Overview
A Microfinance Company operating as an NBFC-MFI provides small-value loans and financial services to low-income households and is regulated by the Reserve Bank of India. It must first be incorporated as a company under the Companies Act, 2013 and then obtain a Certificate of Registration from the RBI under the Reserve Bank of India Act, 1934 to carry on non-banking financial activity. The RBI prescribes a minimum net owned fund and lays down conduct requirements for microfinance lending. This is a regulated activity and cannot be carried on without RBI registration.
Objective
To register a company as an NBFC-MFI with the Reserve Bank of India so it can provide microfinance loans to low-income borrowers.
Characteristics
- Provides small-value collateral-free loans to low-income households
- Incorporated as a company and then registered as an NBFC with the RBI
- Subject to a minimum net owned fund prescribed by the RBI
- Governed by RBI conduct norms for microfinance lending
- Cannot commence lending until RBI registration is granted
Eligibility
- Incorporated as a company under the Companies Act, 2013
- Minimum net owned funds as prescribed by the Reserve Bank of India
- Directors and promoters meeting the RBI fit and proper criteria
- A clear business plan focused on microfinance activity
- Compliance with RBI conditions applicable to NBFC-MFIs
Governing law
- Reserve Bank of India Act, 1934
- Companies Act, 2013
- Reserve Bank of India (RBI) as the regulator
- RBI Master Directions on microfinance loans
The process
- 1Incorporate the company
A company is incorporated under the Companies Act, 2013 with financing as its main object, forming the entity that will apply for NBFC registration.
- 2Build the net owned funds
The promoters ensure the company holds the minimum net owned funds required by the RBI, supported by audited financials and a certificate from the auditor.
- 3File the RBI registration application
The application for a Certificate of Registration is submitted to the RBI through its portal with the business plan, promoter details, and financial documents.
- 4Respond to RBI review and receive registration
The RBI reviews the application and the fit and proper status of promoters, and on satisfaction issues the Certificate of Registration allowing the company to begin microfinance operations.
Documents required
- Certificate of Incorporation, Memorandum and Articles of Association
- PAN of the company
- Audited financial statements and net owned fund certificate
- Detailed business plan for microfinance activity
- KYC, credit reports, and details of directors and promoters
- Banker's report and board resolution for NBFC registration
Benefits
- Ability to provide regulated microfinance to underserved borrowers
- Recognition as an RBI-registered non-banking finance company
- Access to institutional funding and lending partnerships
- Structured lending under a defined regulatory framework
- Credibility with borrowers, lenders, and regulators
Frequently asked questions
Can a company start microfinance lending before RBI registration?
No, carrying on the business of a non-banking financial institution without a Certificate of Registration from the Reserve Bank of India is not permitted. The company must first obtain RBI registration as an NBFC-MFI before it can begin lending.
Is there a minimum capital requirement for an NBFC-MFI?
Yes, the Reserve Bank of India prescribes a minimum net owned fund that an NBFC-MFI must maintain to obtain and retain registration. The applicable amount is set by the RBI and must be met before applying, supported by audited accounts.