Microfinance Company Registration — NBFC-MFI
A microfinance company in India must be registered with the Reserve Bank of India as an NBFC-MFI (Non-Banking Financial Company — Microfinance Institution) under the RBI's Master Direction – Non-Banking Financial Company – Microfinance Institutions (Reserve Bank) Directions, 2011 (as updated by the comprehensive revisions of 2022). The NBFC-MFI is a specific category of NBFC dedicated to providing collateral-free loans to low-income households — households with annual income not exceeding ?3 lakh. An entity that carries on microfinance business without the requisite NBFC-MFI registration operates illegally as an unregistered NBFC.
Unlike general NBFC-ICC registration, the NBFC-MFI registration carries specific eligibility conditions: the microfinance company must maintain at least 85% of its net assets in qualifying microfinance loans, must lend without collateral, must comply with maximum loan size limits, and must follow the RBI's prescribed repayment schedule requirements. N D Savla & Associates assists promoters planning to set up microfinance companies in completing the NBFC-MFI registration with the RBI, designing qualifying asset-compliant loan products, drafting the mandatory interest rate and credit policies, and achieving full NBFC-MFI compliance from day one of operations.
The RBI's Microfinance Harmonised Framework of 2022 removed the specific interest rate cap and replaced it with a board-approved pricing policy requirement, while extending the regulated microfinance framework to cover all regulated lenders. For new microfinance company registration applicants, the 2022 framework means: no interest rate cap (but a board-approved policy and full disclosure to borrowers are mandatory); common qualifying asset criteria for all regulated lenders; and a harmonised ?3 lakh household income limit across all lender categories.
NBFC-MFI Registration Criteria
| NBFC-MFI Criteria | Requirement | Notes for New Microfinance Company Registration |
|---|
| Minimum Net Owned Fund (NOF) | ?5 crore (?2 crore for NBFC-MFI operating in northeastern states) | New NBFC-MFI registration: must demonstrate NOF in a bank certificate dated within 15 days of the RBI application |
| Qualifying Assets Requirement | Minimum 85% of net assets must be qualifying microfinance assets at all times | Qualifying assets: loans to households with annual income =?3 lakh; collateral-free; loan size =?3 lakh per borrower |
| Household Income Limit | Borrower household income must not exceed ?3 lakh per annum (rural and urban) | Income assessment methodology must be documented in the NBFC-MFI's credit policy; income self-declaration is typically accepted with credit bureau verification |
| Maximum Loan Size | Total microfinance loan outstanding per borrower (across all lenders) must not exceed ?3 lakh | Total indebtedness includes loans from all MFIs, banks, SFBs, and other regulated entities; verified via credit bureau before disbursement |
| Collateral-Free Requirement | Microfinance loans must be collateral-free; no security interest on the borrower's assets | Group liability (JLG model) is not treated as collateral; but personal guarantees from non-borrower third parties are not permitted |
| Interest Rate and Pricing | No specific cap since April 2022; board-approved pricing policy required; total cost of credit must be disclosed upfront | New microfinance company registration applicants must submit a draft interest rate policy to the RBI as part of the business plan |
| Repayment Schedule | Repayment must be in instalments (weekly, fortnightly, or monthly); no bullet repayment structure | Longer tenure products (>2 years) must still have regular instalment repayments; no moratorium on principal for the full tenure |
The 85% Qualifying Assets Test — The Central NBFC-MFI Compliance Requirement
The qualifying assets test is the defining ongoing compliance obligation for a registered microfinance company (NBFC-MFI). At all times, at least 85% of the NBFC-MFI's net assets must be in qualifying microfinance loans. This is not a one-time test at the time of NBFC-MFI registration — it is a continuous daily obligation.
If the NBFC-MFI's qualifying asset ratio falls below 85% (due to loan book contraction, NPA increase, or diversification into non-qualifying loans), the NBFC-MFI must immediately notify the RBI and develop a corrective action plan. Sustained breach of the 85% qualifying assets test can result in the RBI revoking the NBFC-MFI categorisation and reclassifying the microfinance company as a general NBFC-ICC — a regulatory downgrade that removes the specific protections and brand positioning of the NBFC-MFI designation. Our NBFC-MFI compliance team monitors the qualifying assets ratio monthly as part of the NBFC-MFI annual compliance service.
Microfinance Company Registration — Process with RBI
- Incorporate the company under the Companies Act 2013; ensure the MoA includes microfinance lending within its objects.
- Achieve minimum NOF of ?5 crore (?2 crore for microfinance company operating exclusively in northeastern states); NOF must be demonstrated by a CA certificate and bankers' certificate dated within 15 days of application.
- Prepare the NBFC-MFI registration business plan covering the proposed geographic focus, target borrower profile, qualifying asset product design, credit assessment methodology, interest rate policy, and 5-year financial projections; the business plan is reviewed by the RBI for commercial viability and regulatory compliance.
- File the online NBFC-MFI registration application on the RBI's COSMOS portal; submit physical documents to the Regional RBI Office in the region where the microfinance company's registered office is located.
- Respond to RBI queries on the business plan, qualifying asset compliance methodology, proposed interest rate, and credit risk management framework; the NBFC-MFI registration process for a new microfinance company typically takes 6–9 months.
- On satisfaction, the RBI issues the Certificate of Registration specifically as NBFC-MFI; the microfinance company may commence microfinance lending operations immediately on receipt.
Credit Bureau Verification — Mandatory for Microfinance Disbursements
One of the most critical NBFC-MFI compliance requirements for a registered microfinance company is the mandatory credit bureau verification before every loan disbursement. The RBI's Microfinance Framework requires that before disbursing any microfinance loan, the NBFC-MFI must:
- Obtain the borrower's credit bureau report from at least one CIC (Credit Information Company) — CIBIL, Equifax, Experian, or CRIF High Mark — to verify that the total outstanding indebtedness of the borrower across all regulated lenders does not exceed ?3 lakh.
- Verify that no other microfinance loan from another NBFC-MFI, bank, or SFB is already outstanding in excess of the individual lender caps.
- Document the credit bureau verification result in the loan file as a condition precedent to disbursement; lending without credit bureau verification is a direct violation of NBFC-MFI regulations and is a common RBI inspection finding.
?? Loan Card Requirement: The RBI requires that microfinance company (NBFC-MFI) borrowers must be made aware of the total cost of credit before the loan is sanctioned: the annual percentage rate (APR), all fees and charges included, must be prominently disclosed on the loan card (a physical document given to the borrower). The loan card is a mandatory document for microfinance company compliance — not optional. N D Savla & Associates reviews loan card formats and interest disclosure practices as part of NBFC-MFI registration advisory.
Frequently Asked Questions — Microfinance Company Registration
Can a Section 8 company or NGO do microfinance without NBFC-MFI registration?
A Section 8 company or NGO providing microfinance-like loans faces a complex regulatory position. If the lending activity meets the definition of NBFC business (principal business test: financial assets >50% of total assets and financial income >50% of gross income), the Section 8 company or NGO is legally required to obtain NBFC-MFI registration from the RBI regardless of its charitable status. The charitable or non-profit nature of the organisation does not exempt it from the NBFC registration requirement. Many development-sector organisations structure their microfinance activities through a separate for-profit NBFC-MFI company, keeping the NGO activities in the Section 8 entity. Our team advises on the optimal structure for social enterprises seeking to conduct microfinance legally.
What is the difference between SHG-bank linkage and NBFC-MFI model?
The SHG (Self-Help Group) bank linkage model is a direct bank lending model where commercial banks and regional rural banks lend to SHGs; the SHG-bank linkage does not require any NBFC-MFI registration because the lending entity is a licensed bank. The NBFC-MFI model is where the regulated microfinance company itself raises funds from banks, financial institutions, and capital markets, and on-lends directly to individual borrowers or JLGs (Joint Liability Groups). The NBFC-MFI model requires the microfinance company registration with the RBI and ongoing compliance with the NBFC-MFI Master Direction. Most large microfinance institutions in India (Grameen Bank model) operate as NBFC-MFIs.
Microfinance Company Registration (NBFC-MFI)
RBI license, qualifying asset design, credit policy, and ongoing MFI compliance — end-to-end advisory from Mumbai.
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