Microfinance in India is carried on mainly by NBFC-MFIs registered with the RBI, which must meet net owned fund and lending norms under RBI's microfinance directions, or by Section 8 companies that lend without RBI registration within specified limits. Microfinance loans are collateral-free loans to households within the income limit set by RBI.
NBFC-MFI route
- Incorporate a company and apply to RBI for NBFC registration as an MFI
- Meet the net owned fund requirement
- Keep a minimum share of assets in microfinance loans
- Follow pricing, repayment and conduct norms
Section 8 route
A Section 8 company can carry on microfinance for charitable purposes without RBI registration within prescribed limits, but cannot take public deposits and must use profits for its objects.
Key microfinance rules
- Loans to households within the RBI income ceiling
- Repayment obligations capped relative to household income
- No collateral and fair recovery practices
- Transparent pricing and disclosures
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NBFC-MFIs file RBI returns, follow KYC, credit bureau reporting and grievance redressal norms, and maintain capital adequacy.
Frequently asked questions
Can a Nidhi company do microfinance?
A Nidhi lends only to its members under the Nidhi Rules and is not a microfinance institution in the RBI sense.
How much capital is needed for an NBFC-MFI?
RBI prescribes a net owned fund requirement under its scale-based regulation, with specific requirements for microfinance NBFCs. Check the latest RBI directions before planning.
Can MFIs take deposits?
Most NBFC-MFIs are non-deposit-taking and cannot accept public deposits.
How long does NBFC-MFI registration take?
RBI registration typically takes several months, depending on application quality and queries.
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