors)Intimation by Director to Company | 31st March of every year | – |
| 3 | Board Meeting | Atleast one meeting every Six Calendar months. | – |
| 4 | Formula DIR-3KYC (KYC of Directors) Free of government fees Penalty 5000 if single day delayed Class -no penalty | On or before September 30 of each Financial Year. | To be filed by each Director that has ROC. |
| 5 | The Form DPT-3 (Return of Deposit or details of the transaction that are not considered deposit or both) regular fees, with penalty | Prior to or on the 30th day of June of each Financial Year. | It is required to file even if there’s no amount. |
| 6 | MSME Formula 1 (Delay in the payment of MSME Vendor)-Half-yearly Penalty 25000 Amount The reason for the delay is that there are no mandatory attachments | April- September- October 31October-March- April 30 | In case of a delay exceeding 45 days after the expiration of the six months specified, in the process of making payments in making payment Micro and Small Enterprises. |
| 7 | Formula MGT-14 (Filing of Board Resolution for approval of the Financial Statement and Board’s report) | Within 30 days from the Board Meeting | This law is only applicable for Public Section 8 Company. |
| 8 | Annual General Meeting (‘AGM’) | In the period of 6 months following the close of the Financial Year with a maximum time of 15 months in between two meetings. | The first AGM could be scheduled within nine months from the end on the initial Financial Year. |
| 9 | Form ADT-1 (Appointment of Statutory Auditors) | In the 15-day period following AGM | Statutory Auditors are appointed for 5 years each with the exception of the first Auditor. First Auditor is appointed until at the time of the initial AGM. |
| 10 | Form AOC-4 (Audited Financials and Board Report) | In the first 30 days following the AGM | First Financial Year of the Company can be of 15 months. |
| 11 | Form MGT-7 (Annual Return) | Within 60 days of the AGM | List of Shareholders that must be included to the Form MGT-7 |
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.
