How to Start a Microfinance Company in India – Complete Setup Guide (2026)
What is a Microfinance Company?
A microfinance company provides small loans to:
- Low-income individuals
- Women entrepreneurs
- Rural borrowers
- Self-help groups (SHGs)
- Small business owners
Large-scale microfinance companies must register with the Reserve Bank of India as an NBFC-MFI.
Step 1: Decide the Legal Structure
To start a microfinance company in India, you must incorporate:
- Private Limited Company (most recommended)
- Public Limited Company
Under the Companies Act, 2013.
Societies and trusts can operate small lending models but cannot function as NBFC-MFI without RBI registration.
Step 2: Arrange Minimum Capital
The biggest requirement is:
Minimum Net Owned Fund (NOF): ₹10 Crore
(₹5 Crore for North Eastern states)
This capital must be:
- Fully paid-up equity
- Properly documented
- Free from legal encumbrances
RBI strictly verifies source of funds.
Step 3: Draft Proper Object Clause
Your company’s Memorandum of Association (MOA) must clearly mention:
- Financing activities
- Lending operations
- Microfinance services
- Financial services business
Improper drafting can delay RBI approval.
Step 4: Prepare Detailed Business Plan
RBI evaluates:
- 5-year financial projections
- Target borrower segment
- Risk management framework
- Internal controls
- Technology infrastructure
A strong business plan improves approval chances significantly.
Step 5: Apply for RBI Registration
Application is submitted through RBI’s online portal.
RBI checks:
- Promoter background
- CIBIL reports
- Income tax records
- Governance structure
- Compliance readiness
If satisfied, RBI grants Certificate of Registration (CoR).
Cost to Start a Microfinance Company in India
Approximate investment includes:
- ₹10 Crore capital
- Company incorporation cost
- Professional advisory fees
- Compliance setup cost
- Office & operational setup
Total investment can exceed ₹10–12 Crore including capital.
Timeline to Start Microfinance Company
From incorporation to RBI approval:
6 to 12 months (average)
Delays usually occur due to documentation gaps or capital trail issues.
RBI Compliance After Registration
Once licensed, microfinance companies must comply with:
- RBI Master Directions
- Fair Practices Code
- KYC & AML norms
- Reporting obligations
- Prudential norms
Regular compliance is essential to avoid penalties.
Can You Start Microfinance Without RBI Licence?
If you operate at very small scale using own funds, you may register as:
- Section 8 Company
- Trust
- Society
However, for scaling and raising funding, RBI registration is mandatory.
Benefits of Starting a Microfinance Company
- Growing financial inclusion market
- Strong demand in rural India
- Opportunity for institutional funding
- Long-term scalable business model
Social impact + profitability
FAQs – How to Start a Microfinance Company in India
Is RBI registration mandatory?
Yes, for NBFC-MFI operations at scale.
What is minimum capital required?
₹10 Crore (₹5 Crore for NE states).
How long does approval take?
6–12 months typically.
Can foreign investors invest?
Yes, subject to FEMA and FDI rules.
