• Deepak Sharma

Section 8 Microfinance companies: Overview, Requirements & Registration

Updated: Jul 7, 2018

Micro Finance Section 8 Company in India



Microfinance is a source of financial services for entrepreneurs and small businesses, it is a type of Non-Banking Financial Company (NBFC) which is in a business of micro credit finance to individuals and small business. It is also known as Micro Finance Institution (MFI).

In india there are two type of business models for microfinance activities:

1. NGOs Not for profit (Trust, Society, Section 8 companies)

2. For profit (NBFC MFI)


Here we will discuss about companies registered under section ‘8’ of Companies Act, 2013:

A NGO can be registered as a Company under Section 8 of the Companies Act, 2013 (earlier section ‘25’ of Companies Act, 1956) and can also be registered as Trust and a Society. Trust and societies are registered and governed by state government acts and regulation, but a section 8 company is registered under Companies Act, 2013 and governed by Ministry of Corporate Affairs.


A company status is always highly recognized in compare to trust or societ, therefore Section 8 Companies have higher credibility amongst Government departments, Donors and other stakeholder.


Main features of section “8” Company:

· Charitable Objects: A section 8 Company has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other charitable objects.

· Profit for Promotion of objects: Section 8 company will apply its profits (if any) in promoting its objects.

· No Dividends: Section 8 Companies are prohibited to declare and/or pay any dividend to its members.


Section 8 Companies and RBI Approval for Microfinance activity: In india, finance businesses are authorised only to Non-Banking Finance Companies (NBFC) and governed by RBI. NBFCs are required to get registration with RBI and comply with RBI guidelines. However, some business forms have been given exemption by the Reserve Bank of India (RBI) to do finance activities up to a certain extent.

The Reserve Bank of India through its master circular RBI/2015-16/15 DNBR (PD) CC.No.052/03.10.119/2015-16 Dated July 01 2015 has exempted all Sec 25 Companies engaged in microfinance activities.

As per Para 2 (iii):

Sections 45-IA, 45-IB and 45-IC of the Reserve Bank of India Act, 1934 (2 of 1934) shall not apply to any non-banking financial company which is:

(a) engaged in micro financing activities, providing credit not exceeding Rs. 50,000 for a business enterprise and Rs. 1,25,000 for meeting the cost of a dwelling unit to any poor person for enabling him to raise his level of income and standard of living; and

(b) licensed under Section 25 of the Companies Act, 1956; and

(c) not accepting public deposits as defined in paragraph 2(1) (xii) of Notification No. 118 /DG (SPT)-98 dated January 31, 1998.

Find the full copy of master circular here: https://rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=9822


Loan Limits For MFIs:

A. Borrower with a rural household annual income not exceeding Rs. 1,00,000 or urban and semi-urban household income not exceeding Rs. 1,60,000 will be eligible ;

B. Loan amount will not exceed Rs. 60,000 in the first cycle and Rs. 1,00,000 in subsequent cycles;

C. Total indebtedness of the borrower will not exceed Rs.1,00,000

D. Tenure of the loan not to be less than 24 months for loan amount in excess of Rs. 30,000 with prepayment without penalty;

E. Loan to be extended without collateral;

F. Aggregate amount of loans, given for income generation, is not less than 50 per cent of the total loans given by the mfis

G. Loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower


Registration process of Section 8 Microfinance Company:

1. Minimum two people required for registration of Section 8 Company.

2. Documents Required :

· Latest passport size photographs of all Directors/Promoters

· Copy of PAN of all Promoters/Directors

· Identity Proof: Voter ID/DL/Passport/Aadhar


· Address Proof: Bank Statement/Telephone Bill/Electricity Bill (not older than 2 months)

· Property ownership documents of Registered office:

Property Documents or

Rent Agreement or Lease Deed if registered office premise is taken on rent

Electricity Bill (not older than 2 months)

3. Other documents will be drafted by professional (CS/CA)

4. Process:

A. Obtaining Digital Signature Certificate (DSC) and Directors Identification Number (DIN)

B. Filing of Form INC-1 for Reservation of Name

C. After the approval of INC-1, File form INC-12 to registrar for a license under sub section (1) of section 8.

D. Registrar will issue a license in Form INC-16

E. Filing of forms and documents with registrar for incorporation (This is same as in case of public company limited by shares)

F. Issuance of certificate of incorporation by registrar

The article has been prepared considering the relevant Guidelines/Circulars/Notifications/Provisions of the RBI and Companies Act, 2013 and the rules made thereunder. Readers are requested to cross-check the provisions before acting upon the same. The author will not be liable for any damages or penalties caused.

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