Microfinance Company Registration in India

India has one of the largest unbanked and underbanked populations in the world. For millions of small business owners, farmers, and low-income households, traditional banks are simply out of reach. Microfinance companies bridge this gap. They offer small loans, savings support, and basic financial services to people who need them the most — without demanding collateral or complex paperwork.

If you want to start a microfinance company in India, the process is clear but requires careful planning. You need to follow the right legal route, meet capital requirements, and get approval from the Reserve Bank of India (RBI) or the Ministry of Corporate Affairs (MCA). This guide walks you through everything — step by step.

What is a Microfinance Company?

A microfinance company is a financial institution that provides small loans and financial services to people who cannot access regular bank credit. It is also called a micro-credit institution or microcredit agency. These companies mainly serve:

• Low-income individuals and families
• Small and medium enterprises (SMEs)
• Farmers, artisans, and rural workers
• People in the carpentry, fishing, weaving, and trading sectors

Key features of microfinance loans in India include:

• No collateral required
• Loan amount up to Rs. 50,000 for rural areas
• Loan amount up to Rs. 1,25,000 for urban areas
• Short repayment periods
• Higher repayment rates than traditional banks

2025-2026 UPDATE: The RBI has updated its definition of a microfinance loan. It is now defined as a collateral-free loan given to a household with an annual household income of up to Rs. 3,00,000. The family unit includes husband, wife, and unmarried children.

Types of Microfinance Institutions in India

There are two main ways to register and operate a microfinance company in India:

NBFC-MFI (Non-Banking Financial Company – Microfinance Institution)

This is the most common and regulated route. An NBFC-MFI is a non-deposit-taking company registered with and licensed by the RBI. It can offer a wider range of financial services and lend higher amounts. This route requires a minimum Net Owned Fund (NOF) of Rs. 5 crore (Rs. 2 crore for the North East region).

Section 8 Company (Non-Profit Microfinance Company)

This route is simpler and faster. A Section 8 company is registered under the Companies Act, 2013 as a non-profit organization. It does not require RBI approval. However, it has lower lending limits (up to Rs. 50,000 in rural areas and Rs. 1,25,000 in urban areas) and cannot accept public deposits.

How to Register an NBFC-MFI: Step-by-Step Process

Follow these steps to register your microfinance company as an NBFC with the RBI:

Step 1: Incorporate Your Company

Register a Private Limited or Public Limited Company under the Companies Act, 2013. To do this, file the SPICe+ Form (INC-32) with the Ministry of Corporate Affairs (MCA). This form combines name reservation, company incorporation, DIN allotment, PAN, TAN, and more into a single application. The company name should reflect its financial nature.

• Minimum 2 members and Rs. 1 lakh capital for a private company
• Minimum 7 members for a public company

Step 2: Raise the Minimum Net Owned Fund (NOF)

Once incorporated, raise the required minimum capital:

• Rs. 5 crore for companies across India
• Rs. 2 crore for companies operating only in the North East region

This amount must be deposited as a fixed deposit in the company’s bank account.

Step 3: Open a Current Bank Account and Get a No-Lien Certificate

Open a current bank account in the name of the company. Deposit the fixed deposit amount. Request a No-Lien Certificate from the bank, confirming that no lien has been created on the funds. This certificate is required when applying to the RBI.

Step 4: Prepare All Required Documents

Compile all necessary documents before filing the RBI application. Here is the complete list:

• Certificate of Incorporation from the Registrar of Companies (ROC)
• Certified copy of Memorandum of Association (MOA)
• Certified copy of Articles of Association (AOA)
• Board Resolution supporting the microfinance registration
• Declaration of compliance with RBI rules and regulations
• Auditor’s certificate confirming the minimum capital
• Bankers’ report on transactions with the company
• Educational qualifications and experience certificates of all directors
• PAN card and passport-size photographs of all directors and shareholders
• Proof of identity — Aadhaar card, Voter ID, Passport, or Driving License
• Proof of registered office address (lease agreement or ownership proof)

Step 5: File Online Application with RBI

Submit your NBFC-MFI registration application online through the RBI’s COSMOS portal. Fill in all required details and upload your documents. The RBI has made this process more transparent and structured in its 2025 guidelines.

Step 6: Submit Hard Copies at RBI Regional Office

After submitting the online application, print and submit hard copies of all documents at the RBI’s regional office in your area. The RBI will then conduct a scrutiny and due diligence check to confirm that all requirements are met.

Step 7: Obtain the RBI License

Once the RBI is satisfied with your application and documents, it will issue the Certificate of Registration. This license allows you to officially begin operations as an NBFC-MFI.

How to Register a Section 8 Microfinance Company: Step-by-Step Process

If you prefer a simpler, non-profit route, here are the steps to register under Section 8 of the Companies Act, 2013:

Step 1: Apply for Digital Signature Certificate (DSC) and DIN

All proposed directors must obtain a DSC (Digital Signature Certificate) for signing e-forms and a DIN (Director Identification Number) for official identification in company records.

Step 2: Apply for Name Approval

Apply for name approval using Form INC-1 or through the RUN (Reserve Unique Name) option in the SPICe+ form. The company name must reflect its Section 8 nature. Consider using terms like ‘Foundation’, ‘Sanstha’, ‘Micro Credit’, or ‘Samiti’ in the name.

Step 3: Draft MOA and AOA

Prepare the Memorandum of Association (MOA) and Articles of Association (AOA). These documents define the company’s objectives, rules, and operating structure. For a Section 8 company, the MOA must clearly mention charitable or social objectives.

Step 4: Incorporate the Company via SPICe+ Form

Use the SPICe+ (INC-32) form along with eMoA (INC-33) and eAOA (INC-34) to incorporate the company. This is the default and mandatory method for company incorporation in India. Submit this with all supporting documents.

Step 5: File Form INC-12 to Get a License

File Form INC-12 along with the incorporation certificate and relevant documents to obtain the license for a Section 8 company. This license allows the company to function as a non-profit microfinance institution.

Step 6: Obtain Certificate of Incorporation

Once the Ministry of Corporate Affairs approves all submitted documents, it issues a Certificate of Incorporation. This officially recognizes the company as a legal entity and allows it to begin lending operations.

Eligibility Criteria for Microfinance Company Registration

Before you apply, make sure your organization meets these conditions:

• The company must be registered under the Companies Act, 2013 or the Companies Act, 1956
• For NBFC-MFI: minimum NOF of Rs. 5 crore must be maintained at all times
• At least one director must have experience in the banking or financial sector
• The company must operate as a non-deposit-taking entity
• For NBFC-MFIs: minimum 60% of total assets must be in microfinance loans (updated 2025 rule)
• The company must comply with RBI’s fair lending practices and interest rate guidelines
• All director documents must not be older than 2 months at the time of submission

Benefits of Registering a Microfinance Company in India

There are strong reasons to go through the formal registration process:

• Operational independence — the company becomes self-sufficient once established
• Easy access to funding — investors and institutions are more willing to fund registered MFIs
• Higher repayment rates — MFI borrowers typically repay at higher rates than traditional bank borrowers
• Better rural reach — microfinance companies can operate in areas where banks are not present
• Tax benefits — registered microfinance companies enjoy several income tax advantages
• No minimum capital for Section 8 — easier to start for NGOs and community organizations
• Trust and credibility — formal registration builds confidence among borrowers and donors

Interest Rate and Lending Rules for MFIs

The RBI has set clear guidelines on how much microfinance companies can charge:

• The spread between the minimum and maximum interest rate cannot exceed 4% for any individual loan
• Loan processing charges must not exceed 1% of the gross loan amount
• Interest must be calculated on a declining balance basis — not a flat rate
• Companies can levy separate loan insurance charges
• Typical interest rates in the sector range between 20% and 26% per annum

Key 2025–2026 Updates You Must Know

The following regulatory changes have been made in 2025 and are effective in 2026. If you are registering or operating a microfinance company, these rules directly apply to you.

RBI Reduces Qualifying Asset Threshold to 60%

One of the most significant changes in 2025 came on June 6, 2025. The RBI reduced the qualifying asset limit for NBFC-MFIs from 75% to 60% of total assets. This means NBFC-MFIs now need to maintain at least 60% of their total assets in microfinance loans, down from the earlier 75%.

This change gives MFIs more flexibility to diversify their portfolio. They can now offer other financial products — such as loans to small and medium enterprises (MSMEs) — without breaching the qualifying asset rule. The Microfinance Institutions Network (MFIN) welcomed the change, saying it will help institutions remain compliant while building a more balanced loan book.

If an NBFC-MFI fails to maintain this 60% threshold for four consecutive quarters, it must submit a remediation plan to the RBI.

Updated Minimum Net Owned Fund (NOF) Requirement

As per the latest RBI guidelines, the minimum NOF required to register a new NBFC in India has been raised to Rs. 10 crore. However, for NBFC-MFIs specifically, the minimum threshold under the existing glide path remains at Rs. 5 crore, with a phased increase to Rs. 10 crore. Existing NBFC-MFIs have been given a timeline to meet this higher requirement. If you are registering a new NBFC-MFI in 2025-2026, check the current RBI circular for the exact applicable NOF.

Reduced Risk Weight on Consumer Microfinance Loans

In March 2025, the RBI rolled back stricter rules on bank loans to NBFCs. The risk weight on consumer microfinance loans was reduced by 25 percentage points, bringing it back to 100%. This restores the earlier framework and is expected to encourage banks to increase their lending to NBFCs, including NBFC-MFIs. This should make it easier for MFIs to raise funds from banks at better terms.

Online RBI COSMOS Portal — Now More Structured

The RBI now allows all NBFC registration applications to be submitted online through its COSMOS portal. While physical copies of documents must still be submitted to the regional RBI office, the online process has become more transparent and streamlined as of 2025. This reduces delays and makes tracking your application easier.

Household Income Cap Updated

The RBI has clarified that a microfinance loan must be given to a household with an annual income of up to Rs. 3,00,000. The family is defined as the husband, wife, and their unmarried children. All collateral-free loans to such families — regardless of how the loan is applied or disbursed, whether through physical or digital channels — are classified as microfinance loans under the updated directions.

MCA Clarification on Section 8 Companies

The Ministry of Corporate Affairs has issued updated guidelines on the establishment of Section 8 companies. If you are forming a Section 8 microfinance company, check the latest MCA circulars before filing, as some procedural requirements may have been revised.

Ongoing Compliance Requirements

After registration, microfinance companies must maintain regular compliance:

• File annual returns with the ROC (Registrar of Companies)
• Submit quarterly reports to the RBI (for NBFC-MFIs)
• Maintain the qualifying asset ratio (now 60% for NBFC-MFIs)
• Follow RBI’s fair practice code for lending
• Conduct annual audits and submit auditor’s reports
• Not accept deposits from the public under any circumstances
• Maintain proper records of all loan disbursements, repayments, and interest charges
• Ensure that no single borrower’s total monthly loan repayment burden exceeds 50% of their household income

Conclusion

Starting a microfinance company in India is a meaningful step toward financial inclusion. The two routes — NBFC-MFI and Section 8 company — each serve different purposes. If you want to run a large-scale lending operation with full RBI backing, the NBFC-MFI route is the right path. If you are an NGO or community organization with a social mission and smaller lending volumes, the Section 8 route is simpler and faster.

The 2025-2026 regulatory updates have made the environment more flexible and fair for MFIs. The reduction in the qualifying asset limit to 60%, the simplified online application process, and the eased bank lending norms all point toward a more supportive environment for microfinance in India.

Whether you are a social entrepreneur, an investor, or a non-profit organization, the time to act is now. Follow the steps outlined in this guide, consult a legal or compliance expert, and make a real difference in the lives of millions who need access to credit.

FAQ on Microfinance Company Registration in India