Micro Finance Company Registration
NBFC-MFI & Section 8 — Done Right

What Is Micro Finance Company Registration?

A micro finance company is a lending entity built to serve borrowers that mainstream banks generally turn away: rural households, self-help groups, women-led micro-enterprises, and small traders with no collateral to offer. Registering one in India means choosing between two regulatory paths — a for-profit NBFC-MFI licensed by the RBI, or a non-profit Section 8 company that lends within tighter limits without needing RBI approval — then completing incorporation, documentation, and (for the NBFC-MFI route) an RBI licensing application.

Neither path is a shortcut. A Section 8 company can be incorporated in a matter of weeks through the Ministry of Corporate Affairs, but its lending capacity is capped and it can never take the company public or raise venture debt the way a licensed NBFC can. An NBFC-MFI takes months and a real capital commitment, but it's the only structure that can scale into a full-fledged, bank-fundable lending business.

NBFC-MFI vs Section 8 vs Trust vs Society vs Cooperative

Every serious microfinance conversation in India eventually runs into five possible legal wrappers. Here's all five, side by side.

A quick way to think about it: Trusts, Societies, and Cooperatives are the older, pre-corporate wrappers that many first-generation Indian MFIs still operate under. Section 8 is the modern non-profit equivalent under company law, with cleaner governance and easier bank dealings. NBFC-MFI is the only one of the five actually regulated as a financial institution by the RBI, and the only one that lets you accept equity investment, borrow from banks at scale, and operate without a lending ceiling tied to net worth.

Most new entrants today choose between Section 8 and NBFC-MFI specifically, because Trusts, Societies, and Cooperatives face growing difficulty raising institutional capital and are increasingly encouraged by regulators and lenders to transition into one of the two company-law structures.

Which Structure Should You Actually Pick?

Ask yourself three questions before locking in a structure.

Do you need external capital beyond your own contribution?

If you plan to raise equity from impact investors, take working-capital loans from banks at meaningful scale, or eventually list, only the NBFC-MFI route gets you there. Section 8 companies can accept grants and donations, but not equity investment in the conventional sense.

Can you commit ₹5 crore in Net Owned Funds before you lend a single rupee?

This is the real gatekeeper. If the answer is no today, a Section 8 company lets you start lending immediately (within RBI's limits for non-NBFC lenders) while you build toward NBFC-MFI capital later. Several established NBFC-MFIs in India began this way.

Is your primary motivation social impact with no profit extraction, or a commercial lending business?

Section 8's entire legal architecture assumes you're reinvesting every rupee of surplus into the mission. If you or your promoters expect dividends, equity upside, or an eventual exit, Section 8 is the wrong wrapper regardless of capital constraints — you'll need NBFC-MFI from day one, or a Section 8-to-NBFC transition later, which is its own lengthy process.

Eligibility Criteria

For NBFC-MFI Registration

• Must first be incorporated as a Private Limited or Public Limited Company under the Companies Act, 2013
• Minimum Net Owned Fund of ₹5 crore, or ₹2 crore for entities headquartered in the North-Eastern states
• At least 60% of total assets must be qualifying microfinance assets (revised down from 75% in June 2025 — verify live before relying on this, as this threshold has moved twice in four years)
• Loans go only to households with annual income up to ₹3 lakh, uniformly applied across rural and urban borrowers since the 2022 framework replaced the old rural/urban split
• A borrower's total repayment obligation across all lenders cannot exceed 50% of their household's annual income
• Directors must satisfy RBI's "fit and proper" criteria — this includes a clean credit history and no history of financial-sector regulatory action
• Capital adequacy ratio of at least 15%, with Tier I capital of at least 7.5%

For Section 8 Microfinance Company

• Minimum two directors, minimum two members (can be the same individuals)
• No minimum capital requirement under company law
• Company's objects clause must state a genuine social or charitable purpose — microfinance framed purely as commerce won't pass MCA scrutiny
• Lending must stay within RBI's prescribed limits for entities operating microfinance activity without an NBFC licence
• Surplus income can only be applied toward the company's stated objects, never distributed as dividend

Documents Required

Missing or inconsistent director KYC across these documents is one of the most common reasons NBFC-MFI applications get sent back for resubmission, so treat this list as a checklist to complete before filing, not during.

Step-by-Step Registration Process

Path A: Section 8 Company

Step 1: Apply for Digital Signature Certificates (DSC) for all proposed directors — needed to sign every e-form that follows. Typically ready in 1–2 working days.

Step 2: Reserve the company name through the SPICe+ Part A service on the MCA portal. Since the entity will operate as a Section 8 company, the name should reflect its non-profit character (words like Foundation, Society, or Federation are common, though not mandatory — check current MCA naming guidelines, as these have been tightened before).

Step 3: Draft the MOA and AOA with microfinance-related charitable objects clearly stated, since this is what RBI and MCA both scrutinise most closely at this stage.

Step 4: File SPICe+ Part B along with the INC-13 (MOA), INC-31 (AOA), and INC-12 (licence application under Section 8) with the Registrar of Companies.

Step 5: Receive the Certificate of Incorporation and Section 8 licence together, once the RoC is satisfied. This typically closes out the company-formation stage entirely — no RBI step follows for a Section 8-only microfinance operation.

Path B: NBFC-MFI

Step 1: Incorporate a Private or Public Limited Company first, with financial services and microfinance lending explicitly named in the objects clause. A private company needs a minimum of two members; a public company needs at least seven.

Step 2: Raise and deposit the Net Owned Fund — ₹5 crore (or ₹2 crore in the North-East) — as a fixed deposit and obtain the banker's "no lien" certificate confirming the funds are unencumbered.

Step 3: Prepare the five-year business plan, director KYC, CA-certified NOF certificate, and every document listed in the section above.

Step 4: Submit the application through the RBI's COSMOS portal, followed by a physical copy to the relevant RBI regional office — RBI still requires both the online submission and the hard-copy set as of current guidance, so confirm this hasn't changed before filing.

Step 5: Respond to RBI's due-diligence queries. This stage is where most delays happen: RBI verifies director backgrounds, cross-checks the NOF certificate, and reviews the business plan for realism, not just completeness.

Step 6: Receive the Certificate of Registration (CoR) authorising the company to commence NBFC-MFI operations. Only after this can the company legally start disbursing microfinance loans at scale.

RBI's Current Regulatory Framework

RBI overhauled microfinance regulation through its Harmonised Regulatory Framework, effective 1 April 2022, and several older "facts" still circulating online no longer apply. Worth knowing before you build a business plan around outdated numbers:

• Fixed loan-amount caps are gone. The old ₹50,000 (rural) / ₹1.25 lakh (urban) ceilings no longer exist as hard limits. Loan sizing is now governed by the 50%-of-household-income repayment cap instead.
• The 26% interest-rate ceiling was removed. NBFC-MFIs now set rates through a board-approved pricing policy, though RBI still monitors for "usurious" pricing and can act on outliers.
• The rural/urban income distinction was scrapped. A single ₹3 lakh annual household income threshold now applies nationwide.
• The qualifying-asset threshold has moved twice. It started at 85% of net assets in 2011, was cut to 75% of total assets in March 2022, and RBI relaxed it further to 60% of total assets in June 2025 after industry pushback over frequent technical breaches. Confirm the current figure against RBI's latest circular before finalising any compliance document, since this number has clearly not stabilised.
• No pre-payment penalties are allowed, and any change to interest rates or charges must be communicated to borrowers in advance and applied only prospectively.

This is a fast-moving area of regulation. If you're building a business plan or compliance calendar around any of these figures, treat this section as a starting point and re-check RBI's official microfinance directions before you finalise anything client-facing.

Registration Fees and Costs

Costs below are third-party estimates gathered from published market rates, not RBI or MCA-fixed figures — confirm current quotes before committing to a budget.

The gap between the two paths isn't just the NOF. It's the sheer volume of professional work an NBFC-MFI application demands — a business plan RBI will actually scrutinise, multiple CA certifications, and a due-diligence process that can run several rounds.

Timeline

The NBFC-MFI timeline is the one entrepreneurs consistently underestimate. Six to twelve months assumes the application is complete and accurate on first submission — incomplete business plans or inconsistent director documentation routinely push this well past a year.

Post-Registration Compliance

Getting registered is the easier half. What follows determines whether the company stays registered.

For Section 8 companies: annual filing of financial statements and annual returns with the RoC, income tax return filing, maintenance of statutory registers, and continued adherence to the "no dividend" rule. Deposits from the public are not permitted — the company can only lend from its own funds, donations, or grants.

For NBFC-MFIs: everything a Section 8 company does, plus RBI-specific obligations — quarterly NBS returns on deposits and prudential norms, Asset-Liability Mismatch (ALM) returns, maintenance of the CRAR and qualifying-asset thresholds on an ongoing basis, and adherence to RBI's fair-practices code on collections and recovery. Falling below the qualifying-asset threshold for four consecutive quarters requires RBI to be notified with a correction plan, not just a one-time fix.

Common Mistakes to Avoid

• Vague or generic objects clauses. RBI and MCA both reject MOAs that don't explicitly name microfinance lending as an object — "general financial services" isn't specific enough.
• Under-capitalising before applying. Attempting to apply for NBFC-MFI status without the full ₹5 crore NOF actually deposited and certified is one of the fastest ways to get an application rejected outright.
• Treating the business plan as a formality. RBI reads these closely. A thin or unrealistic five-year plan is a common, avoidable rejection reason.
• Ignoring director "fit and proper" checks early. A director with an adverse credit history or a pending legal dispute can stall an otherwise clean application for months if this isn't checked before filing.
• Choosing Section 8 purely to avoid RBI, without checking the lending-limit implications. It's the right call for many social enterprises, but not if the underlying goal is a scalable, for-profit lending business.
• Letting statutory filings lapse post-registration. For NBFC-MFIs especially, missed NBS returns or a slipping qualifying-asset ratio can put the CoR itself at risk, not just attract a fine.

Frequently Asked Questions About Micro Finance Company Registration

Why Work With LegalDev

LegalDev handles end-to-end Micro Finance Company Registration in India, from choosing the right structure through incorporation, RBI documentation, and post-registration compliance. Given how often RBI's microfinance framework has shifted in the last four years, working with someone actively tracking current circulars, not a static checklist, matters more here than in most other company registrations. Our team supports both the Section 8 and NBFC-MFI paths, and stays involved through the ongoing compliance calendar once the entity is registered, not just the initial filing.