How to start a finance company in India?

Index

1. Introduction
2. About finance companies
3. Microfinance Institutions and their goals
4. How to start a finance company in India

Introduction:

A finance company is built on the primary goal of providing loans to individuals and other companies. These finance companies aim to fulfill all the financial needs and requirements of their customers. Obviously, these are just small-term loans as a small finance company is not capable of providing long-term goals. Hence, a little financial company acts as a bank for the poor. So, if you know your goals and keep your priorities straight, then it is easy to get the answer for how to start a finance company. In the beginning, your customers may include small-time farmers, startups, and other small businesses.

About finance companies:

Before getting into ‘how to start a finance company in India‘, let’s discuss the finance companies and how they function.

As of 2020, India is one of the most important upcoming markets for Small Financial companies, also called Micro-Finance Institutions (MFI). These MFIs primarily target rural areas. People in the lower middle category usually opt for easy loans through moneylenders and such. But, these moneylenders offer a high-interest rate which later becomes a burden for the people. In such times, these MFIs come into play. After obtaining an official license from the RBI, these financial companies can start their service. Primarily, if the amount of loans is less than INR 50,000, then, no collateral or marginal money is required. Besides this, the borrowers get a much easier repayment option. Even though these financial companies charge a high-interest rate when compared to that of urban areas, it is still marginally less than what the moneylenders charge. Hence, this is one of the necessary information required before jumping into the ‘how to start a finance company‘.

Micro-Finance Institutions and their goals:

MFIs are making this world a better place by reaching out to many people in rural areas. As explained above, MFIs mostly target rural areas with a set of targets and goals in mind. They are:

• Strengthening women’s participation in different social events and even their involvement in activities that generate income.
• Providing better health care access to the people and also providing them insurances.
• Eliminating the economic needs of children to skip schools and do menial chores.
• Educating and teaching the public about resource management and how to apply it practically.
• Increasing employment opportunities and creating jobs for poor people.

Now, let’s get into how to start a financial company in India.

How to start a finance company in India?

Starting these finance companies require a lot of primary knowledge of the needs of a customer and how the process works. After this, it is vital to map out the process for how to start a finance company and make it successful. For this, the two basic requirements are to comply and agree with the strict regulations and even get a hold of the initial funding needs. This is because, to provide loans, the company should have initial or capital money.

To make a profit, a Financial company has to be registered either at a Non-Banking Financial Company or a Co-operative society. After a while, it is easy to receive findings as the company starts to attract market investors. It should also keep in mind that many Finance companies start as Non-profit organizations that gradually convert into a big financial institution. This is because the investors would also be expecting a marginally higher profit.

The registration process for how to start a finance company:

To start a profitable finance company in India, let’s learn about the documents required before beginning the registration process. The essential documents listed below-

• Director’s/Shareholder’s KYC and income proof
• Director’s Education/Professional qualification proof, along with evidence of the work experience in the field of the financial services sector.
• Net-worth certificate of all the directors and shareholders
• Latest credit report of the directors and the board members of the company.
• MOA and AOA of the board depicting the business.
• Company incorporation certificate.
• A Banker’s certificate of No Lien supporting Net Owned Funds of five crore rupees.
• Banker’s report about the financial company and its group
• Organization’s Structure Plan
• Decision-making process for Approval or Rejection of the loan requests

The step-by-step process for registering the company:

Now, let’s discuss the step-by-step process of how to start a finance company in India.

• Register the company: The first step is to register the startup finance company. This can be registered as a private or public company.
• Raising capital: Having a minimum paid-up capital of five crores is mandatory for an NBFC registration. Hence, the minimum capital of five crores is compulsory.
• Certificate of No Lien: Depositing the money of ₹ five crore rupees as a Fixed Deposit to obtain the license of No Lien.
• Register with RBI: Filing an online application with RBI to get your consent and to start your finance company. This application is to be filed with other required documents.
• Registering with the RBI: Once all the documents are filed. The physical copy of the application form, along with the documents, has to be sent to the Regional Office to the RBI.