Introduction
A finance company is a business that provides loans, credit, or financial services without holding a full banking license. Unlike banks, a finance company cannot accept public deposits unless specifically authorized. However, to start a finance company in India, the individuals or group of promoters are required to first meet the specific criteria. Starting a finance company generally starts with selecting the right business structure, meeting the minimum capital requirements, and securing the mandatory approvals from the Ministry of Corporate Affairs (MCA) or the Reserve Bank of India (RBI).
A finance company in India can be registered via three routes: NBFC registration, NBFC- MFI registration, or Nidhi company registration. However, each structure has its own guidelines, capital requirements, and scope in 2026. Let's dive into this comprehensive guide to explore the route to start a finance company in India, documentation, and the process to apply on the RBI's PRAVAAH portal.
Key Takeaways Before Starting a Finance Company
- Finance Company Structure: To start a finance company, the founders need to register with a specific structure like NBFC (Non-Banking Financial Company), NBFC-MFI, or Nidhi Company.
- Regulatory Authority: The Regulatory Authority for NBFC and NBFC-MFI is the RBI, while the Nidhi Company is regulated by the Ministry of Corporate Affairs.
- Minimum Amount Required: An NBFC and an NBFC-MFI are required to maintain a minimum Net Owned Funds (NOF) of ₹10 crore. For a Nidhi Company, the minimum NOF is ₹10 lakhs.
- Registration Portal: The registration application forms for the NBFC and NBFC-MFI are submitted directly on the RBI PRAVAAH portal. To register for the Nidhi company, Form NDH-4 is used and submitted on the MCA V3 portal.
- Processing Timeline: The final approval for the NBFC and NBFC-MFI set-up generally takes 4-7 months. Whereas, the Nidhi registration process is faster and takes only 2- 3 months.
- Legal Penalties: Operating NBFC activities without prior RBI approval is an offence. Under the RBI Act, the offender may face a fine up to ₹25 crore and 5 years' imprisonment.
Types of Finance Companies in India
A finance company is a business that lends money to people and companies but does not accept traditional cash deposits like a regular bank. Meanwhile, there are three major types of non-banking financial entities in India. However, these structure includes NBFC, NBFC-MFI or Nidhi company is differs primarily in their regulatory oversight, operations, and target audience. The structures can be understood as:
1. Non-Banking Financial Company (NBFC)
NBFC, or Non-Banking Financial Company, is registered under the Companies Act. In India, an NBFC is regulated by the Reserve Bank of India (RBI) under the provisions of Section 45-IA of the RBI Act, 1934. The person or persons have to maintain the minimum Net Owned Fund (NOF) of ₹10 crore for NBFC Registration. NBFCs’ main objective is to offer asset-backed services, commercial lending, personal loans, and investments in securities to individuals, MSMEs, and large corporations across India.
2. NBFC-Microfinance Institution (NBFC-MFI)
An NBFC-MFI is a non-deposit-taking NBFC regulated by the RBI (Reserve Bank of India). The main objective of an NBFC microfinance institute is to provide collateral-free credit to low-income households. The NBFC-MFI has to have a minimum Net Owned Fund (NOF) of 10 crore rupees. However, as per recent Reserve Bank of India (RBI) guidelines, individuals with an annual income of up to Rs 3 lakh can borrow money from an NBFC-MFI. Further, a borrower can’t borrow from more than two NBFC-MFIs at a time.
3. Nidhi Company Registration
The format of Nidhi company registration is given in Section 406 of the Companies Act, 2013. A Nidhi company is a type of Non-Banking Financial Company (NBFC) in India, unlike other companies registered with the MCA. A legally incorporated Nidhi Company can do business only with its members because it is established on a mutual-benefit basis and is not allowed to extend loans to outsiders or the general public. To register a Nidhi company online in India requires a Net Owned Fund (NOF) of ₹10 lakh. Further, it is mandatory for a Nidhi company to scale up to a minimum of 200 members within one year of incorporation.
Important Reminder: As per the MCA's General Circular No. 05/2022, a Section 8 company cannot operate microfinance company activities. The major purpose of the update is to require entities that perform micro-lending to register as a commercial NBFC-MFI with the Reserve Bank of India (RBI).
What Are the Licenses & Regulatory Approvals Needed?
To start any finance company in India, individuals or entities are required to take the few government approvals and mandatory licenses. These are the major regulatory approvals and license which you must obtain before operating non-banking financial activities:
- NBFC License (SBI): When involved in investment, lending, and financial asset activities, registering as a Non-Banking Financial Company (NBFC) is necessary with the Reserve Bank of India (RBI). RBI registration is necessary for the finance company to ensure that both Net Owned Fund (NOF) eligibility standards are satisfied and corporate governance tests are performed.
- Company Registration (MCA/SPICe+): A finance company can only register as a private limited or public limited company under the Companies Act, 2013. Through registration on the MCA portal by using the integrated SPICE+ web form, an NBFC gets legal entity status, raising opportunities for fundraising, banking, and extending contracts.
- GST Registration: Applying for GST registration is mandatory for the finance company if it is providing taxable services in India. It ensures that your fintech complies with the tax and services regime for invoicing and other tax purposes.
- SEBI Registration: If a fintech offers wealth management, investment advisory, mutual fund distribution, or stockbroker services, then registration with the Securities and Exchange Board of India.
- FEMA Compliance: When applying to raise foreign investment via Foreign Direct Investment (FDI) or venture capital, meeting the specific Foreign Exchange Management Act guidelines is crucial. As per the FEMA Act, before securing the foreign funds, you need to take approvals from the RBI (Reserve Bank of India).
- CIMS Portal Registration: Every Non-Banking Financial Company (NBFC) is required to submit the statutory audits, digital lending app details, and periodic returns through the Reserve Bank of India’s Centralized Information Management System (CIMS).
Documents Required to Register a Finance Company
Corporate incorporation papers, Net Owned Fund (NOF) proof, and KYC director information are the major documents required to register a finance company NBFC (Non-Banking Financial Company) in India. To operate NBFC activities in India, individuals are required to obtain approval from both the Ministry of Corporate Affairs (MCA) and the Reserve Bank of India (RBI). The documents are submitted on the PRAVAAH portal with the application form. These are the major documents that you are required to obtain:
Corporate & Incorporation Documents
- Certificate of Incorporation (COI): Required to ensure that the entity is legally registered and authorized by the Registrar of Companies (ROC).
- MOA & AOA: Must mention the main object clause to cover the financial activities in the Memorandum & Articles of Association.
- PAN & CIN of Company: PAN card of the company and the Corporate Identification Number.
- Registered Address Proof: NOC (No Objection Certificate), utility bill (must not be older than 2 months), and rent agreement/ sale deed.
Financial & Capitalization Documents
- Auditor’s Net Owned Fund (NOF) Certificate: The certificate must certify the minimum Net Owned Fund (NOF) of ₹10 crore.
- Banker’s "No Lien" Certificate: Issued by an official letter from the bank stating that the specific deposit or account is free from any claims, charges, or legal backlogs.
- Audited Financial Statement: Last 3 years of the company’s balance sheet and P&L statement. If the entity is newly incorporated, then the opening balance sheet is enough.
- Source of Funds Proof: IT return and bank statements of the promoters. It is required to show a clean and legitimate origin of capital.
KYC Documents of Directors & Promoters
- Identity & Address Proof: All designated directors and shareholders' PAN card, passport, voter ID, or Aadhaar card.
- CIBIL or Credit Report: Detailed credit scores/ reports of all directors and specific shareholders.
- Educational & Qualification Proof: An updated CV showing the director’s experience in banking, finance, or risk management.
- Affidavits & Self-Declaration: Show a clean background history with no criminal records and no prior association with disqualified entities.
Board Resolution & Operational Documents
- RBI Application Authorization: Board Resolution to ensure approval for filing of NBFC license.
- Non-Acceptance of Public Deposits: Board Resolution to declare that the company will not accept public deposits during NBFC activities.
- 5-Year Business Plan: Detailed in a comprehensive report are target markets and product overview, technology architecture, risk management policies, and cash flow projections.
Step- By-Step Registration Process: Start a Finance Company
Whether it is a finance or microfinance company, the whole process follows the same path. To start your finance company in India, follow this procedure:
Step 1: Determine Your Business Model
The initial step is to decide under which finance model you want to operate. The NBFC (Non-Banking Financial Company) is for broad/ large scale lending, investment, and diverse financial services. Whereas NBFC-microfinance targets low-income or rural communities. Nidhi company registration operates under the Companies Act, 2013 and works for mutual benefits.
Step 2: Company Incorporation with MCA
For legal authorization, register your entity either as a private limited or Public limited company on the MCA portal by using the SPICe+ web form. Further, the MOA (Memorandum of Association) must clarify the financial activity as the main objective.
Step 3: Meet NOF Requirements
Must ensure that you meet all financial compliance requirements. The minimum Net Owned Fund (NOF) for a standard NBFC and NBFC-MFI is ₹10 crore. Secure the statutory auditor’s NOF certificate and the No Lien Certificate from the bank. Debt, promoter loans, or borrowed funds cannot be counted towards NOF.
Step 4: Make a Business Plan (5-year)
It is mandatory to make a strong 5-year business plan. This comprehensive report must cover the target market, financial report, risk control, and projects. Having a clear structure and geographic area details is crucial.
Step 5: Navigate RBI PRAVAAH Portal
To submit the application for an NBFC (Non-Banking Financial Company), visit the RBI PRAVAAH portal online. It is the primary portal, which is used for regulatory authorization, validation, and applications. On the portal, attach all prepared documents in order and save the reference number for further status tracking.
Step 6: RBI Verification & COR Issuance
The Reserve Bank of India (RBI) checks all submitted documents and the application and conducts background verification on promoters and directors. Upon successful verification, the Certificate of Registration (COR) is issued.
Note: Rules and regulations often change with new requirements; therefore, always prefer the MCA portal and RBI portal to know exact updates.
What is the Cost to Start a Finance Company in India?
The exact cost to start a finance company in India is entrily depends on the type of business model you select. The cost generally covers the NOF, registration & legal costs, including professional and infrastructure costs. The cost for NBFC, NBFC-MFI, or Nidhi company registration is as follows:
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NBFC (Investment/ Loan Company)
To start an NBFC (Non-Banking Financial Company) in India, a minimum NOF (Net Owned Fund) of ₹10 crore. Whereas, the incorporation and filing cost ranges between ₹15,000 and ₹50,000 and covers the registration fees with MCA, DSC, DIN, and MOA draft. The additional cost is associated with professional service, ranges between ₹50,000 and ₹2,00,000. The professional help to manage the documentation, filing on the portal, and providing the best of their knowledge.
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Microfinance Company (NBFC-MFI)
The new companies applying for the NBFC-MFI registration are required to meet the new NOF guidelines. As per the RBI updates, new companies need to meet the ₹10 crore NOF requirement. Beyond NOF, the additional cost is associated with registration & legal costs, which range from ₹50,000 to ₹2,00,000, including MCA filing for company incorporation and professional services fees.
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Nidhi Company Registration
As per the Nidhi rules, the minimum paid-up equity share capital required is ₹10 lakh during the incorporation process. The set-up and registration cost may range from ₹50,000 to ₹1,00,000 and covers DSC, MCA filing, and professional fees.
Important Reminders: Existing companies that registered as NBFC-MFI must scale up to ₹10 crore by March 31, 2027.
Conclusion
Starting a finance company in India is profitable only when it set-up by a accurate business structure, scrutinized capital, and a clear compliance map. However, costly operational delays occur due to rigid Net Owned Fund examinations, comprehensive documentation, and stringent RBI and MCA timelines. Even minor mistakes trigger heavy penalties or force re-application with comprehensive planning.
With the right guidance and professional expertise, helps to navigate the PRAVAAH portal online, draft broad resolutions, and ensure full regulatory compliance. That's where Juststart performs a crucial role for individuals or entities who want to start a finance company in India, as we ensure entity structure, verify your capital readiness, and streamline your application.
Frequently Asked Questions
Q1. How much capital do I need to start a finance company in India in 2026?
Ans. The minimum Net Owned Fund (NOF) is ₹10 crore to start a Non-Banking Financial Company (NBFC) in India.
Q2. Do all NBFCs need to register with the RBI in 2026?
Ans. No, it is not mandatory for all NBFCs to register with the RBI, but specific conditions apply. Registration with the RBI is not mandatory when a finance company does not use general public funds, has no customer interface, and the asset size is under ₹1,000 crore.
Q3. How long does NBFC registration take?
Ans. The process for NBFC registration, from initial documentation to final approval by the Reserve Bank of India (RBI), typically takes 4 to 7 months.
Q4. Can an LLP apply for an NBFC license?
Ans. No, an LLP is restricted from forming an NBFC in India. This is because only entities can apply which registered under the Companies Act (1956 or 2013) can apply, as mandated under the Reserve Bank of India (RBI) Act, 1934.
Q5. Can a shareholder's loan be used to meet the NOF requirement?
Ans. No, you cannot use the shareholder’s loan to meet the NOF (Net Owned Fund) requirements. Under Section 45-IA of the RBI Act, 1934, NOF is only calculated based on the company’s own capital infrastructure, not using borrowed funds.
Q6. Can foreign investors fund my NBFC's NOF requirement?
Ans. Yes, a foreign investor can fund an Indian entity to meet the Net Owned Fund (NOF) requirement while registering as a Non-Banking Financial Company (NBFC).
