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Role of MFIs in Rural and Small-Scale Sector

Role of MFIs in Rural and Small-Scale Sector

Micro Finance companies are the financial institutions that give all the formation about finance-related queries to the small-scale sector in the form of loans, credit, and savings. With the view to ease the credit system of the small-scale sector, the concept of Micro Finance Companies is introduced. Since they don’t get a loan from banks easily due to their complex process so micro finances provide loans to the small-scale sector. Various small businesses that do not have access to the formal banking channels and who are not eligible for availing loans will get the loans are offered by the Micro Finance companies. Micro finances provide the loans at inexpensive rates as instructions give by the RBI.

What are the Key Points of Microfinance Companies?
  1. The companies should be registered under the Companies Act 2013.
  2. Criteria of Minimum net worth must be fulfilled as prescribed by the authority.
  3. A Necessary License should be obtained.
  4. The objective of the Microfinance Company must be to finance weaker section of the Society
What are the classifications of Micro Finance Institutions? Micro Finance Institutions are classified as follows-
  1. MFIs as Section 8 Company
  2. MFIs as NBFC MFI
  • MFI as Section 8 Company
  1. Micro Finance companies are categorized as Section 8 Companies are working as Not for profit registered and governed under the Companies Act, 2013;
  2. There is no requirement of minimum net worth;
  3. There is a need for a source of Finance for the small-scale sector (Individual and Business);
  • The process of Incorporation of Section 8 Micro Finance Companies
  1. Obtain Digital Signature Certificate (DSC);
  2. For Reservation of Name fill the RUN Form;
  3. Fill the incorporation form with all requested documents with the registrar for the company;
  4. Registrar will provide a license in Form INC-16 and Incorporation Certificate with PAN & TAN;
  • Requested Documents for Incorporation of Section 8 companies
  1. Directors and shareholders ID and Address proof
  2. Applicants Passport size photographs
  3. MOA and AOA
NBFC-MFI

NBFC-MFIs are the companies that work as functions as similar to Banks. Loans are given by the Micro Finance Companies to various small businesses that do not have access to the formal banking channels and are not eligible for availing of loans.

Criteria for registration of NBFC-Micro Finance Institution
  1. Minimum paid-up for the capital requirement of Rs 5 crore;
  2. All the time 85% of qualifying assets should be maintained;
  3. The proper guidelines issued by RBI should be followed;
  4. Required approval of RBI;
  5. Incorporation of Company either as a Private company or Public company;
  6. Bank Account should be opened;
  7. All the incorporation documents should be submitted to the RBI i.e. COI, MOA, AOA, copy of all fixed deposit receipt, Bankers report, etc;
  8. Further, for registration of a Microfinance company, an online application is filled with the RBI;
  9. Once the application is filled, the company will get the Reference Number;
  10. Submission of all the physical copies of documents with the RBI along with the requested documents;
  • Physical Copy of Documents requested for registration of NBFC-MFI
  1. For Incorporation of a company certified copy of the Certificate is required.
  2. Memorandum and Articles of Association copies(MOA & AOA) of the Company are required.
  3. Proposed Microfinance in relation to the Board Resolution company registration.
  4. Report of Banker
  5. The auditor report provides the receipt of the minimum net owned fund (NOF) of the applicant company.
  6. Group/associate/subsidiary/holding companies details are required.
  7. Particulars of investments in other NBFCs.
  8. All educational and professional qualifications related Documents of all the proposed directors of an applicant company.
Steps for Registration of Micro Finance

In India, The following steps are required for MFI registration –

  • Company Incorporation
  • For registration of NBFC-MFI, Incorporation of a company is required i.e. either as a Private Company or Public Company.

  • Capital requirement
  • Once the company gets incorporation, the company shall increase the authorized and paid-up capital share up to Rs. 5 Crore. The capital can be increased in the form of equity Share Capital only.

  • Fixed Deposit
  • The amount which is received from the shareholder will be deposited in a bank account in the form of a Fixed Deposit. A certificate of no lien will be received from the bank once the process is completed. An application will be submitted to the RBI along with a certificate.

  • Online Application
  • For getting the CARN (Company Application reference number), an online form must be filled with the RBI.

  • Physical Submission of Documents
  • The hard copy of the application along with the necessary documents is filled to the regional office of the Reserve Bank of India. Once, the due diligence is done by the RBI, COR (Commencement of Registration) will be issued by the RBI.

Takeaway

The only objectives of Microfinance Institutions are to help and empower the smaller section of society and small businessmen mainly in rural and remote areas who are not eligible to take a loan from any other organization/groups due to lack of documentation and procedures.

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