How to Get an NBFC License for Microfinance Operations
Microfinance plays a crucial role in empowering underserved populations by providing small loans and financial services to those who lack access to traditional banking systems. In India, companies intending to offer microfinance services must register as a Non-Banking Financial Company (NBFC) and obtain the appropriate license from the Reserve Bank of India (RBI). In this blog, we walk you through the essential steps to get an NBFC license for microfinance operations.
What is an NBFC?
A Non-Banking Financial Company (NBFC) is a financial institution registered under the Companies Act, 2013 and regulated by the Reserve Bank of India. While NBFCs offer services similar to banks such as loans, credit, asset financing, and investments, they cannot accept demand deposits. NBFCs involved in microfinance cater specifically to low-income individuals, offering small loans without the need for collateral.
Why Choose NBFC for Microfinance?
Operating as an NBFC allows microfinance institutions to:
- Legally disburse microloans
- Expand outreach in rural and semi-urban areas
- Attract funding from banks and investors
- Strengthen credibility in the financial ecosystem
Step-by-Step Guide to Getting an NBFC License for Microfinance Operations
1. Form a Company
The first step is to incorporate a Private or Public Limited Company under the Companies Act, 2013. Ensure the company has a clear object clause stating microfinance as a primary business activity.
2. Meet the Capital Requirement
As per RBI guidelines, the minimum net owned fund (NOF) required for an NBFC (including microfinance NBFCs) is ₹2 crores. The capital should be in the form of equity paid up by shareholders.
3. Open a Bank Account
The required NOF must be deposited in a Fixed Deposit account and a certificate must be obtained from the bank confirming the balance.
4. Prepare Necessary Documents
You’ll need the following:
- Certificate of Incorporation
- MOA & AOA
- Board resolution approving NBFC formation
- Banker’s certificate for NOF
- Net worth certificate from a CA
- Business plan for 3-5 years
- Details of Directors and Promoters
- KYC and credit reports of Directors
5. Apply Online via RBI’s COSMOS Portal
Submit your application for NBFC Registration online in India through the RBI COSMOS Portal. Upload the required documents and pay the applicable fees.
6. Submit Hard Copy to Regional RBI Office
After successful NBFC registration online, a hard copy of the application and documents must be sent to the RBI’s regional office. Keep a copy of the acknowledgment.
7. RBI Review and Clarification
RBI may seek additional documents or clarifications. Respond promptly and accurately to avoid delays.
8. Final Approval from RBI
Once satisfied, RBI will issue the NBFC License from RBI in India, allowing your company to begin microfinance operations.
Important RBI Guidelines for Microfinance NBFCs
- At least 85% of loans should be offered to borrowers with an annual household income not exceeding ₹3,00,000.
- Loans should be unsecured and for productive purposes.
- Loan repayment should follow pre-defined installments – weekly, fortnightly, or monthly.
- Cap on interest rates and transparency in pricing must be maintained.
- Periodic reporting to RBI is mandatory.
Why Choose an NBFC Registration Consultant in India?
The process of NBFC registration in India involves detailed documentation, financial scrutiny, and regulatory compliance. A NBFC Registration Consultant in India can help by:
- Drafting business plans and financial projections
- Ensuring RBI compliance and document accuracy
- Managing both NBFC registration online and offline submissions
- Speeding up communication with the RBI
- Minimizing chances of application rejection
Conclusion
Securing an NBFC license in India for microfinance operations is a strategic move for financial service providers aiming to create a social and economic impact. Whether you’re a startup or an established business, expert guidance from a NBFC registration consultant can make the registration journey seamless and efficient.
If you’re ready to begin your online NBFC registration in India, ensure that your business model aligns with RBI guidelines and consider professional support to simplify the process.