Table of Contents
Key Summary
- Minimum capital for NBFC-MFI: ₹5 crore
- RBI approval required for NBFC-MFI
- Section 8 company needs no RBI license
- Registration cost ranges from ₹30,000 to ₹5 lakh
- Best for social impact: Section 8
- Best for commercial lending: NBFC-MFI
Microfinance companies form the core of financial inclusion by providing necessary credit services to the unbanked and underbanked sectors. By offering small-ticket, collateral-free loans, these micro entities help rural entrepreneurs (especially women), low-income households, and MSMEs to achieve self-reliance.
Whether it is started as a social venture or a commercial enterprise, a microfinance company is the primary vehicle for driving financial stability and empowering women-led micro-enterprises across the country.
Any aspiring entrepreneur or financial professional can initiate this venture, provided they meet specific regulatory benchmarks. The registration process generally offers two paths: the Section 8 Company (Non-Profit) or the NBFC-MFI (Commercial). In this blog, we will learn how these paths vary from each other, micro finance company registration, and the prerequisites for the same.
What is a Micro Finance Company?
A micro finance company is a financial institution that provides small loans and financial services to underserved individuals and businesses that may not qualify for traditional bank loans.
These institutions primarily serve:
- Rural households
- Small entrepreneurs
- Women-led businesses
- Self-help groups (SHGs)
- Low-income individuals
- Micro and small enterprises (MSMEs)
Unlike traditional banks, microfinance companies usually offer collateral-free loans ranging from ₹10,000 to ₹1,00,000. Their primary objective is to support entrepreneurship, generate employment, and improve financial accessibility.
Key Features of Micro Finance Companies
- Zero Collateral Lending: The USP of microfinance is that borrowers are not required to pledge assets like land or gold to get a loan.
- Target Demographic: Services are primarily directed toward low-income earners, rural households, and women-led self-help groups (SHGs).
- Small-Ticket Size: Loans are disbursed in small amounts tailored to the specific needs of micro-enterprises or emergency household requirements.
- High Frequency of Repayment: To maintain liquidity and borrower discipline, repayments are often scheduled on a weekly or bi-weekly schedule.
- Credit Plus Services: Beyond simple lending, many companies provide financial literacy training, insurance products, & savings platforms.
- Regulatory Compliance: Depending on the structure, these companies are governed by the Ministry of Corporate Affairs (MCA) or the Reserve Bank of India (RBI) to ensure fair interest rates and ethical recovery practices.
Why is Registration of Micro Finance Company Important?
The registration of micro finance company entities is vital for a balanced economy, specifically addressing the systemic gaps left by traditional commercial banks. Here is why they are indispensable!
- They reach the unbanked population in rural & semi-urban areas where physical bank branches don’t operate.
- NBFCs eliminate the biggest barrier to entry for low-income borrowers and they do it by providing loans up to ₹1,00,000 without requiring collateral.
- A significant portion of microfinance is directed toward women-led self-help groups with an aim to promote gender equality & financial independence.
- With the help of regulated, fair-interest credit, micro finance companies protect vulnerable individuals from exploitative interest rates.
- They provide the essential working capital for small shops, artisans, & micro-entrepreneurs.
- Beyond lending, these Section 8 Companies (Non-Profit) or the NBFCs often provide basic financial literacy, helping borrowers understand interest, savings, & debt management.
Also read: What is a Nidhi Company? Meaning, Registration, Rules & How It Works in India
Types of Micro Finance Company Registration in India
In the Indian financial sector, only NBFCs are allowed by the RBI to conduct financial business. However, there is an exception, micro finance companies. Within these, certain exemptions are allowed by the Reserve Bank of India to perform financial activities up to a specified limit.
| NBFC-MFI (RBI Registered) | Section 8 Company |
| This is a commercial model for large-scale operations. It requires a high minimum capital (₹5 crore) and must be formally registered with the RBI to provide systemic, for-profit micro-lending services. This capital investment for the North Eastern States is ₹2 crore. | Formed under the Companies Act 2013, this non-profit model is ideal for social startups. It offers easier entry with no minimum capital and grants an exemption from direct RBI registration for small-scale lending. |
Prerequisites for Micro Finance Company Registration
| Feature | NBFC-MFI (Commercial) | Section 8 Company (Non-Profit) |
| Approval of RBI | Mandatory; strict licensing required. | Not required for basic operations. |
| Net Owned Funds | Minimum ₹5 Crores. | No minimum capital requirement. |
| Director Experience | At least one director must have 10+ years in financial services. | No prior experience required. |
| Loan Limits | Maximum 10% of total assets for non-MFI activities. | ₹50,000 (Unsecured business) / ₹1.25 Lakh (Dwelling). |
| Registration Complexity | High; involves full company and RBI licensing. | Relatively simple; registered as a non-profit. |
| Compliance Load | Stringent; must adhere to all NBFC norms. | Moderate; less stringent than NBFC-MFI. |
| Number of Members | Pvt Ltd: Min 2Public Ltd: Min 7 | Minimum 2 members. |
| Organization Status | For-Profit organization. | Non-Profit organization. |
Also read: What is Private Limited Company (Pvt Ltd)?
Micro Finance Company Registration Process (Step-by-Step for Section 8 and NBFC)
As there are clear differences between the Section 8 companies and NBFCs, the registration process also varies.
1. Section 8 Company Registration Process
Step 1. Apply for DSC and DIN
To form a Section 8 micro finance company, must first apply for
- DSC: Digital Signature Certificate
- DIN: Director Identification Number
The DSC is required to authorize the e-forms.
Step 2. Apply for Name Approval
The next step in the process is to apply for name approval in Form INC-1. To ensure that the name suggests the firm registered as a Section 8 company, it must have the words sanstha, foundation, or micro credit.
Step 3. File Memorandum of Association (MoA) and Articles of Association (AoA)
Once you are done with the name approval part, your Section 8 company must draft the MoA & AoA and file it along with all necessary documents.
Step 4. File all Relevant Documents
The last step is to file all relevant documents, along with the incorporation certificate and Form INC -12, to obtain a license.The primary documents required for registering a Section 8 micro finance company are as follows.
- PAN Card copy of all directors/promoters
- Identity proof
- Address proof
- Photograph of all directors/promoters
- Proof of ownership of the registered office or rental agreement for the same
- NOC from the owner
- Applicable stamp duty as mandated by the state
- Any other documents as required
Registering a microfinance company as a Section 8 company is relatively easier; however, the lending capacity is also limited. Therefore, an institution must take into consideration all the facts and make a wise decision.
Also read: LLP or Private Limited? Tax, Cost & Funding Comparison Explained
2. NBFC Micro Finance Company Registration Process
Step 1. Register a Company
If you need to be registered as an NBFC micro finance company, the first step is to form a private or a public company.
- At least 2 members and a capital of Rs 1 lakh are needed to form a private company
- To form a public company, at least 7 members are required.
Step 2. Raise Capital
The next step after registering your company is to raise the required minimum net owned funds. Ideally, it is ₹5 Crores, but there is an exception for the northeastern region, where the requirement for the same is ₹2 Crores.
Step 3. Deposit the Capital
When you are done with collecting the capital, the next step is to deposit the capital in a bank. This has to be deposited as a fixed deposit to obtain a ‘No lien’ certificate.
Step 4. Apply for a License
Finally, your NBFC must complete an online application for the license and submit it, along with all certified documents.
A hard copy of the application and license must also be submitted to the regional office of the Reserve Bank of India.
The documents that must be available with the NBFC at the time of filing are:
- Memorandum of Association and Articles of Association
- Incorporation certificate of the company
- Board resolution copy
- Copy of Auditor’s report of receipt of fixed deposit receipt
- Banker’s Certificate of No Lien stating the net owned fund
- Banker’s report about the company
- Recent credit report of the directors
- Net worth certificate of the directors
- Education/professional qualification proof of the director
- KYC and income proof of the director
- Proof of work experience in the financial sector
- Structure plan of the organization
RBI Guidelines for Micro Finance Companies
Microfinance institutions must comply with RBI regulations related to:
- Fair lending practices
- Interest rate transparency
- Borrower protection
- KYC norms
- Recovery and collection practices
- Credit assessment standards
NBFC-MFIs must also maintain proper audit trails and regulatory reporting mechanisms.
Also read: What is LLP Company? Full Form, Benefits, Registration Process & Fees
Micro Finance Company Registration Fees
Based on the way you are registering your micro finance company decides the fee you pay.
For Section 8 companies, the fee includes
- Name approval
- Professional fees
- Digital Signature Certificates (DSC)
- Director Identification Numbers (DIN)
There is a stamp duty too, but in most cases, it is exempted. The overall fee in this case can vary from ₹30,000 to ₹60,000.
In the case of NBFCs, there is no direct application fee charged by the RBI, but there are other cost aspects. These include
- Government filing fees
- Stamp duty
- Professional fees for statutory audits and PRAVAAH portal filings
This can go up to ₹2 Lakh to ₹5 Lakh.
Conclusion
If you are planning to start a micro finance company, you must drill down in detail and learn what is required. To start, learn which way you will be taking, NBFC or a Section 8 company. Both of these need to be understood well, as the requirements vary significantly. Furthermore, keep an eye on the micro finance company registration fees and process. These factors also vary. In the end, partnering with a professional in the field is also crucial. They can make the process easier for you if you are new.
Once the company is set up you also need a robust payments infrastructure to make payments, accept payments, disburse loans, create audit trails and much more. Cashfree has the perfect payments setup you need to run your micro finance company while staying compliant and secure.
Frequently Asked Questions
What is a micro finance company?
A micro finance company provides small-ticket loans and financial services to low-income individuals, small businesses, and underserved communities that have limited access to traditional banking services.
How to start a micro finance company in India?
To start a micro finance company in India, you must first choose a business structure such as NBFC-MFI or Section 8 company. After incorporation, eligible entities must apply for RBI approval, arrange capital requirements, and complete compliance formalities.
Is RBI approval mandatory for micro finance company registration?
RBI approval is mandatory for NBFC-MFI registration. However, Section 8 companies conducting limited non-profit microfinance activities may not require direct RBI registration.
What is the minimum capital required for NBFC-MFI registration?
The RBI requires a minimum net owned fund of ₹5 crore for NBFC-MFI registration. For Northeastern states, the minimum requirement is ₹2 crore.
What is the micro finance company registration fee?
The registration fee for a Section 8 company generally ranges from ₹30,000 to ₹60,000, while NBFC-MFI registration costs can range from ₹2 lakh to ₹5 lakh.
How long does the micro finance company registration process take?
Section 8 company registration usually takes 15–30 days. NBFC-MFI registration may take approximately 3–6 months depending on RBI approvals and documentation.
Can a Section 8 company provide microfinance services?
Yes, a Section 8 company can conduct limited microfinance activities on a non-profit basis subject to applicable laws and operational restrictions.
Is microfinance a profitable business in India?
Microfinance is a profitable business in India and for a few years, this sector has shown strong growth due to high loan demand. However, profitability also depends on collections, funding costs, credit discipline, regulation, and portfolio quality.
