Starting a Microfinance business in India

India is currently considered the largest emerging market for microfinance institutions (MFIs). Commonly described as the bank for the poor, MFIs offer three basic services: savings, credit and insurance. Setting up an MFI is not a Herculean task – provided your priorities are clear.

Before setting up a microfinance institution, it is imperative to come to a decision about one basic premise: do you want your MFI to be a non-profit or a for-profit institution?

Non-profit MFIs are set up as trusts or societies with the aid of grants and donations, registered under the Societies Registration Act, 1860, or the Indian Trust Acts, 1882. In fact, most such MFIs started out as NGOs.

If you decide to setup a for-profit MFI, there are two models to choose from: a non-banking financial company(NBFC) or a co-operative. Unlike an NBFC, a co-operative is entitled to take on savings accounts. A co-operative brings with it ownership, your customers are also owners.

Get a License from RBI

If you are setting up an NBFC, the Reserve bank of India (RBI) is the only authorized body that’s registered to grant youo a license. For this, you will need to raise Rs. 2 crore in capital. The process usually takes 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 for more information. To obtain a license for a co-operative, contact the Registrar of Companies.

Decide your operational model

Most MFIs use groups for the intermediary financial transactions. But there are different way in which you can work with these groups. MFIs are broadly classified into two models: Self Help Groups (SHGs) and the Grameens. You must also decide the financial and non-financial services that you will be willing to offer. To better understand your customers, conduct a market survey. Also, it is advisable to run a pilot program for around 1 year, which will help you build the cohesion and helps you better tailor your products and services to your clientele.

– You may require 5-6 field workers, people who actually meet and interact with the target customers. It is advisable to choose the field workers with ethnic profile from your customer base.

– You may require few people to look after the accounts, and manage the MSME.

Get a bank loan

MFIs fall under the ‘priority sector‘ identified by the Government of India. The pilot program helps to gain the bank’s trust and put you at an advantage as you approach the banks. As always in business, it is advisable to source your funds from two to three different banks. Below are a few links that may be useful:

RBI revises priority sector lending norms

RBI lending norms

This post will be followed up with more details about the operational models of MFI.


51 thoughts on “Starting a Microfinance business in India

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  3. I want creat microfimance compamy in nadia distric westbengal, can u give detail term and condititon for this licence

  4. sir i want create a microfinance company in jalpaiguri district (state west bengle). pls give me some suggestion.

  5. Sir,Create a Microfinance company depends on the money you raise and following rules of RBI.
    Running the company with good software is foremost thing.
    We are using Octopus Open source software which is less cost then other software

  6. Hi Saikrishna,
    Can you please share the link to the follow up post that discusses the operational models of MFI, if the same has already been published?

  7. So, what’s the procedure to get the existing license. Please update me if this is possible to get.


  8. Sir, I want to start Micro finance Co. in District-Naugaon(Assam). Please tell me how to open a company and from where will I able get the licence.
    Please send me the details information in my

  9. i want to open a micro finance company so please help me out.i dnt know all the process of the buisness…….my contact no is 9038612522.Dipankar Biswas..thank you…

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