Section 8 Micro Finance Company Registration
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.
Minimum Requirements for Section 8 Micro Finance Company Registration
To register a Section 8 Micro Finance Company in India, the following minimum requirements must be fulfilled:
Directors:
- Minimum 2 Directors (for a private limited company) or 3 Directors (for a public limited company).
- At least one director must be a resident of India.
Members:
- Minimum 2 members.
- Maximum 200 members in a private company; no limit in a public company.
Financial Assistance Objective: The main objective must be financial assistance, focusing on activities like promoting financial inclusion, supporting self-help groups (SHGs), rural development, women empowerment, and poverty alleviation through micro-lending.
No Profit Distribution:
- The company must not distribute profits or dividends to its members.
- All income must be used to further the objectives of the company.
Name Requirements:
- The company name should include words like " Microfinance, Microcredit and Micro Etc and must end with Foundation, Association, Forum, Council etc.
- It must not use "Limited" or "Private Limited" in the name.
Capital Requirement:
- No minimum capital requirement is prescribed.
- However, sufficient capital should be available to meet the operational needs of microfinance activities.
Registered Office Address: A valid registered office address along with address proof is required at the time of incorporation.
Benefits of Microfinance Company Registration
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.
Documents required for Microfinance Company Registration
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:
For Directors and Shareholders
PAN Card
Aadhaar Card (Passport, Voter ID, Driving License)
Passport-size Photographs
Address Proof (Bank Statement / Electricity Bill / Telephone Bill – not older than 2 months)
Digital Signature Certificate (DSC)
Proof of Registered Office
Rent Agreement (if rented) or Ownership Document (if owned)
NOC (No Objection Certificate) from the owner
Utility Bill (Electricity / Gas / Water / Property Tax Receipt – not older than 2 months)
Main Features of Section 8 Micro Finance Company Registration
RBI Approval is Not Required
- Generally, NBFCs (Non-Banking Financial Companies) engaged in lending activities need prior approval and registration from the Reserve Bank of India (RBI).
- However, Section 8 Companies engaged in microfinance (as per RBI’s Master Circular dated 01.07.2015) are exempted from obtaining RBI’s registration or approval.
- This exemption reduces regulatory hurdles, cost, and time for starting microfinance activities.
No Minimum Paid-up Capital Requirement
- Unlike NBFCs and Nidhi Companies that have specific capital requirements (e.g., NBFCs require ₹2 crores), Section 8 MFCs have no statutory minimum paid-up capital mandate.
- Founders can start the company with any reasonable amount, making it easier for small groups and NGOs to enter the sector.
Minimum Compliances Compared to Nidhi Companies and NBFCs
- NBFCs and Nidhi companies are subjected to stringent compliance such as periodic returns, capital adequacy norms, deposit limits, RBI reporting, etc.
- Section 8 MFCs are primarily governed under the Companies Act, 2013, with basic annual filings like financial statements and annual returns with the Registrar of Companies (RoC).
- They do not require RBI’s periodic returns or compliance applicable to registered NBFCs.
Cannot Accept Public Deposits
- To protect depositors and ensure financial stability, Section 8 MFCs are prohibited from accepting public deposits.
- They can only provide microloans from their own funds, grants, or permissible borrowings.
Loan Limits for Microfinance Operations
- As per RBI norms, Section 8 MFCs can:
- Provide loans up to ₹50,000 for business enterprises.
- Provide loans up to ₹1,25,000 for housing purposes, like construction, repair, or purchase of a dwelling unit.
- These limits aim to promote financial inclusion and support underprivileged sections of society.
Interest Rate and Processing Charges Regulated by RBI
- Though RBI does not regulate Section 8 MFCs directly, they are expected to follow RBI’s prescribed interest rate and processing fee guidelines for microfinance activities.
- This prevents exploitation of poor borrowers through exorbitant rate.
Legal Recognition and Right to Sue Defaulters
- Being a registered legal entity, a Section 8 MFC can enforce its lending contracts legally.
- In case of non-repayment, the company can initiate legal proceedings against borrowers to recover dues.
Exemption as per RBI Master Circular (2015)
- RBI’s Master Circular RBI/2009-10/6 dated July 1, 2009, explicitly exempts Section 8 Companies engaged in microfinance from:
- Section 45-IA (Registration with RBI)
- Section 45-IB (Maintenance of liquid assets)
- Section 45-IC (Reserve Fund Creation)
- This exemption applies only if:
- The company provides credit within prescribed limits (₹50,000 for business / ₹1,25,000 for housing).
- The company does not accept public deposits.
Definition of Public Deposit Exclusion
- Section 8 MFCs are not considered NBFCs accepting “public deposits” as per Notification No. 118/DG(SPT)-98 dated 31.01.1998.
- This classification exempts them from many strict deposit-taking NBFC norms.
- They are treated differently under RBI’s regulatory framework due to their charitable/non-profit objectives.
Steps for Registration of a Section 8 Micro Finance company
Obtain Digital Signature Certificate (DSC)
- DSC is mandatory for all proposed directors and shareholders.
- It is used for filing forms electronically with the MCA.
Apply for Director Identification Number (DIN)
- DIN is required for individuals to become directors of the company.
- Can be applied while filing the SPICe+ Part B form (if not already available).
Name Approval (Part A of SPICe+)
- File Part A of SPICe+ form with 2 name options.
- The name should end with words like “Foundation”, “Federation”, “Association”, “Forum”, etc.
- Words "Micro Finance/Capital/Credit" can be added to reflect the company’s objectives.
Draft Memorandum & Articles of Association (MoA & AoA)
- Prepare MoA and AoA in line with the objectives of promoting micro-finance activities.
- These documents outline the purpose, scope, and rules of the company.
File SPICe+ Form (Part B)
Includes application for:
- Incorporation
- PAN and TAN
- ESIC, EPFO, GST (optional)
Attach mandatory documents:
- Declaration by directors (INC-9)
- Estimated income & expenditure for next 3 years
- Consent letters from directors
- ID & address proof of directors
- Declaration by the Shareholders/directors (INC-15)
- Proof of registered office (Rent agreement/utility bill)
Receive COI & License
If all documents are in order and MCA is satisfied:
- Certificate of Incorporation (COI) is issued.
- License under Section 8 is granted.
- PAN and TAN is issued.
- PF and ESI registration number also generated.
Differences between Nidhi company and Section 8 Micro finance company
| 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. |
Frequently ask question
What is a Section 8 microfinance company?
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.
Can a Section 8 Company carry out microfinance activities?
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.
Is RBI approval required for starting a Section 8 Micro Finance Company?
No, RBI approval is not required.
What are the minimum requirements to register a Section 8 Micro Finance Company?
- Minimum 2 Directors (for a private company)
- Minimum 2 shareholders
- Registered office address
What is the minimum capital required to start a Section 8 Microfinance Company?
There is no minimum capital requirement prescribed for Section 8 companies by law, but sufficient capital should be available to run microfinance operations.
What is the registration process for a Section 8 Microfinance Company?
- Obtain DSC and DIN
- Name approval
- File SPICe+ Part B Form
- Receive Certificate of Incorporation
What documents are required for registration?
- PAN & Aadhaar of directors
- Address proof of directors
- Proof of registered office
- Projected financial statements
- Memorandum (MOA) and Articles (AOA) of Association
Can a Section 8 Micro Finance Company take deposits from the public?
No, such companies are prohibited from accepting public deposits.
Is it mandatory to have an office in India?
Yes, a registered office address in India is mandatory for incorporating a Section 8 company.
Can foreigners become directors in Section 8 Micro Finance Companies?
Yes, foreign nationals can be directors, but at least one director must be a resident of India.
Are there any compliance requirements after registration?
Yes. Key compliances include:
- Annual filing with ROC (Form AOC-4, MGT-7)
- Income tax returns
- Maintaining proper books of accounts
Can profits be distributed among members?
No, Section 8 Companies cannot distribute profits to members. All income must be used towards the charitable objectives.
Can existing NGOs convert into a Section 8 Microfinance Company?
Yes, subject to approval from the concerned authorities and meeting legal requirements.
Can a Section 8 Microfinance Company provide loans to individuals?
Yes, it can provide micro-loans for income-generating activities, typically to women, SHGs, or rural entrepreneurs.
What is the validity of the Section 8 license?
The license remains valid as long as the company complies with the objectives and regulatory requirements.