How to Start a Finance Company in India: 2026 Registration Guide
To start a finance company in India, you must (1) choose the right entity structure — NBFC, NBFC-MFI, or Nidhi Company, (2) incorporate a Private or Public Limited Company with the MCA, (3) infuse the minimum Net Owned Fund (NOF) — ₹10 crore for NBFC and NBFC-MFI or ₹10 lakh for a Nidhi Company, (4) prepare a five-year business plan, and (5) apply for the Certificate of Registration via the RBI’s PRAVAAH portal (mandatory for NBFC and NBFC-MFI). The full process takes 4–7 months for an NBFC and costs ₹8 lakh – ₹20 lakh in setup expenses (excluding the ₹10 crore NOF).
India’s non-banking financial sector is one of the fastest-growing segments of the economy. According to the RBI’s Trend and Progress of Banking in India 2024–25, NBFCs expanded their total advances to ₹48.39 lakh crore in FY25 — a 19.4% year-on-year increase — and now account for nearly a quarter of total formal credit in the country.
This guide explains every step involved in starting a finance company in India, from choosing the right entity structure to obtaining RBI approval and maintaining post-incorporation compliance.
What is a Finance Company and its Types?
A finance company provides loans, credit, and financial services without holding a banking license. In India, new founders can choose from four main structures:
1. Non-Banking Financial Company (NBFC): RBI regulates NBFCs under Section 45-IA of the RBI Act, 1934. Under the RBI’s scale-based regulation framework, the minimum NOF increases to ₹10 crore by March 2027 for existing NBFCs. New registrations must meet the ₹10 crore NOF requirement upfront.
2. NBFC-Microfinance Institution (NBFC-MFI): A specialised NBFC focuses on lending to low-income borrowers. It requires a ₹10 crore Net Owned Fund (NOF) for new registrations. NBFCs and NBFC-MFIs together serve approximately 86% of all microfinance borrowers in India as of FY25. It lends to households with an annual income of up to ₹3,00,000.
3. Section 8 Microfinance Company (Closed for New Registrations): Historically, a Section 8 company was used as a non-profit microfinance vehicle without an RBI licence. However, vide MCA General Circular No. 02/2020 dated 12 February 2020, the Ministry of Corporate Affairs prohibited new Section 8 companies from carrying on microfinance activities without prior approval from the RBI. As a result, the NBFC-MFI remains the only legally valid registration route for new microfinance operations in India. Existing Section 8 microfinance entities incorporated before February 2020 continue under their pre-existing approvals.
4. Nidhi Company: Regulated by the MCA under Section 406 of the Companies Act, 2013, and the Nidhi Rules, 2014 (as amended in 2022). A Nidhi Company does not require an RBI licence but must be incorporated as a public limited company with a minimum paid-up equity share capital of ₹10 lakh. Within 120 days of incorporation, it must achieve at least 200 members and a Net Owned Fund of ₹20 lakh, and file Form NDH-4 for Central Government approval. A Nidhi Company can only accept deposits from and lend to its own members, not the general public. Many small lenders choose Nidhi Company registration for its low-capital entry point.
Each structure differs by regulator, capital, and scope. NBFCs have the widest lending reach; NBFC-MFIs focus on low-income borrowers; and Nidhi Companies are member-only mutual benefit societies. New microfinance operations must register as NBFC-MFIs, since the Section 8 microfinance route has been closed since February 2020.
Regulatory Approvals and Licenses to Start a Finance Company
Before starting a finance company in India, you must obtain key regulatory approvals:
1. NBFC License (RBI): NBFCs must register with the RBI to conduct lending or investment activities. RBI evaluates capital, business plan, management, and risk systems before approval.
2. Company Registration (MCA): You must register the company under the Companies Act, 2013, usually as a private or public limited company. This creates a legal entity for banking, fundraising, and contracts.
3. GST Registration: Finance companies providing taxable services must register under GST and file regular returns to stay tax compliant.
4. SEBI Registration: Companies dealing in securities or investments must obtain SEBI registration. It applies to investment advisors, fund managers, and intermediaries and ensures regulatory compliance and investor protection.
5. FEMA Compliance: Companies receiving foreign investment beyond permitted limits must comply with FEMA regulations to legally raise and manage overseas funds.
Documents Required to Register a Finance Company in India
Here is the complete document checklist for anyone looking to register a finance company or a microfinance company as an NBFC or NBFC-MFI:
| Category | Documents Required |
|---|---|
| Company | Certificate of Incorporation (CoI), MoA and AoA, PAN and CIN of the company, certified extract of the main object clause |
| Capital | Fixed Deposit receipt and No Lien Certificate confirming NOF of ₹10 crore, statutory auditor’s NOF certificate, and audited financial statements for the last 2 years |
| Director | Signed director profile with qualifications and net worth, proof of experience in banking or financial services, CIBIL credit report, KYC, PAN, address proof, and identity proof |
| Board Resolutions | Resolution authorising RBI application, resolution confirming no public deposits accepted, resolution confirming Fair Practices Code formulation |
| Business Plan | Five-year plan covering target market, loan products, financial projections, risk management, and HR plan |
How to Start a Finance Company in India: Step-by-Step Registration Process
Whether starting a finance company or opening a microfinance company in India, the registration process follows the same legal path. Here is the complete step-by-step process:
Step 1: Identify Your Business Model
Choose the structure, NBFC for broad lending or NBFC-MFI for starting a micro finance company focused on low-income borrowers. Evaluate financial resources, target geography, and sector experience before proceeding.
Step 2: Incorporate the Company with the MCA
Register a Private Limited Company or Public Limited Company through the MCA’s SPICe+ portal. The Memorandum of Association (MoA) must state financial activity as the principal business. Include words such as “Finance”, “Capital”, “Investments”, or “Fintech” in the company name as per RBI guidelines. Under the RBI’s Scale-Based Regulation (SBR) framework, at least one director must have prior experience in banking, NBFC, or related financial services.
Step 3: Meet the 50-50 Principal Business Criterion
Financial assets and income from financial assets must each constitute at least 50% of total assets and gross income, respectively, before submitting the RBI application.
Step 4: Infuse Minimum Capital
Deposit ₹10 crore as fully paid-up equity capital into the company’s bank account, applicable to both NBFC and NBFC-MFI registrations. Obtain a statutory auditor’s NOF certificate and a No Lien Certificate from the bank confirming the funds are free from any loan, charge, or restriction. Borrowed funds do not count towards the NOF.
Step 5: Prepare a Five-Year Business Plan
Prepare a five-year business plan covering your target market, loan products, financial projections, and risk controls. For NBFC-MFI, include geographic areas of operation and microfinance disbursement infrastructure.
Step 6: Apply on the RBI PRAVAAH Portal
Submit the NBFC application through the RBI’s PRAVAAH portal (Platform for Regulatory Application, Validation, and Authorisation), which became the mandatory single window for regulatory approvals from 1 May 2025. Upload all required documents digitally, save the application reference number, and track status in real time via the PRAVAAH dashboard. (Note: the COSMOS portal continues to be used for ongoing NBFC supervisory return filings.)
Step 7: Clear RBI Scrutiny and Receive the CoR
RBI reviews all documents and conducts background checks on all promoters and directors. Upon approval, it issues the Certificate of Registration, and operations commence only after receiving it. This stage takes between 90 and 180 working days.
The NBFC process takes 4 to 7 months from incorporation to CoR if documentation is complete and accurate.
Disclaimer: RBI regulations and MCA requirements may change. Always verify current rules with the RBI, MCA, or a qualified professional before proceeding.
How Much Does It Cost to Start a Finance Company in India?
The total cost varies by structure, from ₹50,000 for a Section 8 microfinance company to over ₹10 crore for an NBFC or NBFC-MFI. Here is a complete breakdown across all entity types:
| Cost Component | NBFC | NBFC-MFI | Nidhi Company |
|---|---|---|---|
| Minimum Capital (NOF) | ₹10 crore | ₹10 crore | ₹10 lakh (₹20 lakh NOF within 120 days) |
| RBI Application Fee | ₹3,00,000 | ₹3,00,000 | Not applicable |
| Company Incorporation (MCA) | ₹10,000–₹20,000 | ₹10,000–₹20,000 | ₹10,000–₹20,000 |
| Professional Fees (CA, CS, Legal) | ₹2,00,000–₹5,00,000 | ₹2,00,000–₹5,00,000 | ₹50,000–₹1,00,000 |
| Documentation & Compliance Setup | ₹1,00,000–₹3,00,000 | ₹1,00,000–₹3,00,000 | ₹25,000–₹50,000 |
| Office Setup & IT Infrastructure | ₹2,00,000–₹10,00,000 | ₹2,00,000–₹10,00,000 | ₹50,000–₹2,00,000 |
| Total Registration Cost (excl. NOF) | ₹8,00,000–₹20,00,000 | ₹8,00,000–₹20,00,000 | ₹1,50,000–₹3,50,000 |
Note: The NOF of ₹10 crore is not a fee paid to RBI. It remains the company’s working capital and must be infused as fully paid-up equity capital before submitting the RBI application. Borrowed funds do not count towards NOF.
Compliance Requirements After Starting a Finance Company in India
Here is a complete overview of ongoing compliance obligations every NBFC and NBFC-MFI must meet after receiving the Certificate of Registration:
| Compliance Area | Requirement |
|---|---|
| Capital Adequacy Ratio (CRAR) | Minimum 15% of risk-weighted assets for Middle Layer and above; Base Layer NBFCs follow lighter norms |
| Tier I Capital | Minimum 10% of risk-weighted assets |
| Reserve Fund | Transfer at least 20% of net profit to a statutory Reserve Fund before declaring dividend (Section 45-IC, RBI Act) |
| NPA Classification | Identify non-performing assets within 90 days of default and provision as per RBI norms |
| Net Owned Fund | Maintain a minimum of ₹10 crore continuously |
| RBI Quarterly Returns | Submit DNBS returns (NBS-1, NBS-2, NBS-7 and others) through the RBI’s COSMOS portal |
| KYC & AML | Upload customer KYC data to CKYCR within 10 days of loan disbursement; register with FIU-IND and file Suspicious Transaction Reports |
| ROC Annual Filings | File AOC-4 (financial statements) and MGT-7 (annual return) with the Registrar of Companies |
| Fair Practices Code (FPC) | Maintain a Board-approved FPC covering loan terms, interest rates, and recovery practices; display publicly |
| Key Fact Statement (KFS) | Issue a Key Fact Statement to every borrower before loan disbursement, as mandatory under RBI’s digital lending guidelines |
| Chief Compliance Officer | Appoint a Chief Compliance Officer for NBFCs in the Middle Layer and above |
| Penalties | Non-compliance attracts fines up to ₹10 lakh per day, lending restrictions, and potential cancellation of CoR |
Note: Compliance requirements scale up as the NBFC moves through the SBR layers, Base, Middle, Upper, and Top Layer. Companies expanding rapidly should review ongoing NBFC compliance obligations regularly.
Risks and Challenges in Running a Finance Company
While opening a finance company can be profitable, it comes with certain risks:
1. Loan Defaults and Non-Performing Assets (NPAs)
- Rising NPAs: The average NPA rate for Indian NBFCs was 2.58% as of March 2025.
- Risk Mitigation: Implement AI-driven credit risk models to assess the borrower’s creditworthiness.
2. Regulatory Changes
- The RBI frequently updates its regulatory framework, which requires finance companies to be flexible and adapt quickly.
- You must track circulars, update internal rules, and train your team. Delays in compliance can cause penalties.
3. Cybersecurity Threats
- With increasing digitization, finance companies face the challenge of protecting customer data from cyberattacks.
- You must use secure servers, strong access controls, and regular audits. A single breach can harm your reputation and increase legal risk.
Mitigating these risks requires a combination of strong internal controls, regulatory readiness, and operational discipline. Founders entering the lending space typically engage compliance professionals and qualified Chartered Accountants well before applying for the Certificate of Registration. Beyond initial registration, ongoing legal hygiene, including timely filings under NBFC compliance, microfinance company registration renewals, and private limited company compliance under the Companies Act, 2013, is essential for long-term sustainability.
NBFC vs NBFC-MFI vs Nidhi Company: Which Finance Company Structure Should You Choose?
| Parameter | NBFC | NBFC-MFI | Nidhi Company |
|---|---|---|---|
| Regulator | RBI | RBI | MCA |
| Minimum Capital | ₹10 crore NOF | ₹10 crore NOF | ₹10 lakh paid-up capital |
| Borrower Type | Anyone | Households with annual income up to ₹3 lakh | Members of the Nidhi only |
| Public Deposit Acceptance | Only RBI-authorised deposit-taking NBFCs | Not allowed | Allowed (from members only) |
| Approval Time | 4–7 months | 4–7 months | 2–3 months |
| Best For | Broad lending and investment business | Microfinance and inclusive lending | Small mutual benefit lending societies |
Founders comparing structures should also consider whether a Section 8 company (for non-microfinance social objectives) or a private limited company (for pure investment/advisory) better suits their goals before committing to the full NBFC route.
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