Micro-Finance-Company

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Micro Finance Company

A microfinance company is basically a type of financial institution which provides small-scale financial services in the form of loan, credit or savings. These companies are introduced to ease the credit system for small businesses as they don’t get a loan from banks due to their complex process. Therefore it is commonly named as a Micro-credit organization. They offer small loans to various small businesses or households that do not have access to formal banking channels or are not eligible for loans. They provide small loans amounting to less than Rs.50,000 in amount to people who reside in rural areas and for the people who reside in urban areas, the loan amount limit is Rs.1,25,000. The simplest way to register a Micro Finance Company in India is to register a Section-8 Company with MCA (Ministry of Corporate Affairs), without the charge of any kind of marginal money or guarantee security. A microfinance company can give loans at inexpensive rates directed by the RBI and central government. They provide huge support to all the rural and agricultural development including the creation of both income and employment. There are basically 2 types of microfinance companies that are allowed in India, the former type has to be registered with the RBI and the latter is the non-profit type, which is registered as a section 8 company and does not need RBI approval.

NO RBI APPROVAL

In India, finance businesses are approved only to Non-Banking Finance Companies (NBFC). However, some business forms have been granted an exemption by the Reserve Bank of India (RBI) to do banking activities up to a specified limit. The RBI by it’s master circular: RBI/2015-16/15 DNBR (PD) CC.No.052/03.10.119/2015-16 Dated July 01, 2015, has released all the Section 8 Companies involved in microfinance activities and are exempt from the provisions of RBI Act, 1934

As per Para 2 (iii), Sections 45-IA, 45-IB, and 45-IC of the Reserve Bank of India Act, 1934 (2 of 1934) shall not apply to any non-banking financial company which is
(a) Engaged in micro financing activities, providing credit not exceeding Rs.50,000 for a business enterprise and Rs.1,25,000 for meeting the cost of a dwelling unit to any poor person for enabling him to raise his level of income and standard of living; and
(b) Licensed under Section 25 of the Companies Act, 1956; and
(c) Not accepting public deposits as defined in paragraph 2(1) (xii) of Notification No. 118 /DG (SPT)-98 dated January 31, 1998.