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Getting a loan from the bank for a small business is a complex and tedious process that needs collateral before the loan gets approved. So many small businesses knock on the doors of microfinance companies to get a loan. Microfinance companies also encourage women entrepreneurs and provide assistance to start-ups. But how to register a microfinance company, and is it required to get approval from the RBI? Let’s drive you through the process of registering a microfinance company.
A Section 8 Microfinance company registered under the Indian Companies Act, 2013. With the objective of providing financial to small business groups who are excluded from the formal banking system. Simply put, getting a loan from the bank is a tedious process. A Section 8 Microfinance Company can offer loans, insurance, and other products to its clients without requiring any collateral or security. The aim of a Section 8 Microfinance Company is to promote social welfare and economic development among the poor and marginalized sections of society.
Some of the features of a Section 8 Microfinance Company are:
Documents required for Section 8 Microfinance Company:
Obtain a DSC (Digital Signature Certificate) and DIN (Director Identification Number): The initial phase of company formation involves securing a DSC and DIN. The DSC is necessary for authorizing electronic forms. Both of these are essential for the incorporation of a Section 8 company.
Apply for Name Approval: Subsequently, the process entails submitting an application for name approval using Form INC-1. The chosen name should distinctly convey the company’s registration as a Section 8 company, incorporating terms like Sansha, Foundation, or Micro Credit.
Submission of Memorandum of Association (MOA) and Articles of Association (AOA): Following the approval of the selected name, the company is required to create the MOA and AOA, and then file them alongside the required documentation.
File all Required Documents: The final step is to submit all the relevant documents with the incorporation certificate and Form INC -12 to get a license.
The registration cost for a section 8 microfinance company is ₹ 50,000 only, which covers all the professional utilities and applicable taxes. This is the total cost of registering a micro-credit/finance company under section 8.
A Section 8 Company is a convenient option for setting up a Micro Finance Company in India, as per the MCA (Ministry of Corporate Affairs). It does not require any extra fees or security deposits. It can offer loans at low interest rates, as suggested by the RBI and the central government.
Forming a trust takes 10-15 days, while forming a Section 8 Company can take 60-75 days. Trusts have much lower costs than companies under section 8 of the company’s act.
A company with charitable objectives can be formed as a Section 8 company under the Companies Act 2013. Such a company can either have a limited share capital or a limited guarantee (with or without share capital).
Section 8 companies are not allowed to distribute profits to their members, and they may face more instability than other types of companies. These are some of the common drawbacks of forming a company with charitable purposes under Section 8 of the Companies Act, 2013. However, these companies also enjoy some tax benefits.
A company with charitable purposes can be incorporated as a Section 8 Company under the Companies Act 2013. This type of company can get funding from the government and other sources. On the other hand, an NGO is an organization that works for a social cause, usually charitable. A Section 8 Company differs from an NGO in that it aims to promote commerce, science, art, charity, religion, or any other useful object for society’s benefit.
