This document discusses the different legal forms that microfinance institutions (MFIs) can take in India and the associated regulatory frameworks. It outlines not-for-profit entities like societies, trusts, and Section 25 companies; for-profit entities such as non-banking financial companies (NBFCs) and local area banks; and mutual benefit entities like cooperatives and cooperative banks. For each type of legal entity, the document covers aspects such as ownership structure, capital requirements, ability to mobilize deposits and access funding sources, applicable regulatory authorities, and tax implications.
This presentation is based on Financial Inclusion, Financial Inclusion is the process of ensuring access to appropriate financial products and services needed by all sections of the society in general and vulnerable groups such as weaker sections and low income groups in particular at an affordable cost in a fair and transparent manner by mainstream institutional players.
Presentation includes Introduction to Microfinance Industry, Business Process, Strategies, Key Challenges, Future Outlook and Special Issues like Urban Microfinance & Rating of Microfinance Institutions
This presentation is based on Financial Inclusion, Financial Inclusion is the process of ensuring access to appropriate financial products and services needed by all sections of the society in general and vulnerable groups such as weaker sections and low income groups in particular at an affordable cost in a fair and transparent manner by mainstream institutional players.
Presentation includes Introduction to Microfinance Industry, Business Process, Strategies, Key Challenges, Future Outlook and Special Issues like Urban Microfinance & Rating of Microfinance Institutions
With the help of this presentation you will be able to know the financial inclusion status in india. Stats from RBI and Inclusix index also had been included in presentation.
Financial inclusion – objectives - Micro finance as a Development Tool - The Indian Experience - Evolution and Character of micro finance in India - Micro finance Delivery Methodologies and models- Legal and Regulatory Framework- Impact of Micro finance - Revenue Models of Micro finance- Profitability, Efficiency and Productivity Emerging issues
INTRODUCTION, HISTORY OF RBI AND CLASSIFICATION OF BANKSIshwaryaRajesh1
▪ The Reserve Bank of India (RBI) is India's Central banking institution, which controls the monetary policy of the Indian rupee. It is the apex bank in the Indian Banking System.
With the help of this presentation you will be able to know the financial inclusion status in india. Stats from RBI and Inclusix index also had been included in presentation.
Financial inclusion – objectives - Micro finance as a Development Tool - The Indian Experience - Evolution and Character of micro finance in India - Micro finance Delivery Methodologies and models- Legal and Regulatory Framework- Impact of Micro finance - Revenue Models of Micro finance- Profitability, Efficiency and Productivity Emerging issues
INTRODUCTION, HISTORY OF RBI AND CLASSIFICATION OF BANKSIshwaryaRajesh1
▪ The Reserve Bank of India (RBI) is India's Central banking institution, which controls the monetary policy of the Indian rupee. It is the apex bank in the Indian Banking System.
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The Indian microfinance sector witnessed rapid growth over last decade. A microfinance institution acquires permission to lend through registration. Each legal structure has different formation requirements & privileges. Microfinance institutions in India are registered as one of the entities: for profit & not- for profit
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 2013 or 1956 carrying on the business listed under Section 45 I (c ) of the RBI Act, 1934, i.e.
NON - BANKING FINANCIAL COMPANIES IN INDIA & IT'S LEGAL FRAMEWORK Vishnu Rajendran C R
What is a Non-Banking Financial Company (NBFC)?
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property. A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).
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2. Clarity of ownership
Initial capital requirement and capital adequacy
Ability to mobilise deposits
Ability to raise equity
Ability to raise grants
Ability to raise funds from banks
Regulatory authority
Tax implications
3. Type of MFI Legal Form
Not for Profit Entities Society, Trust and Section 25
Companies
For Profit Entities NBFC, Local Area Bank,RRBs
Mutual Benefit Entities Cooperatives,Cooperative Banks
4. • Societies can be registered under the Societies Registration
Act, 1860 or under respective state acts
• A society can be registered by any seven persons
associated for any literary, scientific or charitable purposes
by subscribing their names to a memorandum of
association and filing with the registrar
• Cannot accept public deposit
• Exemption from Income Tax
• Need registration under FCRA to be able to accept foreign
grants
5. • Public Trusts can be established under the respective state
regulations. Private trusts can be established under Indian
Trusts Act 1882.
• Cannot accept public deposits
• Exempt from Income Tax if registered under Section 12A of
the Income Tax Act.
• Need registration under FCRA to be able to accept foreign
grants
TRUSTS
6. Section 25 Companies are promoted for the purpose of
promotion of commerce, arts, religion, charity or any other
useful purpose with the intention to apply its profits, if any,
or other income in promoting only its objects
They are prohibited from payment of dividends to
shareholders
RBI has exempted NBFCs licensed under section-25 of the
Indian Companies Act from registration, maintenance of
liquid assets and transfer of profit to Reserve Funds, provided
they are engaged in micro-financing activities (Rs50,000 for
small businesses and Rs125,000 for housing)
7. Registered under central/state/multi-state co-operative acts.
⇒ Regulated by Registrar of Co-operatives for registration,
management and audit
⇒ Regulated under the Banking Regulation Act, 1949 for licensing,
area of operations and interest rates
Origins in cooperative credit societies which were organised to
provide credit to meet consumption needs of their members, and
relied on principles of thrift and self
Urban cooperative banks were traditionally mandated to lend only
for non-agricultural purposes and were located in urban and peri-
urban areas
8. Established by the Central Government through a notification in the official
gazette notification
Minimum capital requirement is Rs 25 lakhs
The share capital of the RRBs is required to be held by the Central
Government, State Government and Sponsor Bank in the ratio 50:15:35
From the financial year 2006-07 RRBs have been brought under Income Tax
net
RBI has also stipulated that RRBs need to maintain disclose Capital
Adequacy Ratio (CAR) starting March 2008
9. RBI allowed the establishment of Local Area Bank in 1996 with a
view to providing institutional mechanisms for promoting rural
savings as well as for the provision of credit for viable economic
activities in the local areas
LABs to observe priority sector lending targets at 40% of net
bank credit
Lending primarily to agriculture and allied activities, SSI, agro-
industrial activities, trading activities and the non-farm sector
with a view to ensuring the provision of timely and adequate
credit to the local clientele in the area of operation
LABs are registered as public limited companies under the Indian
Companies Act 1956
Are allowed to operate in a maximum of three geographically
contiguous districts
10. • Minimum capital requirement for a LAB is Rs 5 crores
• Promoters of the bank may comprise individuals, corporate
entities, trusts and societies => Can mobilise deposits from
public
• Prudential norms related to banks are applicable
• At present only four LABs are functioning and no new
licenses are being issued
11. Companies registered under Indian Companies Act 1956 can apply to RBI to carry on
the business of an NBFC (except Section 25 companies)
NBFCs are for-profit entities and are taxable
NBFCs are required to have net owned funds of Rs20 millions
⇒ Ownership can be defined precisely and they can raise equity, FDI
⇒ Mobilisation of public deposits allowed but under strict guidelines by RBI
NBFCs are subject to prudential regulations regarding income recognition, asset
classification and provisioning, prudential exposure limits and accounting/disclosure
requirements provided they are mobilising public deposits
Banks are comfortable lending to NBFCs which are well-capitalized and well-
performing