Starting a finance business can be a lucrative opportunity, especially for those looking to invest a limited amount of capital. However, it is crucial to navigate the regulatory landscape carefully. In India, only banks and Reserve Bank of India (RBI) registered Non-Banking Financial Companies (NBFCs) are authorized to engage in finance-related activities, such as lending. This article will guide you through the process of legally registering a microfinance NBFC in India.
Understanding NBFCs
A Non-Banking Financial Company (NBFC) is a financial institution that offers various banking services without meeting the legal requirements of a full-fledged bank. NBFCs play a vital role in the financial sector, allowing them to provide loans, asset management, and microfinance services.
Why Choose Microfinance?
Microfinance companies primarily focus on providing small loans to individuals or businesses that may not have access to traditional banking services. This sector has witnessed tremendous growth, and by registering as a microfinance company, you can start your lending business legally.
Steps to Register a Microfinance NBFC
Incorporate a Private Limited Company (PVT. LTD.):
- Begin by registering your business as a Private Limited Company under the Companies Act of 2013. This is the foundational step for your NBFC.
Increase Paid-Up Capital:
- After incorporating your company, you must increase your paid-up capital to ₹5 Crores. If you intend to operate in a northeastern state, the minimum requirement is ₹2 Crores.
Deposit the Capital:
- Deposit the required amount (₹5 Crores) into the company’s bank account. Obtain a fixed deposit certificate from the bank, commonly known as a 'Non-lien certificate'. This certificate ensures there are no liens or encumbrances against the deposited funds.
Prepare and Submit Your Application:
- A hard copy of the application must be submitted to the RBI regional branch corresponding to the location of your NBFC's registered office (e.g., if based in Mumbai, submit it to the Mumbai RBI branch). The application must include various attachments:
- Company Certificate of Incorporation
- Auditor’s report regarding the fixed deposit
- Bankers’ report
- CIBIL history of all directors
- A hard copy of the application must be submitted to the RBI regional branch corresponding to the location of your NBFC's registered office (e.g., if based in Mumbai, submit it to the Mumbai RBI branch). The application must include various attachments:
RBI Review Process:
- After submission, the RBI will conduct a thorough review of your application. This includes verifying the integrity and character of all directors. They will assess any past criminal charges, allegations, or lawsuits against the directors to ensure compliance with the finance regulations.
Receiving the NBFC Registration Certificate:
- Upon satisfaction with all checks, the RBI will issue an NBFC registration certificate. With this certificate, you can officially commence your finance or lending business.
Conclusion
Starting a microfinance company in India involves a detailed registration process that requires adherence to regulatory norms set by the RBI. By following the steps outlined above, you can establish your microfinance NBFC legally and embark on a rewarding business journey.
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