Micro Finance Section 8 Company in India

Micro finance is a source of financial services for entrepreneurs and small businesses,

it is a type of Non- Banking Financial Company (NBFC) which is in a business of micro
credit finance to individuals and small business. It is also known as Micro Finance
Institution (MFI).

In India there are two type of business models for micro finance activities:

1. NGOs Not for profit (Trust, Society, Section 8 companies)

2. For profit (NBFC MFI)

Here we will discuss about companies registered under section ‘8’ of Companies
Act, 2013:

A NGO can be registered as a Company under Section 8 of the Companies Act, 2013
(earlier section ‘25’ of Companies Act, 1956) and can also be registered as Trust and a
Society. Trust and societies are registered and governed by state government acts and
regulation, but a section 8 company is registered under Companies Act, 2013 and
governed by Ministry of Corporate Affairs.

A company status is always highly recognized in compare to trust or society, therefore

Section 8 Companies have higher credibility among st Government departments,
Donors and other stakeholder.

Main features of section “8” Company:

 Charitable Objects: A section 8 Company has in its objects the promotion of

commerce, art, science, sports, education, research, social welfare, religion, charity,
protection of environment or any such other charitable objects.
 Profit for Promotion of objects: Section 8 company will apply its profits (if any) in
promoting its objects.
 No Dividends: Section 8 Companies are prohibited to declare and/or pay any
dividend to its members.
Section 8 Companies and RBI Approval for Micro finance activity: In india, finance
businesses are authorised only to Non-Banking Finance Companies (NBFC) and
governed by RBI. NBFCs are required to get registration with RBI and comply with RBI
guidelines. However, some business forms have been given exemption by the Reserve
Bank of India (RBI) to do finance activities up to a certain extent.

The Reserve Bank of India through its master circular RBI/2015-16/15 DNBR (PD)
CC.No.052/03.10.119/2015-16 Dated July 01 2015 has exempted all Sec 25
Companies engaged in micro finance activities.

As per Para 2 (iii):

Sections 45-IA, 45-IB and 45-IC of the Reserve Bank of India Act, 1934 (2 of 1934)
shall not apply to any non-banking financial company which is:

(a) engaged in micro financing activities, providing credit not exceeding Rs. 50,000 for a
business enterprise and Rs. 1,25,000 for meeting the cost of a dwelling unit to any poor
person for enabling him to raise his level of income and standard of living; and

(b) licensed under Section 25 of the Companies Act, 1956; and

(c) not accepting public deposits as defined in paragraph 2(1) (xii) of Notification No.
118 /DG (SPT)-98 dated January 31, 1998.

Find the full copy of master circular here:

https://rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=9822

Loan Limits For MFIs:

1. Borrower with a rural household annual income not exceeding Rs. 1,00,000 or urban
and semi-urban household income not exceeding Rs. 1,60,000 will be eligible ;

2. Loan amount will not exceed Rs. 60,000 in the first cycle and Rs. 1,00,000 in
subsequent cycles;

3. Total indebtedness of the borrower will not exceed Rs. 1,00,000

4. Tenure of the loan not to be less than 24 months for loan amount in excess of Rs.
30,000 with prepayment without penalty;

5. Loan to be extended without collateral;

6. Aggregate amount of loans, given for income generation, is not less than 50 per cent
of the total loans given by the mfis
7. Loan is repayable on weekly, fortnightly or monthly installments at the choice of the
borrower

Registration process of Section 8 Micro finance Company:

1. Minimum two people required for registration of Section 8 Company.

2. Documents Required :

3. Latest passport size photographs of all Directors/ Promoters

4. Copy of PAN of all Promoters/ Directors

5. Identity Proof: Voter ID/ DL/ Passport/ Aadhar

6. Address Proof: Bank Statement/ Telephone Bill/ Electricity Bill (not older than 2
months)

7. Property ownership documents of Registered office:

8. Property Documents or

9. Rent Agreement or Lease Deed if registered office premise is taken on rent

10. Electricity Bill (not older than 2 months)

11. Other documents will be drafted by professional (CS/ CA)

Process:

Obtaining Digital Signature Certificate (DSC) and Directors Identification Number (DIN)

Filing of Form INC-1 for Reservation of Name

After the approval of INC-1, File form INC-12 to registrar for a license under sub section
(1) of section 8.

Registrar will issue a license in Form INC-16

Filing of forms and documents with registrar for incorporation (This is same as in case
of public company limited by shares)

Issuance of certificate of incorporation by registrar