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The different legal formats give rise todifferent governance structures.

The structure includes:An assembly of shareholders (Owners)A shareholders representative body to

supervise management (Board of Directors)Management to run operations

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Governance is part and parcel of economicgrowth and success of any organization.

Credit to poor is provided through the formal

financial system, semi-formal and throughinformal institutions.

In that backdrop, it is important to understandthe laws and regulations that shape the financialsector.

Laws and regulations balance the interests ofdifferent groups of stakeholders.

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Non-ProfitEntities Profit

Enterprises

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Parameter Societies Trusts Section 25Companies

Non-BankingFinancialCompanies

Nature of

Organization

Membership

organizations

Public

charitabletrusts

Limited liability

company, notfor profitcompanies

Non-bank

institutions

Purpose Charitablepurpose

Relief ofpoverty,education,

medical relief,general publicutility

promoting

commerce, art,science,

religion,charity or anyother usefulobject

Financingother entities,purchasing

governmentsecurities, hire-purchase orlease, timedeposits of 1-5years ispermitted.

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Parameter Societies Trusts Section 25Companies

Non-BankingFinancialCompanies

Governing Act Societies

RegistrationAct 1860

India Trusts Act

1882

Companies

Act, 1956

Reserve Bank

of India Act,1934

Board ofDirectors

2-15, amongdirectors 48%womenrepresent

board ofsocieties.

3-9, 39%womenrepresentboard of trust

as director

3-14, 40%could bewomen, highlyqualified

5-11, 21%representwomen,professionally

qualified

Examples PEOPLECONSERVATIVE COOP. G/H

SOCIETY LTD,

Akshaya TrustIndia,Worldwide

Educationaland CharitableTrust

Institute ofTechnologyand

Management,Welfare Forumof India,MotorsportsAssociation ofIndia

RelianceCapital, PowerFinance

Corporation,Bajaj Holdings,EdelweissCapital

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It establishes the central bank (Reserve Bank ofIndia) to regulate the issue of bank notes andkeeping of reserves with a view to securing

monetary stability in India.

Under an amendment of 1997, provisions for theestablishment and operations of NBFC wereintroduced (Chapter III-B, section 45-I)

The Act speaks of the operations NBFC can dealin, the reserve fund it needs to maintain.

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As per Section 5(b) of Banking Regulation Act, 1949 , banking means theaccepting, for the purpose of lending or investment, of deposits ofmoney from the public, repayable on demand or otherwise, andwithdrawable by cheque, draft, order or otherwise.

Banking company means any company which transacts the business ofbanking

Defines business a banking company may be engaged in like borrowing,lockers, letter of credit, traveller cheques, mortgages etc.

Not directly related to micro-finance, other than it covers local areabanks and commercial banks.

Provides the basis for licensing of local area banks and mutual benefitsocieties.

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The Companies Act 1956 is an Act of the Parliament of India,enacted in 1956, which enabled companies to be formed byregistration, and set out the responsibilities of companiestheir directors and secretaries.

The Companies Act 1956 is administered by the GoI throughthe Ministry of Corporate Affairs and the Offices of Registrar ofCompanies, Public Trustee, Company Law Board etc.

The Registrar of Companies (ROC) handles incorporation of newcompanies and the administration of running companies.

This Act is general in nature and not subrogative.

Like most of Indian acts, it also extends to the whole India exceptState of Jammu and Kashmir

http://en.wikipedia.org/wiki/Ministry_of_Corporate_Affairs_(India)http://en.wikipedia.org/wiki/Ministry_of_Corporate_Affairs_(India)http://en.wikipedia.org/wiki/Ministry_of_Corporate_Affairs_(India)http://en.wikipedia.org/wiki/Ministry_of_Corporate_Affairs_(India)http://en.wikipedia.org/wiki/Ministry_of_Corporate_Affairs_(India)http://en.wikipedia.org/wiki/Ministry_of_Corporate_Affairs_(India)http://en.wikipedia.org/wiki/Ministry_of_Corporate_Affairs_(India)http://en.wikipedia.org/wiki/Ministry_of_Corporate_Affairs_(India)http://en.wikipedia.org/wiki/Ministry_of_Corporate_Affairs_(India)

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An association-(a) is about to be formed as a limitedcompany for promoting commerce, art, science,religion, charity or any other useful object, and

(b)intends to apply its profits, if any, or other incomein promoting its objects, and to prohibit the paymentof any dividend to its members.

the Central Government may, by licence, direct thatthe association may be registered as a company withlimited liability, without the addition to its name ofthe word" Limited" or the words" Private Limited".

http://indiankanoon.org/doc/324411/http://indiankanoon.org/doc/201818/http://indiankanoon.org/doc/201818/http://indiankanoon.org/doc/324411/

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On the dissolution of the firm, itsmembership of the association or companymay cease.

The licence may at any time be revoked bythe Central Government,

Upon revocation, the Registrar shall enter the

word" Limited" or the words" PrivateLimited" at the end of the name; and thebody shall cease to enjoy the exemptiongranted by this section.

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SEWA bank is registered as a co-operative

society, under this act but is regulated by RBIfrom which it has obtained a banking license.

With the post liberalization era, Mutually Aided

Co-operative Societies Act was introduced,allowing the formation of cooperatives largelyimmune from government intervention.

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Enterprises registered under the SocietiesRegistration Act or Indian Trusts Act are semi-formal institutions engaged in microfinance.

Semi-formal institutions are unregulated butlegal financial entities operating in the semi-formal sector : membership based SHO andoutside assistance-based NGOs.

Societies and Trusts cannot engage in for-profitactivities, including financial services.