Microfinance Company Registration
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What is Section 8 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.
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.
Requirement for Incorporation of Section 8 Micro Finance Company
- 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)
Registration Process of Private Company
Obtaining Digital Signature Certificate (DSC) and Directors Identification Number (DIN)
Filing of Form INC-1 for Reservation of Name
After the approbation of INC-1 Filing form INC-12 to the registrar with a request for an authorization under subsection (1) 8. 8.
The Registrar will issue a licence on Form INC-16.
The filing of forms and other documents with the registrar of incorporation (This is the same procedure for a public company that is limited by shares)
The certificate of incorporation will be issued by the registry
What is the reason to register with a Microfinance company?
The working mechanisms of micro-finance firms can be described as follows:
* Promoting socio-economic growth on a community-level Microfinance will support socio-economic growth. Additionally, it will empower self-help groups and facilitating sustainable growth through their members. There are a variety of financial services will be needed by the poor, not just loans. Hence it’s a potent instrument to eradicate poverty.
* There is no RBI approval No lengthy processes and simple to register as you do not require RBI approval required to sign up as a non-profit organization. In fact, there is no requirement for a minimum capital requirement in the amount of Rs.2 Crores.
* Give you a means of finance: It gives a better general loan repayment rate than traditional bank products. Furthermore, it can assist in meeting the needs of credit for this population.
* Provides affordable services to small-sized companies: It is focused on establishing an financial system for the unemployed and poor. It intends to establish an institution that is permanent in the local community, which try to attract deposits from domestic banks and then recycle them into loans, and provide various financial services.
* Minimum Compliance: Company is expected to meet RBI standards, even if it’s not required to join Reserve Bank. No need for approval by RBI is required. A Section 8 company will comply with the Companies Act the same way like other businesses comply with the Companies Act. That’s it!
What are the 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
Some Points to Remember:
THE MAIN OBJECTS TO BE PURSUED BY THE COMPANY ON ITS INCORPORATION ARE:
- To decrease the level of poverty in India through the continuation of the microfinance business services, which are permitted periodically from time to time by the Reserve Bank of India, specifically to a significant number of women in poverty (Below the poverty threshold) in their villages to generate income which will help them and their families climb from the poverty.
- Not to accept public deposits, but to teach the savings habit among our clients and collaborate with any legally registered/constituted body or institutions that may wish to offer them savings facilities.
- To provide collateral-free credit to poor women through their solidarity groups, and to deliver microcredit and other permitted financial services to them at their group meetings in the cities, towns, villages of India, to provide them with a sustainable livelihood above the poverty line, and of creating professionally-managed, financially- sustainable, community-owned microfinance institutions for the poor.
Acceptance of Deposits in the Micro Finance Company.
The deposit of money cannot be accepted in the Section 8 Company. Furthermore, the Company is required to make investments in its funds before it can begin its business. Additionally, the company can be able to raise funds through donation.
Inflation Rates for loans
There are three kinds of charges that could be imposed through Micro Finance Company (MFI). Micro Finance Company (MFI)
- The interest charge: The average interest rate must not exceed 26%..
- The processing fee: The processing charge should not exceed one percent of the gross amount of the loan.
- The cost of insurance: Only the actual cost of insurance, group, health, life etc. to be charged and no additional charges are allowed under RBI policy.
Calculation of Interest Rate for Micro Finance
The interest rates paid by Micro Finance Companies must be less than:
- Cost of funds, plus the margin of 12%, or
- Base rates multiplied by 2.75.
Micro-credit credit loans in Micro Finance Company
The microfinance loan process is not terribly complicated. The majority of loans are unsecured with monthly or weekly payments. The rate of interest is typically within the range of 20-26 percent. In addition, the following aspects are crucial:
* An NBFC can charge a different rate of interest for its customers, however the difference is not more than 4.4%.
* The interest rate on the loan is to be calculated according to the method of decreasing balance.
Microfinance firms must display in all offices or in their literature the current rate of interest.
* Businesses have to provide a credit card to every member that states the interest rate, the various terms and conditions.
* Loans are also available through group self-help (SHG) as well as different link programmers.
If no payment is made within 90 days, then it should be considered to be an asset that is not performing, even though provisionsing rules do not apply to a section 8 business.
Microfinance Company Registration
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.