If Part One outlined the vision and lessons from global leaders, Part Two provides the step-by-step execution plan for building a microfinance institution (MFI) in India that is compliant, self-sustaining, and globally scalable.
Registration & Legal Framework
Step 1 — Choose the Right Legal Structure
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NBFC-MFI (RBI Regulated): Best suited for scale, commercial funding, and credibility.
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Section 8 Company: For NGOs/social enterprises with donor funding focus.
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Trust/Society/Cooperative: For smaller, community-run pilots.
Step 2 — RBI License for NBFC-MFI
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Minimum Net Owned Fund (NOF): ₹5 crore (₹2 crore in North-East).
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Incorporate under Companies Act, 2013.
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Apply to RBI (CARN + detailed documents including MOA, AOA, promoters’ details, financial projections).
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RBI conducts fit & proper test → inspection → Certificate of Registration issued.
Step 3 — Compliance Conditions
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85% of loans to households earning ≤ ₹3 lakh annually.
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75% of loans ≤ ₹1.25 lakh per borrower.
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Mandatory credit bureau reporting & grievance redressal system.
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Adherence to RBI Fair Practices Code.
Procedural Working Model
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Mobilization: Identify villages → form SHGs/JLGs → financial literacy training.
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Loan Cycle: Begin with ₹10,000–30,000 → progressive lending → group guarantee.
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Repayment: Weekly/fortnightly via digital channels (UPI/AEPS).
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Recycling: Repayments recycled into new loans — ensures self-running fund.
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Graduation Pathway: Borrowers transition to SME loans, insurance, savings, and formal banking.
Funding Sources
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Domestic:
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NABARD refinance
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SIDBI wholesale lending
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CSR contributions (mandatory 2% CSR spend by corporates)
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Global:
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Diaspora bonds (modeled on Israel/India remittance channels)
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Impact investors (BlueOrchard, Oikocredit, Acumen)
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Development Impact Bonds (Village Enterprise model)
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Retail:
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Crowdfunding platforms (Kiva-like digital channels)
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Philanthropy-backed digital apps
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Self-Sustaining Model: Interest spreads (within RBI-regulated margins) should cover operating costs in 3–5 years.
Institutional Structure & Scaling
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Tier 1 (Village Hubs): SHGs/JLGs with local women leaders making loan decisions (WMI model).
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Tier 2 (District Clusters): Compliance, auditing, and capacity-building units.
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Tier 3 (Central Entity): Handles capital raising, partnerships, global visibility.
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Scaling Approach:
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Franchise/Partnership (FINCA model): NGOs and SHG federations can operate under the brand.
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Tech Platform: Centralized loan monitoring, AI risk scoring, blockchain transparency.
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Projections — First Five Years
| Year | Borrowers | Loan Portfolio | Funding Mix | Focus |
|---|---|---|---|---|
| 1 | 10,000 | ₹15 crore | CSR + seed investors | Pilot & systems |
| 2 | 50,000 | ₹75 crore | NABARD + diaspora | District expansion |
| 3 | 1,50,000 | ₹250 crore | Impact investors | Digital scale-up |
| 4 | 5,00,000 | ₹1,000 crore | Impact bonds + global funds | Regional scaling |
| 5 | 10,00,000 | ₹2,500 crore | Diversified mix | Cross-border pilots |
Do’s & Don’ts
✅ Do’s
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Train field officers in community trust-building.
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Leverage digital platforms (UPI, AI, CKYC) to reduce costs.
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Diversify products — enterprise, education, healthcare, green energy loans.
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Report social impact outcomes, not just repayment rates.
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Build audit transparency & investor confidence.
❌ Don’ts
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Push aggressive recovery methods (risk of social backlash).
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Over-centralize — local autonomy is key.
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Allow multiple uncoordinated loans (creates default cycles).
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Drift from poverty alleviation to profit-first mission drift.
Expansion Beyond India
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South–South Collaboration: Export SHG-led model to Africa & Southeast Asia.
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Diaspora Engagement: Create NRI impact bonds to finance overseas pilots.
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Global Branding: Partnerships with UNDP, World Bank, IFC.
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Digital White-labeling: License Indian-built fintech platforms abroad.
Quick Action Roadmap
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Register: Company → RBI license → Compliance.
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Fund: Blend CSR, NABARD, diaspora capital.
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Operate: SHGs/JLGs + digital loan cycles.
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Scale: Franchise partnerships → district → state → cross-country.
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Expand Globally: Build brand + export Indian model.
Conclusion
By following this step-by-step roadmap, India can create a new-generation MFI that is:
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Locally governed by women and communities.
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Financially resilient through recycled loan cycles.
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Digitally transparent through UPI and AI integration.
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Globally recognized as a self-sustaining impact institution.
This is not just about serving 10 million borrowers in India — it is about creating a globally exportable financial inclusion model that others can replicate.
India’s next microfinance story can be both local in roots and global in reach.
