02 October 2012
Can anybody tell me how to create a micro finance company? And also let me know under what status it can be created with related Acts and provisions.
03 October 2012
Get a license If you are setting up a NBFC, the Reserve Bank of India (RBI) is the only authorized body that’s registered to grant you a license. For this, you will need to raise Rs. 2 crore in capital. The process usually takes about three to four months. You can also buy existing licenses of defunct companies from the RBI. This should cost you onwards of Rs. 25 lakh. Check www.rbi.org.in for more information. To obtain a license for a co-operative, contact the Registrar of Corporates.
Conduct a market survey This is a very important stage and shouldn’t be taken lightly. Before narrowing down on a region of your choice, you should conduct a market research / survey of your intended target customer base there to get a feel of things. Make sure you do an in-depth study of the area to understand your customers (in this case, the poor), based on your own criteria. For instance, are you going to work with the rural or urban poor? The needs of customers differ in rural and urban areas. So, choose one and work on your offerings accordingly.
Get a foreign investor You will need additional capital to run your business. This sector finds it easier to get foreign investors, so try and identify one such investor before you apply for a bank loan.
Run a pilot program Once you have a fair idea of the city / town you will begin operations in, it is advisable to run a pilot program in a small way for about 1-1.5 years. This will help you gain first-hand knowledge about your customers and their needs, as well as figure out loopholes in the system and identify areas of opportunity for your MFI. Test your customer base to see if they understand you, your intentions of working with them, and vice versa. More importantly, the pilot program will help you get a bank loan, as banks want to see a good track record of your operations before they sanction a loan. Hence, this stage is crucial.
Personnel required for a MF center To get your MFI up and running, you will need: • 6-8 field staff or ‘lending officers’. They should come from the same class / community of your customer (at least a 10th-standard pass) • 1 cashier with an accounting background • 1 branch manager with adequate experience in sales and / or running a small outfit.
Your field staff will need to go out and interact with your target customers (usually women), hold projection meetings, and encourage them to work with you. Ask your customers to form Self-Help Groups (SHGs) for the sake of operational efficiencies.
Get a bank loan Capital! You can’t do without it if you want to start a full-scale business. For this, you will need a bank loan, preferably sought from a nationalized bank. MFIs fall under the ‘priority sector’ identified by the Government of India. Simply put, 40 percent of a bank’s assets have to be allocated here. Before sanctioning you a loan, any bank—whether public or private—will want to see a good track record of your business.
In addition, banks look at your management structure, business plan, and history of Directors. It’s advisable to source your funds from two or three banks in order to get a substantial capital. No bank will, in any case, give you 100 percent exposure. The maximum you can borrow from banks (in total) should not exceed six times the initial capital—this is considered a prudent limit. An inspector will inspect your operations on the field both before and after the loan is granted.
Some banks that offer loans to MFIs include SIDBI, ABN Amro, HDFC (only on the housing side) and Axis Bank. Time taken: 1-2 months Minimum loan amount: Rs. 25-35 lakh Type: Term loan for 3-4 years
Documents required • Financial statements (balance sheet, annual report, HR policy, etc.) • Rating Report from any good agency (CRISIL, CARE, etc.) • Details of your organization, its management, board of directors, operations and products • RBI license • Memorandum of Association
CAclubindia
