Microfinance Company Registration in India | Taxhint Advisors

Microfinance Company Registration in India

Expert guidance to register your Section 8 Microfinance Company under the Companies Act, 2013 — fast, compliant, and hassle-free.

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  • Quick & transparent process
  • Full compliance with latest RBI guidelines
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What is a Section 8 Microfinance Company?

Empowering underserved communities with accessible, collateral-free financial support

A Section 8 company registered under the Companies Act, 2013 serves as an ideal structure for microfinance operations in India. It focuses on providing affordable loans to low-income households and small businesses excluded from traditional banking, promoting financial inclusion without profit distribution to members.

Microfinance Loan Essentials

Collateral-free loans for households with annual income ≤ ₹3,00,000. No lien on savings accounts, ensuring true unsecured lending.

Key Benefits & Features

  • Registered as non-profit under Section 8
  • No prior RBI license needed (unless scaling to NBFC-MFI)
  • Interest rates compliant with RBI caps (typically up to 26%)
  • No minimum capital requirement
  • Unsecured lending allowed
  • Nationwide operations, no geographic limits

Advantages & Disadvantages of Starting a Microfinance Company

Section 8 Microfinance Company – Key benefits and limitations (2025 perspective)

Advantages
  • No Minimum Capital Requirement

    Unlike NBFC-MFI (which requires ₹5 crore), Section 8 microfinance has no mandatory paid-up capital.

  • No Prior RBI Registration Needed

    Can start operations without obtaining NBFC license (subject to RBI microfinance guidelines).

  • Easiest Way to Enter Microfinance

    Fastest and most straightforward structure to begin offering collateral-free loans.

  • Interest Rate Flexibility

    Can charge up to ~26% p.a. (as per current RBI fair practices code for microfinance).

Limitations
  • Cannot Accept Public Deposits

    No deposit-taking activity allowed – must rely on own funds, grants, or borrowings.

  • Must Comply with RBI Guidelines

    Even without NBFC license, all microfinance operations must follow RBI's latest fair practices code.

  • No Profit Distribution Allowed

    As a Section 8 company, profits cannot be distributed to members/directors.

  • No Gold Loan or Secured Schemes

    Primarily focused on unsecured microloans – gold loan schemes are not permitted.

What a Microfinance Company Can & Cannot Do

Key permissions and restrictions for a Section 8 Microfinance Company in India (as per current RBI guidelines 2025–2026)

What a Microfinance Company Can Do
  • Provide Unsecured Loans

    Up to ₹50,000 for business purposes and up to ₹1,25,000 for residential dwelling / household needs.

  • Open Branches

    No specific restriction on number of branches, though it is advisable to start with limited branches for better control and compliance.

  • Charge Processing Fee

    Up to 1% of the loan amount as processing fee.

  • Charge Interest

    Up to 26% per annum (as per RBI fair practices code and margin cap calculations).

What a Microfinance Company Cannot Do
  • Distribute Profits Directly

    Cannot take profits from the company directly (Section 8 restriction). However, promoters/directors can receive reasonable salary, reimbursement of expenses, etc.

  • Engage in Other Businesses

    RBI exemption applies only to microfinance activities. Cannot diversify into unrelated businesses.

  • Accept Public Deposits

    Strictly prohibited – cannot collect deposits from the general public.

Time & Cost for Microfinance Setup

Transparent and all-inclusive breakdown for Section 8 Microfinance Company registration (FY 2025-26).

25–35 Working Days

DSC & DIN Approval

Digital signatures and Director IDs secured in 3–7 days.

Name Reservation (RUN)

Approval of unique brand name in 1–5 days.

Section 8 License Filing

Regional Director (RD) approval and incorporation in 15–25 days.

Final COI & PAN/TAN

Official Certificate of Incorporation issued by MCA.

Estimated Investment

Based on 2 Directors setup - All Inclusive

Fee Component Approx. Investment (₹)
Digital Signatures (DSC)
Class 3 DSC for 2 Directors 		₹3,000
Name Approval (RUN)
Government Filing Fee 		₹1,000
License & Incorporation
Section 8 RD Approval Fees 		₹4,500
Professional Services
Drafting MOA/AOA & Compliance Support 		₹15,000+
All-Inclusive Package ₹24,999/-
*Exclusive of Stamp Duty

Registration Process & Requirements in India

Simple, step-by-step journey with expert support

Documents Required

  • Aadhaar & PAN of all directors/promoters
  • Bank statements (recent 6 months)
  • Address & identity proofs
  • Passport-size photos
  • Contact details & utility bills

Step-by-Step Process

Apply for Digital Signature Certificates and Director Identification Numbers for all proposed directors.

Propose names including words like "Foundation", "Micro Credit", or "Sansad" to reflect non-profit intent. MCA approval typically in 2-5 days.

Draft Memorandum and Articles of Association emphasizing social objectives. File with SPICe+ form.

Receive Certificate of Incorporation and apply for license under Section 8 (Form INC-12). PAN/TAN follows automatically.

Latest RBI Guidelines for Microfinance (Updated 2025)

Ensuring fair practices and borrower protection

  • Household Income Cap: Loans to households earning ≤ ₹3 lakh annually (collateral-free).
  • Repayment Limit: Monthly installments ≤ 50% of household income (max ~₹12,500 in many cases).
  • No Prepayment Penalty: Borrowers can repay early without extra charges.
  • Transparent Disclosure: Full details on interest, fees, and terms must be provided.
  • Loan Expansion: Limits up to ₹2-3 lakh depending on guidelines; no security required.
  • NBFC-MFI Threshold: If 75%+ assets in qualifying microloans, RBI registration may be needed for larger scale.

Frequently Asked Questions

No, prior RBI registration or license is not required for Section 8 companies engaged in microfinance (as per RBI exemptions under Master Directions). You must strictly follow RBI's fair practices code, interest guidelines (~26% p.a. effective cap via margin rules), and borrower protection norms. If assets grow significantly (e.g., ₹100 crore+), conversion to NBFC-MFI may be needed.

There is no minimum paid-up capital requirement for a Section 8 Microfinance Company (unlike NBFC-MFI which requires ₹5 crore). You can start with nominal capital. Sufficient funds are needed for operations, licensing fees, and working capital.

No. As a non-profit Section 8 entity, profits cannot be distributed as dividends. All income must be reinvested in the company's objectives (financial inclusion, social welfare). Directors/promoters can receive reasonable salary, reimbursements, or expenses as per rules.

As per latest RBI guidelines: Collateral-free loans to households with annual income ≤ ₹3 lakh. Max monthly repayment ≤ 50% of household income. Interest up to ~26% p.a. (effective via margin cap). Processing fee ≤ 1% of loan amount. No prepayment penalties. Loans typically up to ₹50,000 (business) or ₹1.25–2.4 lakh (household/residential).

Recent MCA guidelines restrict fresh incorporation of Section 8 companies for microfinance activities (or amending objects via special resolution to include microfinance). Existing companies may face scrutiny. Consult a professional or check latest MCA circulars — alternatives like NBFC-MFI registration may be needed for larger scale.

Key documents include: DIN & DSC of directors/promoters, PAN, Aadhaar, address proof, photos, MOA & AOA (with non-profit objects like financial inclusion), Declaration of no profit motive, Registered office proof (rent agreement/utility bill + NOC if rented), Projected activities & financials. Taxhint Advisors handles full documentation and filing.

Yes, foreign nationals can be directors, but: At least one director must be an Indian resident (stayed 182+ days in previous year). Foreign directors need apostilled/notarized passport & address proof. Additional FEMA/RBI compliances may apply for funding/operations.

Key ongoing requirements: Annual filings (AOC-4 financials, MGT-7 annual return), Board meetings (min 4/year), AGM, Income tax return + possible 12A/80G benefits, Adhere to RBI microfinance guidelines (transparency, no prepayment penalty), No profit distribution; surplus reinvested. Our compliance packages ensure hassle-free adherence.

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Info@taxhint.in

Address

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