Definition and Exemptions
Non-Banking Financial Companies (NBFCs) engaged in microfinance activities registered under Section 8 of the Companies Act, 2013, have witnessed certain exemptions from the Reserve Bank of India (RBI). The specifics of these exemptions are detailed as follows:
1. Definition of Microfinance Loans: The definition of microfinance loans for ‘not for profit’ companies has been harmonized with the revised definition of microfinance loans. These loans encompass collateral-free financial assistance to households with annual income up to ₹3,00,000. It is essential to ensure that the monthly loan obligations of a household do not surpass 50% of its monthly income.
2. Exemptions Withdrawn for Large NBFCs: ‘Not for profit’ companies engaged in microfinance activities with an asset size of ₹100 crore or more will no longer enjoy exemptions from Sections 45-IA, 45-IB, and 45-IC of the RBI Act, 1934. These exemptions have been withdrawn due to the scale and magnitude of their operations.
3. Registration Requirement for Companies Not Eligible for Exemptions: Those ‘not for profit’ companies that do not meet the criteria for exemptions mentioned in paragraph 2 are obligated to register as NBFC-MFIs (Non-Banking Financial Companies – Micro Finance Institutions). They must adhere to the relevant regulations applicable to NBFC-MFIs. Such companies are expected to submit their application for registration as an NBFC-MFI to the Reserve Bank within three months from the date of issuance of this circular. Furthermore, companies that are currently not in compliance with the regulations designated for NBFC-MFIs are required to present a board-approved plan outlining their compliance with the prescribed regulations along with their application for registration.
