A microfinance company, also commonly referred to as a microcredit organization, specializes in providing small loans, typically less than Rs. 50,000, to various households and small businesses that lack access to formal banking channels or eligibility for traditional loans. These entities aim to streamline the credit process for small businesses facing challenges in obtaining loans from banks, often due to the complexity of their procedures.

Microfinance companies offer modest loans to households and small businesses without access to formal banking channels or eligibility for traditional loans. Registering a Microfinance Company in India is a relatively straightforward process—simply establish a Section-8 Company with the Ministry of Corporate Affairs (MCA), without the requirement of charging any marginal fees or providing guarantee security. These companies can provide loans at affordable rates as directed by the Reserve Bank of India (RBI) and the central government.

Microfinance companies play a crucial role in supporting rural and agricultural development, contributing to income and employment generation. In India, there are two main types of microfinance companies: those requiring registration with the RBI and non-profit entities registered as Section 8 companies, the latter of which does not necessitate RBI approval.