Overview

Section 8 Microfinance companies as the name suggests, are financial institutions that provide finances to low-income groups, These companies are introduced to ease the credit system for small businesses as they don’t get a loan from banks due to their complex process. Therefore, it is commonly named as a Micro-credit, Micro-benefit organization. They offer small loans to various small businesses or households that do not have access to formal banking channels or eligibility for loans. The main object of the section 8 microfinance companies are to reduce the poverty in the country, they facilitates the hassle-free loans without more paper works and procedures.
Registration of microfinance companies under section 8 is the most suitable option when you want to start a finance business across India without RBI approval and capital restriction. Section 8 microfinance companies can be started with microfinance objects and social objects to help poor people to reduce poverty. Such companies are exempted from getting license from RBI.
Section 8 microfinance company offers unsecured loan i.e., personal loan, group loan, loan for household, etc. at the interest rates as specified by the RBI norms (currently it is 26% p.a.).

ADVANTAGES
OF SECTION 8 MICRO FINANCE COMPANY

NO RBI APPROVAL REQUIRED

Section 8 microfinance company is exempted to get the RBI Licence.

UNSECURED LOAN

Section 8 microfinance companies have the special advantage to provide unsecured loans i.e., personal loan, group loan, etc.

NO AREA LIMITATIONS

Like Nidhi company, section 8 microfinance company have no jurisdictional or working area restrictions. In simple, section 8 microfinance companies can be operated across India.

PROMOTING SOCIO-ECONOMIC GROWTH

Micro finance companies promote socio economic growth as they are providing loans to needy people.

ATTRACTIVE RATES OF INTEREST

Section 8 microfinance company may offer an attractive rate of interest on a loan provided, which can be up to 26 % p.a. on reducing value.

NEED FOR
MICRO FINANCE COMPANIES

In India there are many institutions like banks, NBFCs, Cooperative Societies, that grant loans. So why we need micro finance companies? Following are the reason of that: -

  • Micro finance company provides financial assistance to enterprises that cannot pledge collateral.
  • It encourages entrepreneurship.
  • It provides much needed support to the start-ups.
  • It offers financial assistance even for nominal amounts which generally are funded as hand loans.
  • It offers collateral free credit to poor men/women through solidarity groups for their sustainable development.

MAIN FEATURES OF
SECTION-8 MICRO FINANCE COMPANY

  • RBI approval is not required.
  • No need of minimum capital of Rs. 5 Crores
  • Minimum Compliances.
  • Can give unsecured loan to small business of Rs. 50,000.
  • Can give loan for dwelling residence up to Rs.1.25 lakhs.
  • Section-8 Micro Finance company have to follow the RBI guidelines on interest rate and processing charges.
  • It is a legal finance business and you can sue the defaulter in case of non-payment of loan amount.
  • 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 Section 25 Companies (Now Section 8 of CA, 2013) engaged in micro finance activities.
  • According to above mentioned circular Sections 45-IA, 45-IB and 45-IC of the Reserve Bank of India Act, 1934 shall not apply to any non-banking financial company which is engaged in below mentioned activities.
  • 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.
  • Licensed under Section 25 of the Companies Act, 1956 / Section 8 of the Companies act 2013.
  • Not accepting public deposits as defined in paragraph 2(1) (xii) of Notification No. 118 /DG (SPT)-98 dated January 31, 1998.

DOCUMENTS/DETAILS REQUIRED FOR REGISTRATION OF SECTION 8 MICRO FINANCE COMPANY

  • Minimum 2 individuals are required for Registration of Section 8 Micro finance company.
  • Proposed names of the company (At least two names)
  • From Both Directors/Shareholders
    1. Copy of PAN CARD
    2. Copy of Voter ID Card/Aadhaar Card/Passport/Driving Licence
    3. Copy of Latest Bank Statement/Electricity Bill/Mobile Bill/Telephone Bill
    4. Passport Sized Photographs
    5. Mail id and Mobile No.
    6. Qualification and Occupation
    7. Shareholding details
  • For proposed registered office
    1. Copy of any utility bill
    2. Copy of NOC from the owner.