Compliance Corner: Document Checklist for Microfinance Registration

Introduction

The Indian government took the initiative to establish microfinance institutions to provide the people with simple access to loans. These firms provide lending services to small and medium-sized enterprises (SMEs) and other organizations who find it difficult to get bank and other large financial institution loans. As a result, this kind of company is known as a microcredit agency or microcredit institution. This company was created to provide small loans and finance institutions.

In rural areas, microcredit organizations often provide loans up to Rs. 50,000, whereas in urban areas, they typically give loans up to Rs. 125,000. Establishing a microfinance company may be as easy as establishing as a section 8 company using the framework established by the Companies Act of 2013.

Types of Microfinance Companies: Microfinance Company Registration

The first stage for an applicant who wants to register a microfinance company is to decide what kind of microfinance firm they want to operate. There are several types of microfinance institutions.

• RBI-registered microfinance organizations
• Microfinance Institution Registration under Section 8

Characteristics of Microfinance Organizations

The following qualities are necessary for an organization to operate as a microfinance enterprise.

• According to the guidelines of the Companies Act of 1956 or the Companies Act of 2013, the business must be registered.
• To be registered as a microfinance institution, a company must have the required net worth.
• The conditions must be met by the microfinance company in order to receive the required licence.
• Microfinance companies usually serve the underprivileged groups in society.
• Banking and other services are available to even the most marginalized members of society.
• Usually, a microfinance company’s customers are in the fishing, carpentry, or other commercial industries.
• This company was founded primarily to avoid providing collateral of any type.

Registration requirements for microfinance companies

The following conditions must be fulfilled by an organization in order to be registered as a microfinance institution.

• RBI-approved net-owned fund of five crores
• Data Regarding the Prompters
• Section 8 Company Without RBI Approval
• Loan amounts ranging from Rs. 50,000 to Rs. 1,25,000

Registration of Microfinance Companies: Is it possible to get securities?

There is no mechanism for microfinance organizations to accept deposits from the general population. This would therefore be pertinent to section 8 companies’ compliance with the law. A section 8 company frequently generates money to meet the requirements of carrying out community-based and charity projects. Consequently, these companies would concentrate more on increasing their income from several sources of contributions.

However, there is another option. According to RBI requirements, the company must first register as a non-deposit taking organization. You might then ask that deposits be made in compliance with RBI guidelines.

The Benefits of Microfinance Company Registration

The following are some benefits of registering a microfinance company:

Being Self-Reliant

When the microfinance firm is established, its operations will be self-sufficient.

Finances

Getting funds to start a microfinance company is frequently simple.

Increased Repayment Rate

The repayment rate of microfinance companies is definitely greater than that of banks and other financial institutions. This would be applicable to short-term loans made to individuals and other commercial organizations.

Reach Out to Rural Areas

Microfinance companies can more easily access rural areas. These companies are able to offer loan facilities to rural areas. Generally, these financial enterprises are seen to have a broader reach than large banks and businesses.

Insufficient Minimum Capital Requirements

There is no minimum capital needed to launch a microfinance company.

Advantages of Taxation

Registering a microfinance company in India has a number of tax benefits.

Regulations Required for the Registration of Microfinance Companies

The following requirements must be fulfilled in order to register a microfinance company:

Adherence to the RBI

A microfinance organization cannot exist without adhering to this type of compliance. Although a microfinance company is exempt from RBI laws, it must abide by the rules that apply to microfinance companies.

The Companies Act of 2013

A section 8 company is used to start a microfinance company. The Companies Act of 2013 must be followed by the section 8 corporation.

The microfinance institution must additionally follow other compliances in addition to the previously listed ones.

What is the registration process for a microfinance company?

To register a microfinance company (MFI-NBFC), the following steps must be taken.

Registration of the Organisation

The Microfinance Company must, first and foremost, register as a company in accordance with the 2013 Companies Act. For this, SPICe + Form must be used. When this type of organization is originally registered, it will employ either a private limited company or a public limited company as its business structure. The organization could have Rs. 1,25,000 in capital.

SPICe Plus service

The applicant may typically perform the aforementioned service with simplicity because the full registration process is completed online. The services will include name reservations, DINs, obligatory PAN and TAN issues, EPFO, ESIC, and other required registration forms. 

Using SPICe Plus

The candidate has to choose SPICE plus under the relevant MCA services. The applicant would be directed to a separate website to submit a new application. If the company is already in operation, you need to click on the current application. The next step for the applicant is to verify if the company falls into the right category. A verification of the business’s categorisation is also necessary for this.

All of the company’s operations must be listed. Thus, a candidate must specify the industrial processes if they are pursuing a certain microfinance company registration procedure.

Verify the name

The applicant must click on an auto check to see whether the company name for Microfinance business registration already exists in order to finish the criteria related to the firm’s name. All other information relating to the firm name must be provided. Both Parts A and B must be submitted. The following information must be provided in addition to the previously specified information.

• The name of the enterprise
• The address of the company’s registered office
• Activities that are conducted by the companies
• Completing the TAN, PAN, and other registration forms is required.
• It would be advantageous to do a pre-scrutiny check for the aforementioned registration process.
• All of the data in Part B of the PDF has to be downloaded. The certificates of digital signatures from the directors must be added to the forms. The INC-9, URC-1, AGILE-PRO, SPICe+MoA, and SPICe+AoA forms must be downloaded. These forms must be linked and posted to the internet. After that, a request number would be generated. Before the data on the forms is processed, the applicant must pay.

Raising of Capital

The company has to raise around Rs 5 Crore or Rs 2 Crore to move on to the next stage of microfinance company registration.

Opening a Bank Account

Next, the applicant would create a bank account. A certificate attesting to the fact that no lien was created would be required for the previously indicated operation. An application would be sent to the RBI for this kind of certificate.

Application

The applicant must then complete an online registration with the RBI for Microfinance Company Registration. As a result, the candidate would be assigned a “Company Application Reference Number.”

Providing a Hard Copy

Following this procedure, the candidate must deliver hard copies to the appropriate RBI regional office. To verify the requirements, the RBI would conduct examination and appropriate due diligence.

Procedure for Section 8 Company Registration in India

Prepare the DSC and obtain approval for the file name.

DSC preparation is the first stage in Section 8 company registration. Get a Digital Signature Certificate (DSC) as soon as you can. Words such as Foundation, Society, Association, Council, Club, charity, Academy, organization, Federation, Institute, Chamber of Commerce, Development, and many more should be used in Section 8 corporations.

Using the MCA Portal to submit Section 8 Incorporation forms

We will submit the section 8 company registration application with the necessary documents to the ROC after the regional director has given his or her approval. ROC will provide a Certificate of Incorporation and a Company Identification Number (CIN) after receiving all explanations. This would be completed in accordance with SPICE plus (Spice +) criteria.

Submission of the MoA and AoA files

After receiving your licence, you must prepare your articles of association (AoA) and memorandum of association (MoA) in order to submit section 8 business registration applications.

TAN, PAN, and Bank Account

You must be prepared with your bank account, PAN, and TAN when registering a Section-8 company in India.

Documents Needed for India’s MFI Registration

Registration documents for microfinance companies are comparable to those needed for section 8 companies. For microfinance companies to be registered in India, the following documents are needed:

• An authenticated copy of the certificate of incorporation
• A copy of the entity’s “Memorandum and Articles of Association” (MOA & AOA)
• Board resolution on the choice to perform duties associated with a microfinance company
• The Banker’s Report
• Bankers’ Certificate of No Lien
• The auditors’ report on the entity’s or the applicant entity’s “minimum net owned fund (NOF)”
• A “Chartered Accountant” certificate pertaining to the company’s leaders or members. In addition to the information above, the “Performa Balance Sheet” displays information on investments in other “NBFCs.”
• Certificates of education and other credentials pertaining to the company’s shareholders and senior management executives
• For Indian citizens, the PAN stands for permanent account number.
• A passport-size photo of directors and shareholders that is no older than ten months
• ID verification: A copy of the director or shareholder’s passport, driver’s license, voter ID card, or Aadhaar card. Any kind of registration requires an Aadhaar number.
• Proof of address: directors’ and shareholders’ phone bills, gas bills, electricity bills, water bills and bank statements
• A copy of the rental agreement is required if the space is rented.
• Utility bills that include the registered office’s bank statement, water bill, and electricity bill must be submitted.
• Verification of Directors’ and Key Management Executives’ Income or Know Your Client (KYC)
• Certificate of No Objection from the Organisation
• Director’s certificate of net worth
• Report on the Directors’ Financial Conditions
• The Directors’ and Key Management Executives’ Credit Statement
• Comprehensive details on the risk assessment procedure used to register a microfinance company
• Organizational Structure and Plan in Detail
• In the event that the national is Indian, proof of passport. Copies of passports that have been notarised or apostilled must be shown for every foreign national.
• Every document provided must be at least two months old.