Microfinance institutions have become a vital part of India’s financial ecosystem, offering credit to those who are often excluded from traditional banking. If you’re exploring Microfinance NBFC registration, it’s important to understand the specific guidelines and compliance framework laid out by the Reserve Bank of India (RBI).

This guide simplifies the complex legal and regulatory landscape and walks you through the key requirements, capital norms, and steps involved in registering a microfinance NBFC (NBFC-MFI) in India.

What Is a Microfinance NBFC?

A Microfinance NBFC (or NBFC-MFI) is a Non-Banking Financial Company that primarily provides microloans to low-income individuals or groups. These loans are typically unsecured, small-ticket amounts aimed at enabling self-employment, income generation, or emergency needs.

To maintain financial stability and consumer protection, these NBFCs are strictly regulated by the RBI under the Master Direction – Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022.

Who Should Consider Setting Up an NBFC-MFI?

You might consider applying for NBFC-MFI registration if:

• You want to offer small, collateral-free loans to rural or semi-urban populations.
• You aim to serve financially underserved segments of society.
• You're already running a microfinance trust or cooperative and want to scale operations within a regulated structure.

However, setting up an NBFC-MFI is not for everyone. It requires considerable investment, compliance awareness, and a long-term operational plan.

Key Eligibility Criteria for NBFC-MFI Registration

The RBI has laid down strict rules for those looking for a Microfinance NBFC registration online. Here are the main requirements:

1. Minimum Net Owned Fund (NOF)

As per the latest RBI guidelines:

• A company must have a minimum Net Owned Fund (NOF) of ₹5 crore.
• For companies registered in the North Eastern Region, the requirement is ₹2 crore.
• NOF includes paid-up equity capital, free reserves, and share premium, minus accumulated losses and intangible assets.

2. Loan Portfolio Criteria

To qualify as a microfinance NBFC:

• At least 75% of the total assets (excluding cash, bank balances, and liquid investments) must be in the form of qualifying microfinance loans.

These loans must:

• Be unsecured
• Not exceed ₹1.2 lakh for individual borrowers
• Be offered to households with annual income not exceeding ₹3 lakh

This ensures the focus remains on low-income, financially excluded populations.

3. Company Incorporation

Before you can apply to the RBI, you must:

• Register a private or public limited company under the Companies Act, 2013
• Have the main object clause in your Memorandum of Association (MoA) clearly stating microfinance or financial lending services.

This company serves as the legal vehicle for your NBFC operations.

Step-by-Step Process for NBFC-MFI Registration

Setting up a microfinance NBFC is not a one-day process. It involves multiple steps, documents, and ongoing compliance. Here's a simplified roadmap:

Step 1: Incorporate the Company

Begin by registering a private or public limited company with the Registrar of Companies (ROC). Include specific objectives related to microfinance in the MoA.

Step 2: Meet Capital Requirements

Raise the minimum NOF required (₹5 crore or ₹2 crore for Northeast). Ensure the capital is sourced through proper banking channels and can be traced for audit purposes.

Step 3: Open a Bank Account and Deposit NOF

Create a fixed deposit account in the company’s name and deposit the NOF amount. Obtain a certificate from the bank stating that the amount is unencumbered and available for business.

Step 4: Apply to the RBI

Submit an online application via the COSMOS portal and then send a hard copy of the application along with supporting documents to the RBI Regional Office.

Key documents include:

• Certificate of Incorporation
• MoA and Articles of Association
• Directors’ KYC and financial background
• NOF confirmation certificate from the bank
• Detailed business plan for 3–5 years
• Board resolution approving NBFC registration

Step 5: RBI Review and License Issuance

RBI will evaluate the application and may request clarifications or additional documents. Once satisfied, the RBI will issue a Certificate of Registration (CoR), officially granting NBFC-MFI status.

Post-Registration Compliance: You Must Follow

Running a microfinance NBFC means you’re operating under RBI supervision. Here's what you must do regularly:

• File returns (NBS-1, NBS-9, etc.) on time
• Maintain asset classification and provisioning standards
• Ensure fair practices in lending and collections
• Conduct regular internal audits and credit assessments
• Report to Credit Information Companies (CICs) like CIBIL
• Ignoring compliance can result in fines, license suspension, or de-registration.

Common Mistakes to Avoid

1. Insufficient Capital Planning – Many applicants raise funds without proof of traceable transactions, which leads to RBI rejection.
2. Weak Documentation – Poorly prepared business plans or missing KYC documents are major red flags.
3. Not Meeting Loan Qualification Criteria – Lending outside RBI’s defined scope can risk your MFI status.
4. Lack of IT Systems – Digital record-keeping and MIS are increasingly critical for NBFCs.

Final Thoughts

Microfinance NBFCs have the potential to drive meaningful financial inclusion in India, but it’s a highly regulated and capital-intensive space. If you're serious about Microfinance NBFC registration, be ready to invest not just money, but also time and operational discipline.

Consider working with experienced consultants who understand the RBI’s expectations. It could mean the difference between a rejected application and a sustainable, registered microfinance business.

Also Read: Documents required for AIF registration

FAQs

1. Can a private limited company apply for NBFC-MFI registration?
Yes, both private and public limited companies can apply, provided they meet RBI's eligibility norms.

2. How long does it take to register a Microfinance NBFC?
The registration process may take anywhere from 6 to 12 months, depending on the application quality and RBI’s response time.

3. Can I start lending once the company is incorporated?
No, you cannot begin microfinance operations until you receive the RBI’s Certificate of Registration (CoR).

4. Is it necessary to have prior experience in finance to start an NBFC-MFI?
While not mandatory, having a team with financial expertise can significantly strengthen your application and business model.