Simplifying the Process of Microfinance Company Registration

Alleviating the financial condition of people from low-income groups is the main aim of a microfinance company. According to the law, these companies must follow the Microfinance company registration procedure. The government of India also promotes these companies as it helps the poor to become financially sustainable.

These companies are getting registered according to section 8 of the companies' law. After getting the registration, these companies can provide all the banking facilities to the people. These facilities like deposits, facilitating savings and issuing loans. These companies can provide customers with banking services in remote areas. These companies can access remote areas where formal banking channels are not available.

You must understand the difference between a microfinance company and other credit-providing companies. The following section is here to explain these key differences.

How is a Microfinance Company Different from others?

The first difference between a micro-credit institution and other financial institutions is the size of the fund. These small credit companies always allot small loans to borrowers. The sole purpose of these companies is to help the low-income group thus it provides loans at a very low interest rate.

• These companies lend small loans of up to Rs. 50,000 to each person living in rural areas and up to 1,25,000 in urban areas.

• These companies do not keep the securities of the borrowers to deliver the loans, unlike traditional banks.

• These companies operate on the basis of priority sector lending.

Requirements and Eligibility for Registration

Providing small loans to farmers, society members, and low-income groups is the main working area of these companies. Thus, there is a dedicated set of principles that these companies must follow for getting them registered. You need to go through the following eligibility criteria for registering these companies.

1. A small fund of Rs 5 Crore is needed for the registration but the same will be done within Rs 2 Crore if the company is located in the North-East.
2. The directors of the company must own some skills in dealing with financial services and have experience of more than 10 years.
3. The company should use its fund for the upliftment of the low-income group. It should not accept security from borrowers for lending loans.

The Procedure of Registration

Micro-credit organizations in India are following the guidelines of RBI (Reserve Bank of India). But, these companies can register themselves according to section 8 of the companies act. So, the guidelines of the Ministry of Corporate Affairs must get followed for the micro finance company registration.

Every micro-credit organization follows a basic procedure to register its name as a financial company in India. The process of registration is structured and has several steps, which are detailed below.

• Capital raising

The initial capital needed for registering this company is 5 lakhs. The company can raise capital from the market for this purpose. But the minimum requirement of capital for the north-east region is only 2 lakhs. A minimum amount of capital is essential for these companies to get their names registered.

• Bank account opening

After applying for the registration, the amount of capital must get deposited in a dedicated bank account. This amount would get deposited in the bank account as a fixed deposit to acquire a certificate of no lien. This certificate should now be sent to the office of the RBI along with the application.

• Submitting the application

Now, an online application must get filed with the due information on the RBI’s website. After filling up the form, the company will get the application reference number from the RBI. Thereafter, the company must send all the required hard copies to the regional office of the RBI before the deadline.

Can you choose an agency for the registration?

Yes, nowadays mutual benefits companies hire online solution providers that help them to register their business. Similarly, you can choose any agency that can register a microfinance company with the due procedure.

Registering the micro-credit company can help it to increase its operating area. It can easily get funds from the public and become self-sufficient. Along with that, it will also get advice from the RBI and the government from time to time, which will increase efficiency in its operation.