Microfinance Non-Banking Financial Companies (NBFC-MFIs) play a big role in providing small loans to individuals and businesses that do not have access to banks. If you want to start a microfinance company, you need to get an NBFC license from the Reserve Bank of India (RBI). This guide will help you understand the process in simple words.
What is a Microfinance NBFC?
A Microfinance NBFC (NBFC-MFI) is a type of Non-Banking Financial Company that provides small loans, usually up to Rs. 1.25 lakh, to individuals or small businesses. These loans are often given without collateral, making them accessible to low-income groups.
Eligibility for Microfinance NBFC License
Before applying for an NBFC license registration, you must meet the following criteria:
- The company must be registered under the Companies Act, 2013.
- The company should have a minimum Net Owned Fund (NOF) of Rs. 5 crore (Rs. 2 crore for the North Eastern Region).
- At least 85% of the total assets should be in the form of microfinance loans.
- The company must have experienced directors with knowledge of finance and banking.
Steps to Get a Microfinance NBFC License
Step 1: Register Your Company
The first step is to register your company as a private limited or public limited company under the Companies Act, 2013.
Step 2: Prepare the Required Documents
To apply for an NBFC license, you need the following documents:
- Certificate of Incorporation of the company
- Memorandum of Association (MoA) and Articles of Association (AoA)
- Business plan for at least five years
- Bankers’ report on the company’s financial condition
- KYC details of directors and shareholders
- Net worth certificate of promoters
- Auditor’s report confirming the NOF
Step 3: Deposit the Net Owned Fund (NOF)
You must deposit the required NOF (Rs. 5 crore or Rs. 2 crore for North Eastern states) in a bank and obtain a certificate from the bank.
Step 4: Apply for NBFC License Registration
Once all documents are ready, you need to apply for an NBFC license registration through the RBI’s official online portal. Submit the application along with all necessary documents.
Step 5: RBI Review and Approval
After submitting the application, the RBI will review your company’s financial position, business model, and compliance with regulations. If everything is in order, the RBI will grant you the Microfinance NBFC License.
Other Important NBFC Licenses
While setting up a microfinance NBFC, you might also need to know about other NBFC licenses that can help in business expansion:
1. NBFC Account Aggregator License Online
If your company wants to collect and share financial data from multiple institutions, you can apply for an NBFC Account Aggregator License online. This allows customers to access their financial information in one place.
2. RBI PPI License
If you want to issue prepaid payment instruments (PPIs) like digital wallets or prepaid cards, you need an RBI PPI license.
3. RBI P2P Lending License
If your NBFC wants to operate as a Peer-to-Peer (P2P) lending platform, you must apply for an RBI P2P lending license. This allows your company to connect borrowers with lenders through an online platform.
NBFC Takeover Procedure
Instead of applying for a new NBFC license, you can also buy an existing NBFC. The NBFC takeover procedure involves:
- Conducting due diligence on the target NBFC
- Getting RBI approval for the takeover
- Transferring shares and assets to the new owners
- Complying with RBI regulations and reporting the changes
Conclusion
Getting a Microfinance NBFC license requires proper planning and compliance with RBI rules. If you meet the eligibility criteria and follow the steps correctly, you can successfully start your microfinance business. Additionally, exploring other licenses like the NBFC Account Aggregator License, RBI PPI License, and RBI P2P Lending License can help expand your services. If you're looking for a quicker way, you can also consider the NBFC takeover procedure to buy an existing licensed company.
