Micro Finance & Asset Reconstruction company

Microfinance Company Registration

  • The Microfinance Company is the financial institution that gives small-scale financial services in the form of loans, credit, or savings. These companies are initiated to ease the credit system for small businesses as they don’t get a loan from banks due to their complicated method. Hence, it is commonly named as a Micro-credit company or organization. They offer small loans to several small businesses or households that do not have access to formal business channels or eligibility for loans.
  • They give small loans that are less than Rs.50,000 for rural regions, and for urban, it is Rs.1,25,000. The easiest way to register a Micro Finance Company in India is to register the Section-8 Company by MCA (Ministry of Corporate Affairs). Outwardly charging any marginal money or ensure security. It can give loans at reasonable rates directed by the RBI and central government. They are extensive support to all rural and agricultural development, including income and job creation. There are two types of microfinance organizations that are allowed in India; one is which has to be registered with the RBI, and added is the non-profit type, which is listed as section 8 company and does not need RBI approval.
  • Microfinance Institutions give financial services such as loans, savings, and insurance to needy personalities of the society and small business contractors who will not be able to pass for a standard bank loan.

Salient Features of Microfinance Institutions

  • Microfinance Institutions must be included as per the Companies Act 2013 or 1956.
  • Before starting operations, they must have the least net worth as designated by the authority.
  • They must have received the necessary license or permit.
  • They are included in the low amount of financing to the needy frames of society.
  • Offer banking assistance at small monetary amounts
  • To provide financial support to individuals who work in varied trades like ‘transportation,’ ‘fishing,’ ‘carpentry,’ etc.
  • Offer financial support to small enterprises that cannot afford any collaterals
  • Increase the participation of women in generating sustainable livelihood
  • Provide access to quality healthcare
  • Enhance and enrich the mode of maintenance for low-income individuals and building opportunities for self-employment

Obligatory Conditions for Micro Finance Company

There are principally two ways to register the Micro Finance Institution. One way is to create a company and then apply to RBI for support. The least necessities for Microfinance Company is Rs.5 crore net owned fund and active sketches of promoters. The other way is to register a section 8 company.

    • The essential and highest Rs.50,000 can be given for business purposes and Rs.125,000 for household dwelling.
    • No least net controlled fund requirement.
    • No RBI support/approval is needed since RBI has released this company from registration and some different conditions.

Non – Approval from RBI

In India, finance institutions are authorized only to Non-Banking Finance Companies (NBFC) and regulated by RBI. However, some business forms have been granted immunity by the ‘Reserve Bank of India’ (RBI) to do banking activities up to a specified limit. The RBI by its chief circular: “RBI/2015-16/15 DNBR (PD) CC.No.052/03.10.119/2015-16” Dated July 01, 2015, has published all Section 8 Companies involved in microfinance activities.

Receiving of Securities under Micro-Finance Company

  • Deposits are not advised to be accepted under section 8 company. Furthermore, the company has to advance its funds and start your microfinance company. Moreover, the company may also raise funding utilizing contributions as donations.
  • Yet if you plan to register an NBFC company and available to invest Rs.5 Crore into the business, then also securities are not permitted to be exercised. As per the RBI scheme, first, you expect to register an NBFC non-deposit-taking company and, consequently, demand for deposit-taking status from the Reserve Bank of India (RBI).

Micro-credits supporting Micro Finance Company

Loans below microfinance companies are not very confused. Most unsecured loans are provided and against monthly repayments or weekly payments.

    • NBFC can force a differential rate of interest to its consumers, but reform must not be more than 4%.
    • Microfinance companies to present in all the offices or literature, the reasonable rate of interest.
    • Companies must begin a loan card to all members announcing the interest rate with all different tax rates
    • Loans are also given in self-help groups and other link programs.
    • If no payment is obtained within 90 days, then the equivalent must be treated as a non-performing asset, except for section 8 companies.

Mandatory Compliances for Micro Finance Company

There are the least compliances which are to comply with the Micro Finance Company. However, the most important adjustments are as follows:

  • RBI Compliance:The company is advised to comply with RBI norms even if it is not required to register with the reserve bank.
  • Company Act:Section 8 company also required to comply with the Companies Act, in the same way, other companies.
  • Supplementary:There are several laws as well, which are to be taken care of like PMLA etc. if talk about the mandatory compliances.

Benefits of Microfinance Company Registration

For Microfinance Institutions in India, the Reserve Bank of India has created a policy framework to provide necessary legitimacy to the sector.

  • It helps in promoting self-sufficiency and business start-ups
  • Easy ways to obtainfunding
  • Better overall loan repayment rate related to general traditional banks.
  • It helps in upbringing the financial condition by meeting the credit for different types of loans such as emergency loans, business loans, working capital loans, housing loans, etc.
  • No minimum capital of 5 Cr
  • No RBI approval
  • The easiest way to start a finance business
  • It can charge up to a 26% rate of interest.
  • Promoting socio-economic growth:
  • Offers reasonable services for small businesses:
  • Minimum Compliances:

Documents Required for MFI Registration in India

  • Duly tested copy of ‘Certificate of Incorporation of a company’.
  • Certified copy of ‘Memorandum and Articles of Association’ (MOA & AOA) of the Company
  • Board Resolution concerning the proposed ‘Microfinance company registration’
  • Banker’s Report
  • Auditors report regarding receipt of the ‘minimum net owned fund (NOF) of the applicant company
  • A certificate of ‘Chartered Accountant’ regarding details of members of companies along along with details of investments in other ‘NBFCs’ as shown in the ‘Performa Balance Sheet’
  • A certified copy of the Essential and highest educational and professional qualification of all the proposed directors of an applicant company.
  • PAN card: In the matters of Indian citizens, the PAN card of shareholders and directors.
  • Passport size photograph: Not more than ten months old photo of directors and shareholders
  • ID proof: Copy of Aadhaar card/voter identity card/passport/driving license of directors and shareholders
  • Rent agreement: If you have rented property, then a copy of rent agreement
  • Address proof: Electricity bill, water bill, bank statement, gas or telephone bill of shareholders and directors
  • Registered office proof: Electricity bill, water bill, bank statement, gas or phone bill of the registered office address
  • NOC from the owner: No objection certificate is needed from the owner of the registered office
  • KYC/income proof of the Director
  • Proof experience in the financial segment of the business
  • Recent credit report of the directors
  • Net worth certificate of the directors
  • Detailed Action plan about the products and risk assessment policy
  • Structure plan of the organization

Assets Reconstruction Company

  • It is a company registered under the company act 2013 for the purpose of securitization & it also requires a registration from RBI .and is regulated by the section 3 of the SARFAESI Act, 2002.Asset reconstruction company is a specialized financial institution that buys the bad loan, NPAs from banks & financial institution in order to clean up their balance sheet. It takes over the loan and advances from the bank and financial institution for recovery, so it acts as a recovery agent for the banks also.

    On acquisition of financial assets the securitization or reconstruction company become the owner of the financial asset and step into the shoes of the lender bank or FIs.

    Asset Reconstruction Company, existing on the commencement of this Act, shall make an application for registration to the Reserve Bank before the expiry of six months from such commencement and notwithstanding anything contained in this subsection may continue to carry on the business of securitization or asset reconstruction until a certificate of registration is granted to it or, as the case may be, rejection of application for registration is communicated to it.

Procedure for Registration of Assets Reconstruction Company

No asset reconstruction company shall commence or carry on the business of securitization or asset reconstruction without

  • Obtaining a certificate of registration granted under this section; and
  • Having net owned fund of not less than 2 Crore rupees or such other higher amount as the Reserve Bank, May, by notified.

Every asset reconstruction company shall make an application for registration to the Reserve Bank in such form and manner as it may specify.

The Reserve Bank may, for the purpose of considering the application for registration of a asset reconstruction company to commence or carry on the business of securitization or asset reconstruction, as the case may be, require to be satisfied, by an inspection of records or books of such asset reconstruction company, or otherwise, that the following conditions are fulfilled, namely:

  • That the asset reconstruction company has not incurred losses in any of the three preceding financial years;
  • That such asset reconstruction company has made adequate arrangements for the realization of the financial assets acquired for the purpose of securitization or asset reconstruction and shall be able to pay periodical returns and redeem on respective due dates on the investments made in the company by the qualified buyers or other persons;
  • That the directors of asset Reconstruction Company have adequate professional experience in matters related to finance, securitization and reconstruction;
  • That any of its directors has not been convicted of any offence involving moral turpitude;
  • That a sponsor of an asset reconstruction company is a fit and proper person in accordance with the criteria as may be specified in the guidelines issued by the Reserve Bank for such persons;
  • That asset reconstruction company has complied with or is in a position to comply with prudential norms specified by the Reserve Bank;
  • That asset reconstruction company has complied with one or more conditions specified in the guidelines issued by the Reserve Bank for the said purpose.
  1. The Reserve Bank may, after being satisfied that the conditions specified in sub-section (3) are fulfilled, grant a certificate of registration to the asset reconstruction company to commence or carry on the business of securitisation or asset reconstruction, subject to such conditions, which it may consider, fit to impose.
  2. The Reserve Bank may reject the application made under sub-section (2) if it is satisfied that the conditions specified in sub-section (3) are not fulfilled
  3. Every asset reconstruction company shall obtain prior approval of the Reserve Bank for any substantial change in its management [including the appointment of any director on the board of directors of the asset reconstruction company or managing director or chief executive officer thereof] or change of location of its registered office or change in its name.
Cancellation of Certificate of Registration for an Asset Reconstruction Company

The Reserve Bank may cancel a certificate of registration granted to an asset reconstruction company if such company

  • Ceases to carry on the business of securitization or asset reconstruction; or
  • Ceases to receive or hold any investment from a qualified buyer; or
  • Has failed to comply with any conditions subject to which the certificate of registration has been granted to it; or
  • At any time fails to fulfill any of the conditions referred to in clauses (a) to (g) of sub-section (3) of section 3; or
  • Fails to—

Comply with any direction issued by the Reserve Bank under the provisions of this Act; or

  1. Maintain accounts in accordance with the requirements of any law or any direction or order issued by the Reserve Bank under the provisions of this Act; or
  2. Submit or offer for inspection its books of account or other relevant documents when so demanded by the Reserve Bank; or
  3. Obtain prior approval of the Reserve Bank required under sub-section (6) of section 3: Provided that before cancelling a certificate of registration on the ground that the asset reconstruction company has failed to comply with the provisions of clause (c) or has failed to fulfil any of the conditions referred to in clause (d) or sub-clause (iv) of clause (e), the Reserve Bank, unless it is of the opinion that the delay in canceling the certificate of registration granted under sub-section (4) of section 3 shall be prejudicial to the public interest or the interests of the investors or the asset reconstruction company, shall give an opportunity to such company on such terms as the Reserve Bank may specify for taking necessary steps to comply with such provisions or fulfillment of such conditions.
  4. An asset reconstruction company aggrieved by the order of cancellation of the certificate of registration may prefer an appeal, within a period of thirty days from the date on which [such order of cancellation] is communicated to it, to the Central Government. Provided that before the rejection of such an appeal the company shall be given a reasonable opportunity of being heard.
  5. An asset reconstruction company, which is holding investments of [qualified buyers] and whose application for grant of certificate of registration has been rejected or certificate of registration has been canceled shall, notwithstanding such rejection or cancellation be deemed to be a asset reconstruction company until it repays the entire investments held by it (together with interest, if any) within such period as the Reserve Bank may direct.
Documents required for registration
  • Certified copy of up to date MOA & AOA of the company.
  • Certified copy of the certificate of incorporation.
  • Board resolution to the effect the company has not accepted any deposit.
  • None of the directors are disqualified
  • All information about the sponsor.
  • All information about management.
  • A certified copy of auditor certificate.
  • Audited balance sheet of last three years along with director and auditor report.
  • Statement of the owned fund.
  • Information about the related party.