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First get it registered as a society/trust/section 25 company/NBFC/Coop. Post registration it pretty much depends on you how you want to proceed. Many incubators of MFIs usually do not start lending to individuals straight away. They enter allied activities such as micro-enterprise finance such as small vendor finance etc i.e. productive activities rather than consumptive activities as repayments are fast. For consumptive lending, usually social collateral is required in the form of Self help groups or Joint liability groups but you won’t be able to control the purpose of loans effectively and lending cannot start to members or the group until some basic training and process is established, hence small vendor finance is a good option to start. I’d recommend you spend a lot of time reading Microfinance resources like MFIN, Microsave etc to understand various experience of various MFIs. You also need to establish a background process and MIS to track various financial ratios such as PAR (most critical), opex, capital adequecy etc. You also need to have adequate capital to cover your initial costs such as salaries of your field officers and you also need to have inentive and promotion structure of them. It is very difficult to do all this w/o field work.
Also, at the start you need to draw and file 2–3 diffierent products along with repayment schedules.
You can allign with local governmental departments such as EDIs, agriculture dept, animal husbandry etc to provide skills and training to your customers/SHGs/JLGs to improve demand of credit.
You can allign with funders/donors/banks to improve availability of credit to your MFI once repayment cycles are established.
Kindly do refer to RBI mastercircular on how to price you micro credit product. Although it applied to NBFCs, its a good pointer to how you should start off so that at a later date if you do convert to NBFC you should not face issues of compliance.
I can write more, but it would be good if you pointed out relevant questions.
Edit 1: How you want to register your MFI has a lot of implications now and later with respect to redisribution of profit and pricing of the products. Kindly read about each of the mentioned options before proceeding. I shall be doing regular edits here to add to the answer.
Edit 2: The basic purpose of training the SHG/JLG is to develop social collateral. W/O which, you cannot survive. You need to be very very vigilante in terms of nuances of socio-political-cultural sources of power and their interference with groups dynamics and behaviour. Also, be vigilante for cartels and compulsive borrowers who borrow from 10 different places and repay to none.
