1. Can an existing Section 8 Company convert into an NBFC-MFI?<\/strong><\/p>\n\n\n\nYes, a Section 8 company can transition into an NBFC-MFI, but it is a complex process. The entity must first increase its Net Owned Fund (NOF) to meet the RBI\u2019s current threshold (currently \u20b910 Crore). Once the capital is secured, the company must apply to the RBI for a fresh Certificate of Registration (CoR) as an NBFC. During this transition, the company must ensure its “qualifying assets” meet the 75% criteria and that its objectives in the MoA are updated to reflect commercial lending.<\/p>\n\n\n\n
2. What is the “Fit and Proper” criteria for Directors?<\/strong><\/p>\n\n\n\nThe RBI mandates that directors of a microfinance company must possess a clean track record. The “Fit and Proper” criteria include:<\/p>\n\n\n\n
\n- Professional Qualifications:<\/strong> Expertise in finance, banking, or social work.<\/li>\n\n\n\n
- Integrity:<\/strong> No criminal record or adverse findings by any regulatory body (SEBI, IRDA, etc.).<\/li>\n\n\n\n
- Financial Soundness:<\/strong> Directors must not be willful defaulters.<\/li>\n\n\n\n
- Conflict of Interest:<\/strong> They should not hold a directorship in another NBFC-MFI that could create a conflict.<\/li>\n<\/ul>\n\n\n\n
3. Is there a limit on the number of MFIs a single borrower can borrow from?<\/strong><\/p>\n\n\n\nTo prevent over-indebtedness, the RBI guidelines stipulate that a borrower cannot have loans from more than three MFIs at any given time. As a new company, you are legally required to verify the borrower’s current outstanding debt through Credit Information Companies (CICs) like CIBIL or Equifax before sanctioning a new loan.<\/p>\n\n\n\n
4. Are foreign investments (FDI) allowed in Indian Microfinance companies?<\/strong><\/p>\n\n\n\nYes, 100% Foreign Direct Investment (FDI) is permitted in NBFCs via the automatic route, provided the minimum capitalization norms are met. However, if the MFI is registered as a Section 8 (Non-Profit) company and wishes to receive foreign funds for its operations, it must obtain registration under the Foreign Contribution (Regulation) Act (FCRA) from the Ministry of Home Affairs.<\/p>\n\n\n\n
5. What are the “Scale-Based Regulations” (SBR) applicable to MFIs?<\/strong><\/p>\n\n\n\nThe RBI classifies NBFCs into four layers: Base, Middle, Upper, and Top. Most new microfinance companies start in the Base Layer (NBFC-BL). As your asset size grows, typically beyond \u20b91,000 Crore, the company may move to the Middle Layer, which triggers more stringent compliance requirements regarding capital adequacy, internal audits, and corporate governance disclosures.<\/p>\n\n\n\n
<\/p>\n","protected":false},"excerpt":{"rendered":"
Are you looking for a business opportunity that is long-lasting and profitable? Starting a microfinance business can be the best bet. Why? It is simple\u2013the demand for credit across low-income earners and unbanked populations is rising like never before. It means you do not have to look for potential customers to grant loans with a […]<\/p>\n","protected":false},"author":8,"featured_media":7315,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[528],"tags":[1131,1130],"class_list":["post-7303","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-nbfc","tag-how-to-start-a-microfinance-business","tag-how-to-start-a-microfinance-company"],"blocksy_meta":[],"_links":{"self":[{"href":"https:\/\/advisou.com\/blog\/wp-json\/wp\/v2\/posts\/7303","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/advisou.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/advisou.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/advisou.com\/blog\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/advisou.com\/blog\/wp-json\/wp\/v2\/comments?post=7303"}],"version-history":[{"count":10,"href":"https:\/\/advisou.com\/blog\/wp-json\/wp\/v2\/posts\/7303\/revisions"}],"predecessor-version":[{"id":7318,"href":"https:\/\/advisou.com\/blog\/wp-json\/wp\/v2\/posts\/7303\/revisions\/7318"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/advisou.com\/blog\/wp-json\/wp\/v2\/media\/7315"}],"wp:attachment":[{"href":"https:\/\/advisou.com\/blog\/wp-json\/wp\/v2\/media?parent=7303"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/advisou.com\/blog\/wp-json\/wp\/v2\/categories?post=7303"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/advisou.com\/blog\/wp-json\/wp\/v2\/tags?post=7303"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}