Register Your Section 8 Microfinance Company

Introduction

Section 8 Microfinance Company registration provides a unique avenue for individuals and organizations to establish entities aimed at promoting financial inclusion and empowerment at the grassroots level. Under Section 8 of the Companies Act, 2013, these entities are formed with the sole purpose of promoting charitable objectives, including microfinance activities, without pursuing profits.

Section 8 Microfinance Company:

Microfinance Section 8 companies operate with a primary goal of extending financial services, such as credit, savings, and insurance, to underserved and economically disadvantaged individuals and communities. They play a pivotal role in fostering economic development, poverty alleviation, and women's empowerment by providing access to financial resources and promoting entrepreneurship at the grassroots level.

Benefits:

Facilitates Financial Inclusion: Provides financial services to marginalized communities, promoting financial inclusion and enabling participation in economic activities.

• Promotes Economic Development:Provides microloans and financial services to small-scale entrepreneurs and low-income households, contributing to economic development.
• Empowers Women and Vulnerable Groups:Offers access to financial resources and entrepreneurship opportunities, empowering women and marginalized groups.
• Supports Sustainable Livelihoods:Offers financial services tailored to low-income individuals and communities, enhancing long-term economic prospects and resilience.
• Fosters Social Impact:Prioritizes social impact and community development over profit maximization, reinvesting surplus funds into charitable objectives.
• Encourages Entrepreneurship:Provides mentorship, training, and support services to aspiring entrepreneurs, contributing to local economic growth.
• Catalyses Innovation:Develops customized products and delivery mechanisms, embracing technology to enhance access, affordability, and convenience.
• Enhances Resilience:Offers savings, insurance, and other risk management products to mitigate financial risks and protect livelihoods.

Types of Microfinance Company’s:

• Community-Based Microfinance Institutions (CBMFIs):CBMFIs are grassroots organizations providing financial services to low-income individuals and households, tailored to their local context and culture, offering microcredit, savings, insurance, and financial education.
• Non-Banking Financial Companies-Microfinance Institutions (NBFC-MFIs):NBFC-MFIs are specialized financial institutions that offer microcredit and other financial services to underserved populations, especially in rural and semi-urban areas. They are exempt from banking regulations but subject to specific requirements, promoting financial inclusion. Self-Help Groups (SHGs): SHGs are informal associations of women, promoting socio-economic development through savings, credit access, and mutual assistance. Microfinance institutions often collaborate with SHGs for financial services and capacity-building support.
• Producer-Owned Microfinance Cooperatives:Producer-owned microfinance cooperatives are member-owned organizations that pool resources, access credit, and market products collectively, promoting self-help, solidarity, and democratic governance to empower members economically and socially.
• Technology-Enabled Microfinance Platforms:Microfinance platforms use digital innovation like mobile banking, digital payments, and data analytics to expand financial services, lower transaction costs, and promote financial inclusion, reaching remote and underserved populations.
• Agri-Focused Microfinance Institutions:Agri-focused microfinance institutions offer agricultural loans, crop insurance, and value chain financing to support smallholder farmers and agricultural enterprises, improving productivity and livelihoods. These institutions address unique financial needs, promoting rural development and food security.

What is Microfinance Loan?

A microfinance loan is a type of loan that can be given to a low-income household with an annual income of up to ₹ 3,00,000, regardless of the method of application or disbursement. The loan should not have any lien on the borrower's deposit account to ensure it is collateral-free. The borrower must have a policy approved by their board allowing them to repay the loan at flexible intervals according to their needs.

Section 8 Microfinance Company Features:

• Registered as a non-profit organization under the Companies Act, 2013.
• Doesn't need a RBI license for microfinance operation as long as follows RBI guidelines.
• Can charge higher interest rates than banks and other regulated financial institutions.
• Can sue defaulters for non-payment of pending loans.
• Complies with the Companies Act 2013 and files annual reports with the ROC and MCA.
• Engages in incidental activities related to main objectives.
• No demographic barrier, no minimum capital requirement.
• Can lend unsecured loans.

Objective of Section 8 Microfinance Company:

The company aims to provide financial services to low-income individuals and underserved communities, promoting inclusive economic growth. It provides microloans and financial resources to small-scale entrepreneurs, enabling them to invest in income-generating activities and improve their livelihoods. The company empowers women and vulnerable groups by providing access to financial resources and entrepreneurship opportunities. It supports sustainable livelihoods and resilient communities by offering financial services tailored to their needs. The company contributes to community development by reinvesting surplus funds into charitable projects. It upholds ethical principles and upholds ethical lending practices. The company embraces innovation and adaptability to meet evolving needs and challenges.

Eligibility criteria for registering a Section 8 Microfinance Company:

• Focus on socio-economic development, financial inclusion, or poverty alleviation.
• Formed with the intention of serving the public good.
• Operates on a non-profit basis, reinvested surplus funds into charitable activities.
• Registered under Section 8 of the Companies Act, 2013.
• Maintains minimum capital adequacy or net owned fund (NOF) requirements as prescribed by regulatory authorities.
• Promoters, directors, and key management personnel must meet fit and proper criteria established by regulatory authorities.
• Obtains necessary licenses, permits, or approvals, adhering to prudential norms, and maintaining transparency and accountability.
• Demonstrates its capacity to carry out microfinance activities.
• Conducts a social impact assessment or demonstrates commitment to social responsibility and ethical business practices.

Documents Requirement:

• Memorandum of Association (MOA) and Articles of Association (AOA): Define objectives, rules, and regulations for the company.
• Incorporation Documents: Certificate of Incorporation, Digital Signature Certificates, and identity and address proof.
• Declaration and Affidavits: Compliance with Section 8 of the Companies Act, 2013, affirmation of non- profit operation, and affidavits confirming directors and promoters' eligibility.
• PBoard Resolutions: Authorization for registration and appointing directors.
• Financial Statements: Balance sheet, profit and loss account, and cash flow statement for past three years.
• Business Plan: Detailed plan outlining microfinance activities, target clientele, geographical reach, financial projections, and social impact objectives.
• Regulatory Approvals and Licenses: Required for conducting microfinance activities.
• Other Documents: NOC from landlords or local authorities, additional declarations and undertakings.

Frequently Asked Questions