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Published on 11 April 2025

Understanding Microfinance Companies in India: Regulations and Types for 2025

Introduction

Microfinance companies play a crucial role in promoting financial inclusion in India by providing credit and savings options to underserved communities in rural, semi-urban, and urban areas. For those interested in establishing or operating a microfinance company in 2025, it is vital to understand the current regulatory framework.

Types of Microfinance Companies in India

1. NBFC-MFI (Non-Banking Financial Company – Micro Finance Institution)

  • Mandatory RBI Approval: Registration with the Reserve Bank of India (RBI) is required.

  • Minimum Net Owned Fund (NOF): By 2025, new applicants must have a minimum NOF of ₹10 crores. Existing NBFC-MFIs need to have ₹5 crores by March 31, 2025, and ₹10 crores by March 31, 2027.

  • Director Requirements: Directors must be deemed “fit and proper,” but there is no formal requirement for 10 years of experience.

  • Application Process: Applications can be submitted online via the RBI PRAVAAH portal, along with requisite supporting documents.

  • Compliance: Must comply with the Companies Act, 2013, and the RBI’s NBFC-MFI Master Directions.

2. Section 8 Microfinance Company

  • No RBI Approval Required: Section 8 companies are not required to register with RBI if they adhere to micro-lending limits and do not accept public deposits.

  • No Minimum NOF or Paid-Up Capital: While no minimum is specified, registration fees and authorized capital requirements apply.

  • No Experience Requirement: No formal experience is mandated for directors.

  • Registration Process:

    • Obtain Digital Signature Certificate (DSC) and Director Identification Number (DIN) for directors.
    • Apply for name approval and file the Memorandum of Association (MOA) and Articles of Association (AOA) with the Registrar of Companies.
    • Complete the incorporation process as a Section 8 company.

  • Lending Limits:

    • Up to ₹50,000 for small business loans.
    • Up to ₹1,25,000 for housing loans provided to impoverished individuals.

  • Legal Operations: Recognized as legitimate financial entities and can take legal action for loan recovery.

  • Cannot Accept Public Deposits: These companies must focus solely on micro-lending to maintain their RBI exemption.

Key Advantages of Section 8 Microfinance Companies

  • No Minimum Capital Limit: Initiation possible with as little as ₹10,000.

  • Legal Lending: Capable of providing unsecured loans within established limits.

  • Funding Options: Eligible to borrow from banks, financial institutions, and directors.

  • Exemption from RBI Registration: Complying with the lending limits and not accepting public deposits ensures this exemption.

Compliance Checklist for Microfinance Companies (2025)

NBFC-MFI:

  • Register with RBI and maintain the minimum NOF.
  • Adhere to RBI’s fair lending practices and reporting obligations.
  • Ensure all directors meet the “fit and proper” criteria.

Section 8 Microfinance Company:

  • Register under the Companies Act, 2013.
  • Ensure lending remains within the prescribed limits.
  • Avoid accepting public deposits.
  • Follow RBI’s fair lending practices and maintain transparency.

FAQs

  • Q: What is the minimum NOF for NBFC-MFI registration in 2025?

    • A: ₹10 crores for new applicants; existing NBFC-MFIs must have ₹5 crores by March 31, 2025, and ₹10 crores by March 31, 2027.

  • Q: Does a Section 8 microfinance company need RBI approval?

    • A: No, as long as it lends within specified limits and does not accept public deposits.

  • Q: Can Section 8 companies charge any interest rate?

    • A: While there is no formal cap from RBI, they must follow fair practices and transparency norms, and excessive rates are discouraged.

  • Q: Can Section 8 companies accept deposits?

    • A: No, they are prohibited from accepting public deposits.
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