How to start a small finance company in India

India is an emerging market that offers ideal conditions for entrepreneurship and investment. Its diversified financial sector continues to grow at a fast pace, which opens up a world of exciting opportunities and careers. This sector is increasing by around 8.5% a year, indicating a strong economy.

Now is the perfect time to launch your financial company and penetrate this growing market. Indian financial companies allow more innovation and diversification than the banking system, so use it to your advantage. All you need is a solid business plan and a smart marketing strategy.

Research the industry

Before you begin, make sure you have a good knowledge of the country's financial sector. Indian financial companies operate differently than traditional banks and have specific requirements. They can be registered in various forms, such as:

·        Microfinance company

·        Nidhi company

·        Trust and society

Non-bank financial companies (NBFC)

Each option has its pros and cons. Non-bank financial companies, for example, are governed by the Reserve Bank of India. This is where you can get a license. Depending on your goals, you can incorporate a loan company, a securities company or a company specialized in asset-backed financing.

The NBFC is registered as a public liability company under the Indian Companies Act of 1956 and require a minimum capital of Rs two cores. If you start a microfinance company, the minimum capital must be more than five million rupees.

Once you have obtained a license, you will be able to provide loans and cash advances, receive deposits, sell insurance policies and acquire shares or stocks.

It is not possible to accept and request deposits as traditional banks do. Moreover, it is possible to accept foreign payments only up to a certain limit. The advantage is that you are allowed to work anywhere in India and provide a wide variety of financial products.

Other Company registration options include trusts and companies, Nidhi companies, and manufacturing companies. Compared to NBFC, these companies are more specific. Manufacturers, for example, appeal to farmers. Trusts and companies are authorized to provide funding only to members. An NBFC offers more flexibility.

After choosing a business model, request the registration of the finance company. Head to a local branch of the Reserve Bank of India or visit its official website. Download the NBFC request form and enter the requested information. Next, load the form so you can receive a reference number.

Go to a regional bank office with the reference number and the registration form. If you meet the requirements set forth in Section 45-AI of the Reserve Bank of India Act of 1934, the bank will issue a Certificate of Registration within five to six months.

Be aware that not all types of financial companies require the NBFC license.

These include, but are not limited to, venture capital companies, securities brokerages, insurance agencies, and home finance companies. Companies specialized in securities brokerage, for example, are regulated by the Securities and Exchange Board of India, therefore they require a different type of license.

Also, determine the type of NBFC license that suits your needs. This will depend on the nature of your business. You can start a finance company, a loan company, a microfinance institution, and more.

No matter what you choose, registering financial companies in India will not be easy. Be ready to archive extended documents and wait for a decision. Meanwhile, create a business plan.

Evaluate business requirements

Determine how many employees are required. Also, decide whether to conduct your business alone or with a financial partner. For example, if you have a loan business, you can hire a mortgage broker. It will act as an intermediary between your company and the borrowers in exchange for a commission.

Read also: nbfc registration

Develop a business plan

Once the license is obtained and the numbers creak, come with a plan. Think of a project to grow your business in the future. Write down your short and long-term goals, mission, strategies, and product offerings. Consider the market and potential competitors.

Make sure your business plan clearly describes the management of your business. Indian financial companies require a chief financial officer, a chief administrative officer, a chief operating officer, and other executives. Their role is to manage every department of the organization, track its performance and make sure everything goes smoothly. In smaller companies, a person can fill multiple roles.

So, plan your marketing strategies. Decide how to reach potential customers and investors. Set a budget for online and offline advertising campaigns, business cards, PR, and other related activities. These aspects can be managed by an internal team or outsourced to a marketing agency.

Take the time to grow your network and get involved in the local community. The more people know about your business, the greater your chances for success. Attend local events, send press releases, and connect with other companies in your city.