Unlock Seamless Section 8 Microfinance Company Registration

Overview

Vakilkaro/Section 8 microfinance company Registration

Section 8 Microfinance Company Registration is the most suitable option when you want to start a finance business across India without RBI approval and Capital restriction.
Section 8 microfinance companies can be started with microfinance objects for social objects to help poor people to reduce poverty. Such companies are exempted to get a license from RBI under its master circular RBI/2015-16/15 DNBR (PD) CC.No.052/03.10.119/2015-16 Dated July 01, 2015.
Micro Financing in India can offer for unsecured loans i.e., personal loans, group loans, Consumer loans for household, etc. at the interest rates as specified by the RBI norms (currently it is up to 26% p.a.)

Section 8 companies offer a unique pathway for organizations dedicated to social welfare. Among these, Section 8 Microfinance Company Registration (MFCs) play a crucial role in empowering underprivileged communities through responsible financial services. If you’re considering establishing such a company, understanding the registration process is key.

Why Choose Section 8 for Microfinance?

Section 8 Microfinance Company Registration offers distinct advantages which are as follows:

Non-profit structure: Profits are reinvested in the company’s social objectives, ensuring ethical lending practices.
Tax benefits: Exemption from income tax, making funds stretch further and benefitting communities.
Simplified compliance: Compared to NBFCs, Section 8 regulations are less stringent.
Exempted from RBI license: Section 8 Companies are exempted to get a license from RBI until these have its asset size of Rs. 100 Crore and above.
Comply with RBI guidelines: Familiarize yourself with the latest RBI regulations for Section 8 MFCs, including loan limits and borrower eligibility.
No Minimum capital requirement: No minimum capital is required to start the microfinance company under section 8.

How to Register Section 8 Microfinance Company?

The file of Section 8 microfinance company registration is submitted to MCA (Ministry of Corporate Affairs) after drafting all the following details and documents. After verifying all the documents MCA issues a Certificate of Incorporation to run the company. No, any RBI license is required in addition to the MCA Certificate as this company is burden-free from RBI License till its assets size of Rs. 100 Crore and above.

Digital Signature Certificate (DSC) and Director Identification Number (DIN): All directors need these digital signatures & director identification number for e-filing.
Name approval: Apply through Form INC-1 with a name reflecting your Section 8 and microfinance focus.
Memorandum of Association (MoA) and Articles of Association (AoA): Draft these documents outlining the company’s social objectives with microfinance services such as lending or credit to poor people and governance structure.
Incorporation: File e-Form INC-32 with MoA, AoA, and other required documents like affidavits and declarations.
PAN and TAN registration: Obtain these for tax compliance.
Opening a bank account: Choose a bank familiar with Section 8 MFCs.

Documents & Details Required for Registration

Director’s Identity and Address Proof of at least 2 persons:
- PAN card
- Aadhar card
- Passport (for foreign nationals)
- Voter ID or Driver’s license or Bank Statements
- Director’s Photographs
Address Proof for Registered Office:
- Utility bills (electricity, water, gas) not older than two months
- Rent agreement (if premises are rented)
- No Objection Certificate (NOC) from the property owner
Main object of proposed company for drafting the Memorandum of Association (MOA)
Shareholding Pattern of Members in percentage.
Authorized & Paid up Capital in Rupees (Calculate it according to your proposed business plan & investments as you are starting)

Loan Limit under Section 8 Microfinance for Household

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Households falling within the annual income bracket of up to Rs. 3,00,000 can avail microfinance loans without the burden of providing collateral. This approach eliminates barriers, ensuring that financial assistance is accessible to those who need it most.

Firstly, loan shall be given to those households, whose annual income is not exceeded from Rs. 3,00,000.

Secondly, loan limit is to be set according to the repayment capacity of a household, means monthly loan EMI can not be exceeded from the 50% of the monthly household income.

Consequently, if a family has a loan obligations more than 50% of the monthly income, then new loan can not be given to that family, until they paid off the existing loan obligations because they don’t have any repayment capacity.

Let’s say a company called “Microhelp” giving a loan to a family who earns Rs. 20,000 per month (that means annual household income is Rs. 2,40,000 (less than Rs. 3,00,000), Microhelp won’t give them loans with monthly repayments totaling more than Rs. 10,000 (half of Rs. 20,000) and if it is for 12 months the total loan value will be Rs. 1,20,000.

Now, if a family already has loans where they are paying Rs. 12,000 per month in EMIs, those loans will continue until they are paid off. However, Microhelp won’t give them any new loans until their repayments are brought within the 50% limit, ensuring responsible lending practices.

Household Definition: For the purpose of microfinance eligibility, a household is defined as a single family unit, comprising a married couple and their children (unmarried). This definition establishes a clear framework for determining the beneficiaries who qualify for microfinance loans.

Board Policy: If any section 8 microfinance company registration wants to provide loan to its customers less than 50% of the monthly income, it has to set its own policy approved by its board of directors.

Data Reporting and Compliance: The microfinance institutions/other NBFCs/ Banks must regularly provide accurate data to Credit Information Companies (CICs) and use this data to ensure that borrowers are not taking on too much debt. The microfinance companies can also check information from borrowers themselves, their bank statements, and local inquiries to verify compliance with the debt limit.

Features of a Section 8 Microfinance Company

Section 8 Microfinance Company Registration gives the following advantages with the exemption of license from RBI under section 45 of RBI Act,1934:

Non-Profit Registration: Registered under Section 8 of the Companies Act, 2013, with the Registrar of Companies (ROC), a Section 8 Microfinance Company Registration operates as a non-profit organization. This unique status positions it as a socially driven entity dedicated to community welfare.
Exemption from RBI License: Unlike traditional microfinance institutions, a Section 8 Microfinance Company Registration can operate its finance business without getting a license from the Reserve Bank of India (RBI). It aligns with RBI guidelines on microfinance lending, streamlining operational processes.
Flexible Interest Rates: Empowering financial flexibility, a Section 8 Microfinance Company Registration can charge interest rates of up to 26% p.a. on its loans. This rate surpasses those offered by conventional banks and regulated financial institutions, providing a competitive edge.
Legal Actions for Non-Payment: In the event of non-payment of pending loans, a Section 8 Microfinance Company has the legal authority to sue defaulters. This capability ensures a robust mechanism for addressing non-payment issues.
Compliance with Companies Act 2013: Committed to transparency and accountability, a Section 8 Microfinance Company adheres to the provisions of the Companies Act, 2013. This includes the regular filing of annual reports and returns with both the ROC and the Ministry of Corporate Affairs (MCA).
Diverse Activities Beyond Microfinance: Beyond its core objectives, a Section 8 Microfinance Company can engage in various incidental or facilitative activities in addition to microfinance. These may include initiatives related to education, health, sanitation, environment, and more, broadening its impact on community development.
National Presence: Breaking down barriers, there are no area restrictions for a Section 8 Microfinance Company. It is open to serving a diverse range of individuals and communities, promoting financial inclusivity with its various numerous branches as well.
No Minimum Capital Requirement: A Section 8 Microfinance Company Registration is not bound by a minimum capital requirement like NBFCs-MFI. This adaptability allows for a more responsive approach to community needs.
Unsecured Lending: Section 8 Companies completes the financial needs of underserved communities, such companies has the capability to lend unsecured loans. This feature enhances accessibility for borrowers without the burden of collateral requirements.

Section 8 Microfinance Company Registration Costing?

Start your Section 8 Microfinance Company Registration for just ₹1,20,000! This covers all the fees and taxes needed to register under Section 8. It’s a straightforward and affordable way to get your micro-credit/finance company up and running.

Kindly note that less prices from it, can be a fraud, cyber-crime or negligence in services.

Is Section 8 Microfinance Company Registration possible even after the MCA Circular of Non- Registration?

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Yes, Section 8 Microfinance Company Registration is still possible even after the MCA Circular on Non-Registration. Despite the MCA Circular, our services guarantee a hassle-free registration for your Microfinance Company. Our legal advisors are ready to guide you through the process, ensuring the best deal for your registration. We specialize in navigating the complexities post the MCA Circular, offering expert assistance. Don’t hesitate; our team is well-equipped to handle the registration with efficiency and expertise.

What is Code 64 and Code 88 under section 8 Microfinance Company?

When any Company Register with MCA, it registers under a specific activity code. If a Parle-G is registered under food making categories, so it have a specific activity code under its 21-digit CIN. Therefore all banks and NBFCs in India are registers under activity code which is related to finance activity, that is 64 (earlier it was 65).

The Code 88 is nothing but related to social activities, which means companies registered under this activity code are doing the social activities.

Therefore, a Section 8 Microfinance Company Registration is also a not-for-profit company (for social activities) and such companies gives loans to poor people to reduce poverty in India. So code 88 can be possible with the object of Microfinance activities under Memorandum of Association (MOA).

Additionally, if your section 8 company is registered with Microfinance object and with activity code 64, so it will be more good because you are registered under main finance activity code and moreover, anyone can describe that you are a microfinance company, in a first glance.

CIBIL under section 8 Microfinance Company?

Basically, there are four prominent companies in India that generate & provides credit information for individuals and for companies.

CIBIL (TransUnion CIBIL)
CRIF High Mark
Experian
Equifax

Mostly people think about CIBIL is a credit score, so its not a credit score but it is one of the company that provides credit information (credit score) about people and businesses to financial institutions (Banks/ NBFCs/ MFIs) as same like TransUnion CIBIL, other three companies (CRIF, Experian & Equifax) do same work.

Under Section 8 Microfinance Company Registration, TransUnion CIBIL is not providing its membership due to its overburdened workload and due to not having license from RBI like NBFCs and Banks even after knowing well about exemption from license from RBI.

But rest three companies (CRIF, Experian & Equifax) are properly giving its memberships, for downloading the data of new customers and updating the list of defaulting loans.

So, Section 8 Microfinance companies shouldn’t worry about the credit membership because excluding CIBIL, all credit companies are available to empanel you.

Is Donation allowed under Section 8 Microfinance Companies?

Yes, Section 8 Microfinance is registered under Section 8 of the Companies Act,2013 and this section is specially related to not-for-profit means for social objects. Therefore, this company has the power to get donations, as donations are allowed under it, but if, you are getting donations and lending money from such donations, that wouldn’t be a streamlined process, because donations are for social purposes, and without the motive of profit but under microfinance you charge interest from customers from loan. Therefore, raising funds in the form of donations & others, especially when you are doing core microfinance activities, is not advisable.

Additionally, you can raise funds under Section 8 Microfinance Company Registration, in the form of donations, when you spend such full amount in social activities other than loans.

Can a Section 8 Microfinance avail Auto-Debit facility for recovery of loan EMIs?

Yes, a Section 8 Microfinance Company Registration like other Banks and NBFCs can avail the auto-debit facility to recover its EMIs without physically going at the customer’s place. This facility saves time and agent costs and helps to run the business smoothly.

The company has to apply to its bank where the bank account of the company is opened to avail the auto-debit facility and adopt the procedure as demanded by the bank..

Frequently asked Questions FAQs

Can a section 8 microfinance company affect credit score of its defaulting customers?

Yes, section 8 microfinance companies have the power to update credit score of its customers, by getting the membership from Credit Information Companies.

How does a Section 8 Microfinance Company address challenges such as loan defaults?

These companies often have robust risk management strategies and engage in close collaboration with borrowers, providing support and guidance to minimize the risk of loan defaults.

What is the governance structure of a Section 8 Microfinance Company?

The governance structure typically includes a board of directors responsible for overseeing the organization’s activities and ensuring compliance with the regulations governing non-profit entities.

Can a Section 8 Microfinance Company operate in multiple states or regions?

Yes, Section 8 Microfinance Companies can operate in multiple states or regions, promoting financial inclusion and social development across diverse areas.

Is software mandatory to operate the entire loan management under the company?

Yes, software is like an oxygen for company, it disburse, calculates, reports, updates the data which cannot be possible manually every time.

Can a section 8 microfinance company affect credit score of its defaulting customers?

Yes, section 8 microfinance companies have the power to update credit score of its customers, by getting the membership from Credit Information Companies.

How a section 8 microfinance company withdraw the profit?

Section 8 microfinance companies can not withdraw the profit as these companies does not have the power to issue dividend to its shareholders, the supreme way to get the interest on loan from company is good instead of profit.

Can a microfinance company provide digital loans to its customers?

Yes, Section 8 Microfinance Companies can provide loan in both modes that is Physically or Digitally.

Can a section 8 microfinance company provide secured loans?

No, section 8 microfinance company can provide only unsecured loans that is loan must be collateral free.

Can individuals from urban areas avail services from a Section 8 Microfinance Company?

Yes, Section 8 Microfinance Companies typically extend their services to both rural and urban areas, ensuring financial inclusion for individuals in need across diverse geographic locations.

How is a Section 8 Microfinance Company funded?

Section 8 Microfinance Companies mainly funded by its directors and shareholders. The company can get money from directors in the form of loan and capital from its shareholders.

Who can benefit from the services provided by a Section 8 Microfinance Company?

The services are designed to benefit the economically marginalized sections of society, including women, rural communities, and other underprivileged groups, by offering financial assistance and empowerment.

How does a Section 8 Microfinance Company differ from a traditional microfinance institution?

Unlike traditional microfinance institutions, a Section 8 Microfinance Company operates as a non-profit entity, prioritizing social impact over financial gains. It is registered under Section 8 to ensure its activities are exclusively for charitable or social purposes.

What is a Section 8 Microfinance Company?

A Section 8 Microfinance Company is a non-profit organization registered under Section 8 of the Companies Act, focused on providing financial services to the economically disadvantaged, with the primary goal of social welfare and not for profit.

Section 8 Microfinance Company Registration

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