NBFC-MFI2018-12-06T05:59:48+00:00

Microfinance Company Registration

NBFC-MFI Registration

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What is an NBFC?

A Non-Banking Financial Company (NBFC) can be defines as a company which is registered under the Companies Act, 1956 of India, engaged in the business of loans and advances, acquisition of shares, stock, bonds hire-purchase, insurance business or chit business but does not include any institution whose principal business includes agriculture, industrial activity or the sale, purchase or construction of immovable property.

What is MFI?

Micro Finance Institutions(MFI’s) can be defines as a microfinance institution is an organization that offers financial services to low income populations. Almost all give loans to their members, and many offer insurance, deposit and other services. A great scale of organizations are regarded as microfinance institutes. They are those that offer credits and other financial services to the representatives of poor strata of population.

What is the difference between Non-banking finance companies (NBFC’s) and banks?

An often heard question from the laymen is what is the difference between a bank and non-banking finance company? Like for an example- There is a difference between ICICI bank and Mahindra Finance. Yes! Banks and other non-banking financial institutions differ in some functional area.

Banks and NBFCs are basically financial intermediaries. Banks are regulated under the Banking Regulation Act though most of the laws of Companies Act are also applicable to banks. NBFCs are registered under the Companies Act.  Both are regulated by the RBI. Main differences between banks and NBFCs are:

  • Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.
  • NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself
  • Bank is a financial institution whose liabilities (i.e., deposits) are widely accepted as a means of payment in the settlement of debt. On the very other hand, on-bank financial intermediaries are those institutions whose liabilities are not accepted as means of payment for the settlement of debt.
  • Banks are termed as creators of credit through money multiplier activity whereas NBFCs are not.

Documents Required

  • Certified copy of up-to-date Memorandum and Articles of Association of the Company.
  • Certified copy of up-to-date Memorandum and Articles of Association of the Company.
  • Banker’s Report in a sealed envelope.
  • Auditors report about receipt of minimum net owned fund.
  • A certificate of Chartered Accountant regarding details of group/associate/subsidiary/holding companies along with details of investments in other NBFCs as shown in the Performa Balance Sheet.

Procedure for NBFC-MFI Registration

1. Company Registration

The first step is to form a new Public Limited Company under the Companies Act.

2. Minimum Net Owned Fund

NOF should be Rs. 500 Lac After the incorporation of a new Company in the form of Equity share capital. The Capital to be raised after incorporation of a company here should be Equity Share Capital and not Preference Share Capital.

3. The Opening of a Bank Accountant

The amount which is received post incorporation of the company shall be deposited in a bank account as Fixed Deposit and its must be free from all aliens.

4. Application to RBI

Application to RBI for Business Operations.

5. RBI

RBI will conduct due diligence and will issue certificate of commencement of business.

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Features

NBFC-MFI

Nidhi company

NBFC-ND

Initial capital Min. Rs. 5 Crore Min. Rs. 10 Lakh Min. Rs. 2 Crore
Members 7/2 7 at the time of registration and after registration min 200. 7/2
Recommended for Poor and lower income group. Member based Mutual benefit society Commercial Banking Business
Governing Laws RBI Act. 1934 Companies Act. 2013 RBI Act. 1934
Directors 3/2 3 3/2
Operations PAN India PAN India PAN India
Credibility 10/10 8/10 10/10
Loan Limit Maximum Rs. 50,000 0 0
Registration time Maximum 180 Working days Maximum 20 Working days Maximum 90 Working days
Popularity High lower High
Registering Authority ROC & RBI Registrar of Companies ROC & RBI

FAQ’s on NBFC-MFI in India

1. What is the exact tenure of loan and repayment method?
A minimum lending period should not be less than 24 months and Brower can make repayment without any penalty if loan amount more than Rs.15000. A eligible borrowers without any collateral or margin money is whom MFI give loan to. MFI has to offer at least 70% of total loan amount to borrowers for Income generation. Borrowers will have the choice to repay the loan amount on weekly or fortnight or monthly instalments
2. Can NBFC-MFIs lend funds for personal use of borrowers?
MFI may give loan for the personal purpose of the borrowers as well, but the aggregate amount of loans cannot exceed 30% of the total loan.
3. Is there any restriction on interest rate of MFI?
Yes. NBFC-MFI cannot charge a higher rate of interest. Maximum cost of fund+ 10%
4. Is there any restriction on loan processing charges of MFI
Loan processing fees cannot be more than 1% of the gross loan amount. Charges on loan insurance may be levied separately.
5. Can an NBFC-MFI charge a differential rate of interest to its customers?
Maximum Variation in interest rate cannot exceed 4%.
6. Is it essential for NBFC-MFI to become a member of CIBIL?
Yes. Every NBFC & MFI need apply for CIBIL membership
7. What are the limitations imposed on an NBFC which does not qualify as NBFC-MFI?
Such NBFC shall not have more than 10% of its total assets as loans meeting “Qualifying Assets” criteria as defined in the Directions.
8. Are there any restrictions on the remaining 15% of the assets that an NBFC-MFI holds?
No, there are no specific restrictions. However, NBFC-MFIs are required to abide by the guidelines issued to NBFCs in general, regarding terms and conditions of these loans.
9. What are the processing charges that an NBFC-MFI can levy on its customers?
Processing charges by NBFC-MFIs shall not be more than 1% of gross loan amount. Processing charges need not be included in the margin cap. Further, NBFC-MFIs shall recover only the actual cost of insurance for group, or livestock, life, health.
10. Is there any prepayment penalty that can be levied by an NBFC-MFI?
An NBFC-MFI cannot levy prepayment penalty.

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