Micro Finance Company via Section 8- Fees, Procedure, Documents

Section 8 Micro finance Company or Micro-finance Institution (MFI) is a financial organization that provides credit to people and organizations who are denied access to traditional financial institutions due to poverty, occupation, ethnicity, religion, or nationality.

A Microfinance Company is registered with the Registrar of Companies as per Section 8 of the Indian Companies Act, 2013. Thus, it comes under the Ministry of Corporate Affairs (MCA).

What is a Section 8 Microfinance Company?

Section 8 Microfinance companies are financial organizations that provide finances to low-income groups. These companies are introduced to ease the credit system for small businesses as they don’t get loan facilities from banks due to their complex process.

Therefore, it is also known as a Micro-credit or Micro-benefit organization. Microfinance companies are the most convenient business to register that can provide unsecured loans without RBI approval at rates unto 26% p.a.

The compliances of section 8 company as a Microfinance business is same as normal with an addition of filing of MBP-1.

Definition of Microfinance Loan

• A microfinance loan is defined as a collateral-free loan given to a household having annual household income up to ₹3,00,000. For this purpose, the household shall mean an individual family unit, i.e., husband, wife and their unmarried children.
• All collateral-free loans, irrespective of end use and mode of application/ processing/ disbursal (either through physical or digital channels), provided to low-income households, i.e., households having annual income up to ₹3,00,000, shall be considered as microfinance loans.
• To ensure collateral-free nature of the microfinance loan, the loan shall not be linked with a lien on the deposit account of the borrower.
• The REs shall have a board-approved policy to provide the flexibility of repayment periodicity on microfinance loans as per borrowers’ requirement.

Benefits of Section 8 Microfinance Company

• No RBI Approval required
• Can lend Unsecured loan
• No Demographic Barrier
• Best Rate of Interest
• Minimum capital not required
• Defaulters can be sued for non-payment
• Limited Compliances

Documents required for Section 8 Microfinance Company

• PAN & Aadhar Card of both the directors
• Bank Statement with the address of both the directors (not older than 2 months)
• Passport Size Photo
• Email address & Phone number
• Utility Bill of the premises

Process of Section 8 Microfinance Company registration

Step 1: Obtain Digital Signature Certificate (DSC)
To form a company, you must apply for the digital signature certificate of the designated directors of the proposed company. All the documents for Section 8 companies are filed online, and e-forms must be digitally signed. So, the designated directors must obtain their DSCs from certifying agencies.

Step 2: Apply for Name Approval
The next step is to apply for name approval. The name must suggest that it is registered as a Section 8 company. While making the name application of the company, the industrial activity code and object clause of the company have to be defined.

Step 3: File SPICe Form (INC-32)
After the name approval, details concerning the company’s registration have to be drafted in the SPICe+ form. It is a simplified proforma for incorporating a company electronically. 

Step 4: File MoA and AoA with “Finance” Objective
SPICe e-MoA and e-AoA are the linked forms to be drafted when applying for company registration.

Step 5: Issuance of Incorporation Certificate
Post-approval of the documents from the Ministry of Corporate Affairs, PAN, TAN & Certificate of Incorporation will be issued from the concerned department.

Section 8 MicroFinance Company Registration Fee
The total cost of registering a micro-credit/finance company under section 8 registration with professional Utiltites is Rs. 50,000 only all-inclusive.

All applicable taxes are included in the approximately that must be paid as part of the registration fee for a section 8 microfinance company.