Financial inclusion remains one of India's most pressing economic objectives. Millions of households in rural and semi-urban areas still lack access to formal banking services. Microfinance institutions bridge this gap by providing small-ticket loans, savings products, and financial literacy to underserved communities. If you are planning to launch a lending operation targeting low-income borrowers, microfinance company registration is the essential first step.
The regulatory framework for microfinance in India has evolved significantly over the past decade. The Reserve Bank of India (RBI) now classifies microfinance entities under the NBFC-MFI (Non-Banking Financial Company, Micro Finance Institution) category. This classification brings structured governance, borrower protection, and capital adequacy requirements into the sector. Understanding the NBFC MFI registration RBI process is critical for fintech founders, social finance startups, and anyone entering the microfinance space.
Understanding the Microfinance Landscape in India
India's microfinance sector serves over 6.5 crore active borrowers with a combined loan portfolio exceeding Rs. 3.5 lakh crore. The industry has grown from informal self-help groups in the 1990s to a regulated ecosystem of NBFC-MFIs, small finance banks, and Section 8 microfinance companies.
The Malegam Committee recommendations of 2011 shaped the current regulatory framework. Following these recommendations, the RBI created the NBFC-MFI category, defining qualifying assets, interest rate caps, and borrower eligibility criteria. The Microfinance Institutions (Direction), 2022 further harmonised regulations across all entities engaged in microfinance, including banks, NBFCs, and not-for-profit entities.
For entrepreneurs entering this sector, choosing the right legal structure is the foundational decision. The two primary routes are registering as an NBFC-MFI under the RBI or incorporating a Section 8 microfinance company under the Companies Act, 2013. Each path carries distinct capital requirements, regulatory obligations, and operational boundaries.
Types of Microfinance Entities in India
| Parameter | NBFC-MFI | Section 8 MFI | Small Finance Bank |
| Regulator | RBI | MCA (Companies Act) | RBI |
| Minimum Net Owned Fund | Rs. 5 crore (Rs. 2 crore in NE region) | No minimum | Rs. 200 crore |
| Can Accept Deposits | No | No | Yes |
| Profit Distribution | Allowed | Not allowed | Allowed |
| Lending Scope | Microfinance loans | Microfinance and social objectives | Broad lending |
| Ideal For | For-profit MFIs | Not-for-profit MFIs | Scaled-up MFIs |
If your objective is to operate a for-profit lending institution focused on microfinance, the NBFC-MFI route is the appropriate choice. If you prefer a not-for-profit model focused on social impact without distributing profits to shareholders, a Section 8 company registration provides the right structure.
Eligibility Criteria for NBFC MFI Registration with RBI
The RBI has laid out specific eligibility conditions that applicants must satisfy before applying for NBFC MFI registration. Meeting these criteria is non-negotiable.
The applicant entity must be a company registered under the Companies Act, 2013. It can be either a private limited or a public limited company. A minimum Net Owned Fund (NOF) of Rs. 5 crore is required. For entities operating in the North-Eastern region of India, this threshold is reduced to Rs. 2 crore.
At least 75% of the total assets of the NBFC-MFI must be in the nature of qualifying assets. A qualifying asset is a loan that meets the following conditions. The borrower must belong to a household with an annual income not exceeding Rs. 3 lakh (for rural areas) or Rs. 3.6 lakh (for urban/semi-urban areas). The loan amount must not exceed Rs. 75,000 in the first cycle and Rs. 1,25,000 in subsequent cycles. The total indebtedness of the borrower must not exceed Rs. 1,25,000. The loan tenure must be at least 24 months for amounts exceeding Rs. 30,000.
The promoters and directors must satisfy the RBI's "fit and proper" criteria, which includes demonstrating sound financial standing, absence of criminal convictions, and relevant experience in financial services or social development.
Step-by-Step Microfinance Company Registration Process
The microfinance company registration journey involves two distinct phases. First, you incorporate the company with the MCA. Then, you apply for the NBFC-MFI license from the RBI.
Phase 1: Company Incorporation
Begin by incorporating a public or private limited company through the MCA portal. Apply for Digital Signature Certificates and Director Identification Numbers for all proposed directors. Reserve the company name using the RUN service. Draft the Memorandum and Articles of Association with objects specifically permitting microfinance and lending activities.
File the SPICe+ (INC-32) incorporation form along with e-MOA and e-AOA. Once the ROC issues the Certificate of Incorporation, open a bank account in the company's name and deposit the minimum required capital.
For detailed guidance on the company incorporation process, refer to Patron Accounting's private limited company registration or public company registration services depending on your chosen structure.
Phase 2: RBI License Application
Once the company is incorporated and capitalised with the minimum Net Owned Fund, prepare the NBFC-MFI license application for submission to the RBI.
The application is submitted online through the RBI's COSMOS portal. You need to provide the company's Certificate of Incorporation, audited financial statements (if the company has been operational), a board resolution authorising the application, details of promoters and directors along with their net worth statements, a comprehensive business plan covering at least five years, and proof of the minimum NOF deposited in the company's bank account.
The RBI conducts a thorough due diligence of the promoters, evaluates the business plan, and assesses the applicant's capacity to comply with regulatory norms. This review process typically takes 6 to 12 months. The RBI may seek additional information or clarifications during this period.
Upon satisfaction, the RBI issues a Certificate of Registration (CoR) authorising the company to operate as an NBFC-MFI. Without this certificate, no entity can legally carry on microfinance lending as a business.
Key Regulatory Compliance After Registration
Obtaining the NBFC-MFI license is only the beginning. The RBI imposes ongoing compliance obligations that registered microfinance companies must fulfil consistently.
Capital adequacy is paramount. NBFC-MFIs must maintain a minimum Capital to Risk-weighted Assets Ratio (CRAR) of 15%. This ensures the company has sufficient capital to absorb potential losses from its loan portfolio.
The Microfinance Institutions Direction, 2022 mandates that all microfinance loans must be assessed based on the household income of the borrower. The lender must ensure that the total outflow on account of loan repayments (across all lenders) does not exceed 50% of the household income.
Fair practices in lending, transparent disclosure of interest rates and charges, a robust grievance redressal mechanism, and adherence to the RBI's code of conduct for recovery practices are all mandatory. Non-compliance can result in penalties, restrictions on business operations, or cancellation of the registration.
Periodic reporting to the RBI includes filing monthly, quarterly, and annual returns covering financial performance, asset quality, capital adequacy, and borrower outreach data.
Common Challenges in the Registration Process
Many first-time applicants underestimate the complexity of the NBFC MFI registration RBI process. One of the most frequent roadblocks is insufficient capitalisation. The Rs. 5 crore NOF requirement must be met at the time of application, not at some future date. Promoters who plan to raise capital after receiving the license often face rejection.
A poorly drafted business plan is another common pitfall. The RBI expects a detailed, realistic projection covering loan disbursement targets, geographical expansion, operational costs, borrower acquisition strategies, and risk management frameworks. Vague or overly optimistic plans raise concerns during the review.
Promoter background and experience matter significantly. The RBI prefers applicants who have demonstrated experience in financial services, social development, or microfinance operations. A team without relevant credentials may need to onboard experienced professionals before applying.
Engaging qualified professionals, including a Chartered Accountant, Company Secretary, and legal advisor, from the outset can help you avoid these challenges. Patron Accounting offers comprehensive accounting services to support your compliance and financial reporting needs from day one.
Conclusion
Microfinance company registration in India is a multi-layered process that requires careful planning, adequate capitalisation, and a thorough understanding of regulatory expectations. Whether you choose the NBFC-MFI route for a for-profit model or the Section 8 pathway for social impact, each structure demands strict compliance with the governing laws.
The NBFC MFI registration RBI process is rigorous by design. It protects borrowers, ensures institutional stability, and maintains the integrity of the financial system. With the right professional support, a well-drafted business plan, and genuine commitment to financial inclusion, you can build a microfinance institution that serves underbanked communities while remaining commercially sustainable.
If you need guidance with company incorporation, RBI licensing support, or ongoing regulatory compliance, Patron Accounting offers end-to-end assistance for financial services businesses at every stage.
