Micro Finance Institution - You Shall Know Before Start It!
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Micro Finance Institution is Non-Banking Finance Company incorporated under the Companies Act, 2013. It is licensed and regulated by Reserve Bank of India. The major function of this company is to make small ticket size lending to qualified borrower. The principal business criteria be checked and verified each year to remain such company as Non-Banking Finance Company. Principal business criteria refers to 50% or more financial assets and financial income from total assets and total income respectively. Beside this, the Micro Finance Institution has to maintain at least 85% of qualifying assets.
Qualifying assets refers to assets having below criteria:-
- Loan disbursed to borrower with rural household income not exceeding INR 125K or Urban and Semi-urban household income not exceeding INR 200K;
- Loan amount does not exceed INR 75K in the first cycle and INR 125K in subsequent cycles;
- Total indebtedness of the borrower does not exceed INR 125K;
- Tenure of loan not to be less than 24 months for loan amount in excess of INR 15K with prepayment without penalty;
- Loan to be extended without collateral;
- Total amount of loans, given for income generation, is not less than 50% of the total loans given by the MFIs;
- Credit facility is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower.
In this criteria, qualifying asset to be maintained so that NBFC – MFI can remain and classified as NBFC-MFI. Over and above, such company required to maintain capital adequacy ratio shall not be less than 15% of its aggregate risk weighted assets on –balance sheet and of risk adjusted value of off-balance sheet items. Additional compliance in addition to general one for NBFC-MFI is to become member of at least one self-regulatory organization (SRO) which is recognized by the Bank and shall also comply with code of conduct prescribed by SRO.
As per legacy purpose, to provide the financial solution to grass-root level the idea of Micro-Finance Institution is ruled and practice. Accordingly, the operational guidelines were placed and operating in India Banking and Financial Service Industry as Non-Banking Finance Company as on date are 96 Micro Finance Institution.
Once the idea and product been finalized from the Board of Directors of Company, the Company need to contribute INR 2 Crore as Capital Contribution for North Eastern State, whereas it is INR 5 Crore for the people other than North Eastern State. Board of Directors need to be with clear image and reputation with financial background having interest on company. Moreover the shareholder also need to justify the worthiness of capital contribution to proposed company by them.
The other concern is knowing where to put an application for licensing process. Upon Board, Shareholders and Company satisfied with basic pre requirements of Reserve Bank of India, the company need to file COSMOS digitally to generate reference number and the physical file to be submitted physically in the Central Mumbai.
The end to end process from scratch to execution level is assisted by us, guided and monitor along with reasonable follow-ups with Reserve Bank of India unless until our Client get final decision from Bank. AS this is long and nasty process to be been through, we just assist our client to go smoothly in the process.