Section 8 Company for Microfinance—A Growing Trend in India (2025 Guide)
In recent years, microfinance has become one of the fastest-growing sectors in India, empowering individuals and small businesses with easy access to credit. Interestingly, many entrepreneurs and social organizations are now turning to Section 8 Companies as a cost-effective and compliant way to start a microfinance business.
But why Section 8? How does it work? And what are the compliance requirements? Let’s break it down.
What is a Section 8 Company?
A Section 8 company is a type of company registered under the Companies Act, 2013, primarily formed for charitable and not-for-profit objectives such as education, social welfare, environment, and financial inclusion.
Unlike traditional NBFCs (Non-Banking Financial Companies), a Section 8 company is not primarily profit-driven. Instead, it focuses on community development while still engaging in microfinance activities.
Why Entrepreneurs Are Choosing Section 8 for Microfinance?
- Low Capital Requirement – No need for ₹10 crore net owned fund like NBFCs.
- Easier RBI Compliance – Section 8 companies don’t need RBI registration for small-scale microfinance operations.
- Trust & Credibility—Being recognized as a not-for-profit entity builds social trust.
- Government Support – Eligible for grants, subsidies, and CSR funding.
- Scalability—Can expand operations legally across India.
Legal Requirements & Registration Process
To start a Section 8 company for microfinance, here’s what you need:
- Name Approval via RUN (Reserve Unique Name) service on MCA.
- Digital Signatures (DSC) & Director Identification Number (DIN) for directors.
- Drafting MOA & AOA (Memorandum & Articles of Association).
- Filing SPICe+ Form with Registrar of Companies (RoC).
- License under Section 8 from the Central Government.
- PAN, TAN & bank account opening for the company.
Section 8 vs. NBFC—Which Is Better for Microfinance?
|
Feature
|
Section 8 Company
|
NBFC (Microfinance)
|
|---|---|---|
|
Capital Requirement
|
Very low (No ₹10 crore rule)
|
₹10 crore minimum Net Owned Fund
|
|
RBI License
|
Not required for small-scale lending
|
Mandatory
|
|
Primary Objective
|
Social welfare & community finance
|
Profit-driven financial lending
|
|
Compliance
|
Moderate
|
High
|
|
Funding
|
Eligible for CSR & donations
|
Self-funded / equity / debt
|
If your goal is social impact with microfinance, Section 8 is ideal. If you want large-scale commercial lending, NBFC is better.
Compliance Checklist for Section 8 Microfinance Company
- Maintain proper loan records (borrower details, interest charged).
- Ensure interest rates are reasonable and not exploitative.
- Conduct regular audits.
- File annual returns & financial statements with RoC.
- Follow CSR and taxation guidelines.
Success Stories of Section 8 Microfinance Institutions
- Many rural self-help groups (SHGs) in India have grown into strong microfinance institutions under Section 8.
- Several NGOs have transformed into financial inclusion leaders through the Section 8 structure.
How BizLaw India Helps
At BizLaw India, we specialize in:
- Registering Section 8 Companies for Microfinance
- Handling all compliance & legal documentation
- Assisting in Section 8 company takeovers
- Providing end-to-end support from incorporation to operations
Conclusion
The demand for affordable credit and microfinance is only going to rise in India, especially in rural and semi-urban areas. Starting a Section 8 company for microfinance is not just a business opportunity but also a way to create social impact while ensuring sustainability.
If you’re planning to register or acquire a Section 8 Microfinance Company, BizLaw India can help you get started smoothly.
FAQs
A Section 8 Company is a not-for-profit organization registered under the Companies Act, 2013, mainly for social, charitable, and welfare objectives.
Yes. A Section 8 Company can provide microfinance services for community development without requiring an RBI license (if lending is small-scale).
For small-scale microfinance under Section 8, RBI approval is not required. But for large-scale lending or deposit-taking, RBI registration as NBFC-MFI is mandatory.
Unlike NBFCs (₹10 crore net owned fund), a Section 8 Company has no such huge capital requirement. It can be started with minimal capital.
Yes, it can earn a surplus, but profits must be used for social objectives and cannot be distributed as dividends to members.
Section 8 is low-cost, community-focused, and doesn’t require RBI registration, while NBFCs are profit-driven with strict RBI regulations and high capital requirements.
On average, it takes 10–15 working days to complete the registration and obtain a Section 8 license from the Ministry of Corporate Affairs.
