Legal and regulatory framework for microfinance Unit 5 | Micro Finance Notes | B.Com 4th Sem | CBCS Pettern

On this page we have uploaded the Gauhati University Micro-finance B.COM 4th Semester, Unit 5 "Legal And Regulatory Framework For Microfinance" Notes, Which can Be Useful for B.com Final Exams.

Also useful for Dibrugarh UniversityRabindranath Tagore University, Hojai B.Com 4th Sem Students.


Legal and regulatory framework for microfinance Unit 5 | Micro Finance Notes | B.Com 4th Sem | CBCS Pettern


MICROFINANCE B.COM 4TH SEM (G.E)

UNIT - 5


Legal And Regulatory Framework For Microfinance


Q. Discuss the need for separate regulations for microfinance in India.


Ans:- (i)First, the borrowers in the Microfinance sector represent a particularly vulnerable section of society. They lack individual bargaining power, have inadequate financial literacy, and live in an environment.


(ii) -Second, NBFCs operating in the Microfinance sector not only compete amongst themselves but also directly compete with the SHG-Bank Linkage Programme.


(iii) Thirdly, A fair and adequate regulation of NBFCs will encourage the growth of this sector while adequately protecting the interests of the borrowers.


(iv) Fourth, over 75% of the finance obtained by NBFCs operating in this sector is provided by banks and financial institutions including SIDBI.


(v) Finally, to encourage the growth of the Microfinance sector, there may be a need to give special facilities or dispensation to NBFCS operating in this sector.



Q. Discuss briefly the provisions of the Reserve Bank of India act 1934 on microfinance.


Ans:- The Reserve bank of India, the Banking Regulatory Authority of India was established under the Reserve Bank of India Act 1934 For the interest of the regulation of microfinance in India, the 1977 Amendment of this act contains provisions for the establishment and operations of non-bank finance companies (Chapter III-B. Section 45) According to this act, the non-banking institutions can be a company, a corporation, or a cooperative society. A non-bank financial company (NBFC) is a non-banking institution company that takes deposits. NBFCs are registered under this Act (Second Schedule).

Section 251, definitions

'business of a non-banking financial institution' means carrying on of the business of a financial institution referred to in clause (c) and includes the business of a non-banking financial company referred to in clause (f) of the Act: 

'company' means a company as defined in section 3 of the Companies Act, 1956 and includes a foreign company within the meaning of section 591 of that Act.

Section 45-IA: Requirement of registration and net owned fund

No non-banking financial company shall commence or carry on the business of a non-banking financial institution without -obtaining a certificate of registration issued under this Chapter.

Section 45K: Power of Bank to collect information from non-banking institutions as to deposits and to give directions

Subsection (1): The Bank may at any time direct that every non-banking institution shall furnish to the Bank, in such form, at such intervals.

Section 45L, Power of Bank to call for information from financial institutions and to give directions.

Subsection (1): If the Bank is satisfied that to enable it to regulate the credit system of the country to its advantage it is necessary so to do.

Section 45M, Duty of non-banking institutions to furnish statements, etc., required by the Bank.

It shall be the duty of every non-banking institution to furnish the statements, or particulars called for, and to comply with any direction given to it, under the provisions of this Chapter.  Section 45N, Inspection Section 45B, Discloser of information



Q.Write a short note on the Companies act 1956.


Ans:- The companies Act 1956 provides the basis for the incorporation of Local Area Banks, Non-Bank Finance Companies, non-for-profit Section 8 Companies (earlier section 25 Companies), and Nidhis under Section 620. Micro-finance is a source of financial services for entrepreneurs and small businesses. In India there are two types of business models for microfinance activities:

(i)NGO-Not profit ( Trust, Society, Section 8 Companies) and

(ii) For Profit (NBFI-MFI)

Main features of Section 8 Company

(i) Charitable Objects: A section 8 Company has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any other charitable objects.

(ii) Profit for Promotion of objects: In section 8 company will apply its profits (if any) to promoting its objects.

(iii) No Dividends: Section 8 Companies are prohibited to declare and/or pay any dividend to their members.



Q34.Discuss the procedure to follow for registration of a company as a section 8 company.


Ans:- (i)Apply for Digital Signature Certificate (DSC) and Director Identification Number (DIN): To form a company, the first process is to apply for a DSC and DIN. The DSC is essential for authorizing the e-forms.

(ii) Apply for name approval: The next step is to apply for name approval in Form INC-1. The name must suggest that it is registered as a Section 8 company.

(iii) File Memorandum of Association (MOA) and Articles of Association (AOA): After approval of the name the company must draft the MOA and AOA and file it along with necessary documents.

(iv) File all relevant documents: The last step is to file all relevant documents along with the incorporation certificate, and Form INC -12 to obtain a license.

Some Importance documents are required;

a.PAN Card copy of all directors/promoters

b.Documents for identity proof

c.Documents for address proof

d.Photograph of all directors/promoters

e.Proof of ownership of registered office or rental agreement for the same

f. NOC from the owner

g. Applicable stamp duty as mandated by the state.


Q. Discuss the Co-operative Society Act.


Ans:-Co-operative societies are profit-oriented entities that aim to obtain marketability for the products produced by agricultural and other labor-intensive businesses. Based on the recommendations of the Mirdha Committee and the Model Co-operative Societies Act, the Government of India passed the Multi-State Co-operative Societies Act in 2002 which provided for a democratic and autonomous working of the Co-operatives.

Objective;

1. Promotion of cooperative movement.

2. To encourage and promote the growth of cooperative societies.

3. Render services, not for profit.

4. Mutual help, not competition.

5. Self-help, not dependence.


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