In India, to register an NBFC’s are governed by the Reserve Bank of India (RBI) and require a minimum capital of Rs.2 crore (5 crores in case of micro finance) to start with. Further getting the RBI license is a huge task and takes almost 5 to 6 months to gets the complete procedure done. Also, there is no guarantee that RBI will grant you the finance license.

Let us discuss advantages and disadvantages of NBFC registration:

Advantages of NBFC registration

• Most authentic finance company option
• Proper licensing through Reserve Bank of India
• Can work anywhere in India
• Can accept foreign investment up to certain limit.

Disadvantages of NBFC registration

• Capital requirement too high
• It is not easy to get the RBI license
• Very High compliance cost

It is one of the best and the easiest option to start your finance business in India. Nidhi Company can be started with 5 lakh capital and can be registered in 15 to 20 days. Under this option, one can accept deposit and grant loan.

Let us understand the basic requirements of Nidhi company registration:

• Minimum capital of Rs.5 lakh: A Nidhi companies can be started with a minimum capital of Rs.5 lakh and in a span of a year, the same needs to be raised to 10 lakh.

• A minimum person required: To start a Nidhi Company in India, a minimum of 7 persons are required out of which 3 people are elected as a director of the company.

• Documents required for registration: The documents required for Nidhi Company registration are as follows:

For directors and shareholders:

• PAN Card
• Photo
• Identity proof (Aadhar card, Voter ID card)
• Address proof (Mobile bill/ Bank statement)

For Registered office

• Electricity bill
• NOC
• Rent agreement (in case premises are registered).

Chit Fund Company is another type of finance company in India which does not require Reserve bank of India (RBI)’s approval. Chit Fund Companies are governed by Chit Fund Act 1982 and RBI has specifically exempted from its core provisions. Chit Fund Companies are widely famous with their name known as ‘committee’.

Basic terms to understand Chit Funds

To understand how the Chit Fund companies work, we must understand few terms which will be used during the process.

• Foremen: Foremen are the person who manages all the chit fund activities and against which he charges a monthly commission which is around 5% of the total chit value.
• Members: Members are the person who contributes to the Chit on a monthly basis a fixed sum.
• Bid Amount: Bid amount is sum of money which is proposed by the members to be forgone. The highest bid is selected and pool is disbursed to the member.
• Dividend: Dividend is the sum forgone by the members to collect the bid amount offered less the commission charged by the foremen.

Documents required for Chit Fund Company registration

Initially, the following documents shall be required for Chit fund company registration:

For every director and member

• PAN card
• ID proof
• Bank statement/Electricity bill/Mobile bill/telephone bill – Anyone.
• Other documents as per Chit registrar.

For registered address

• Ownership document or rent agreement
• Electricity bill
• Copy of NOC

Let us understand how the chit fund companies or the committee works and will then proceed to how the company is registered in terms of Chit Fund Act, 1982.

A Micro finance Company which is also commonly known as Micro credit organization deals in small loan which is less than Rs.50,000 to various household, small businesses who do not have access to formal banking channels or eligibility for loans.

How to register micro finance Company in India?

There are two option by which micro finance can be registered in India one is through NBFC and another through Section 8 company. NBFC require 5 crore capital but section 8 does not require any minimum capital. Here is the process:

# Prepare DSC and file Name Approval: The first step is to prepare DSC and DIN. This takes sometime one to two days. Thereafter, you need to file for name approval. The name should be unique and should end with words like foundation, sanstha etc.

# File for License: After getting name approved, the next step is to prepare all the documents and then apply for license to do Micro finance business in consonance with prescribed RBI guidelines.

# File for Incorporation: After getting the license, we need to file for incorporation and once company is incorporated, you can start the micro finance business in India. However, please remember that you cannot take any deposit under section 8.

Documents Required for Micro Finance Company Registration

• For Directors/Shareholders
• Copy of PAN Card
• Aadhar Card
• Address Proof (Bank Statement, Mobile Bill, Telephone Bill)
• Passport Size Photo
• For Registered Office
• Ownership Proof (Electricity bill etc)
• Utility Bill (Gas bill, Electricity bill)
• NOC(Download format)