Register your Section 8 Micro Finance Company with the help of MyLegal Business LLP and promote financial inclusion with legal recognition.
A Section 8 Micro Finance Company is a financial institution registered under Section 8 of the Companies Act, 2013, primarily focused on providing small loans to low-income individuals or groups, especially in rural and semi-urban areas. These companies operate with a social mission to promote financial inclusion and empower economically weaker sections, particularly women, by offering credit without collateral.
Unlike NBFCs, a Section 8 Micro Finance Company does not require RBI approval to start operations, making it a more accessible option for social entrepreneurs and NGOs looking to enter the micro-lending space. These companies cannot distribute profits to their members; instead, all earnings must be reinvested to advance the organization’s objectives.
To register a Section 8 Micro Finance Company in India, the following minimum requirements must be fulfilled:
Registering a Microfinance Company, especially as a Section 8 Company, offers several benefits:
Legal Recognition
A registered microfinance company enjoys legal status under the Companies Act, 2013, enhancing its credibility among donors, government bodies, and beneficiaries.
No RBI Approval Required
Unlike NBFCs, a Section 8 Microfinance Company does not need prior approval from the Reserve Bank of India (RBI), making the registration process faster and more accessible.
Social Impact
These companies are allowed to operate with a non-profit motive, helping provide financial services like small loans to self-help groups, women entrepreneurs, and low-income families.
Limited Liability
The liability of the members is limited, which protects their personal assets in case the company faces financial difficulties.
Tax Exemptions
Section 8 Companies can avail various tax benefits and exemptions under the Income Tax Act, especially if registered under Section 12A and 80G. However, it is not suggestible to Register section 8 Companies under Section 80G and 12A.
Credibility and Trust
Being a registered entity boosts the company’s trustworthiness in the eyes of investors, government departments, and funding agencies.
Access to Grants and Donations
A Section 8 Microfinance Company can receive foreign contributions, grants, and donations, provided it complies with applicable laws like FCRA (Foreign Contribution Regulation Act).
Exemption from "Limited" or "Private Limited"
Section 8 Companies are exempt from using "Limited" or "Private Limited" in their names, indicating their non-profit status.
To register a Section 8 Microfinance Company in India, you need to submit various documents related to the company, its directors, and the registered office. Here's a detailed list:
RBI Approval is Not Required
No Minimum Paid-up Capital Requirement
Minimum Compliances Compared to Nidhi Companies and NBFCs
Cannot Accept Public Deposits
Loan Limits for Microfinance Operations
Interest Rate and Processing Charges Regulated by RBI
Legal Recognition and Right to Sue Defaulters
Exemption as per RBI Master Circular (2015)
Definition of Public Deposit Exclusion
Includes application for:
Attach mandatory documents:
If all documents are in order and MCA is satisfied:
SL. No. | Basis of Difference | Nidhi Company | Section 8 Microfinance company |
---|---|---|---|
I. | Governing Act | Companies Act, 2013 & Nidhi Rules, 2014 | Companies Act, 2013 & RBI Guidelines |
II. | Primary Objective | To promote savings among members and lend to them. | To provide microfinance services to uplift the poor. |
III. | Nature of Company | Mutual benefit company | Non-profit company |
IV. | RBI License Required | No RBI license required. | No RBI license required Section 8 license from MCA needed. |
V. | Minimum No. of Members and Directors Required. | A minimum of seven members and three directors are required. | A minimum of two members are required. |
VI. | Minimum capital required | Minimum Ten Lakhs paid-up capital is required for registration. | No such minimum paid-up capital requirement. |
VII. | Use of Profits | Profits shared among members. | Profits used for promoting charitable or financial inclusion activities. |
VIII. | Tax Benefits | No specific tax exemptions. | Eligible for tax exemptions under Section 12AA & 80G. |
IX | Loan Disbursement | Only to members. | To both members and eligible low-income individuals. |
X | Area of Operation | Restricted to a specific district. | Can operate pan-India with proper compliances. |
A Section 8 Micro Finance Company is a not-for-profit company registered under the Companies Act, 2013, with the objective to provide micro-credit and financial services to low-income groups without aiming to earn profits.
Yes, Section 8 Companies can engage in microfinance activities provided the primary objective is charitable and not for profit. They can offer small loans without accepting public deposits.
No, RBI approval is not required.
There is no minimum capital requirement prescribed for Section 8 companies by law, but sufficient capital should be available to run microfinance operations.
No, such companies are prohibited from accepting public deposits.
Yes, a registered office address in India is mandatory for incorporating a Section 8 company.
Yes, foreign nationals can be directors, but at least one director must be a resident of India.
Yes. Key compliances include:
No, Section 8 Companies cannot distribute profits to members. All income must be used towards the charitable objectives.
Yes, subject to approval from the concerned authorities and meeting legal requirements.
Yes, it can provide micro-loans for income-generating activities, typically to women, SHGs, or rural entrepreneurs.
The license remains valid as long as the company complies with the objectives and regulatory requirements.