The Rise of Nidhi Companies in Empowering Communities

In the dynamic tapestry of India’s financial landscape, Nidhi Companies emerge as beacons of empowerment, bridging the gap between traditional banking and grassroots communities. Rooted in the ethos of mutual benefit and cooperative spirit, Nidhi Companies represent a unique form of non-banking financial institutions that cater to the financial needs of small-scale savers and borrowers. At TAS & CO, we recognize the transformative potential of Nidhi Companies in fostering financial inclusion and driving socio-economic progress across India’s diverse communities.

Nidhi Companies, regulated under the Nidhi Rules, 2014, operate on a simple yet profound principle: to promote the habit of thrift and savings among their members while providing them with affordable credit facilities. These companies, often formed as mutual benefit societies, distinguish themselves by their member-centric approach, with each member contributing to and benefiting from the collective pool of savings and credit. This unique structure fosters a sense of community ownership and accountability, aligning the interests of the company with the aspirations of its members.

CHARACTERISTICS

  • Nidhi Companies are also known by various names such as Permanent Fund, Benefit Funds, Quasi Bank, Mutual Benefit Funds, and Mutual Benefit Company.
  • These companies are highly localized and typically operate from a single office.
  • Membership is limited to individuals, and their dealings are restricted only to the members.
  • The principal source of funds for Nidhi Companies is contributions from their members.
  • Loans are provided to members at reasonable rates, often for purposes like house construction or repairs, and are generally secured.

GOVERNING LAWS

  • The Nidhi Rules, 2014 govern Nidhi institutions. As a result of its incorporation as a public limited company, they are required to abide by two sets of rules: the Nidhi rules of 2014
  • A Nidhi Company must be incorporated as a public company under the Companies Act and hence it must satisfy the public limited company requirements under the Act of 2013.

REGULATORY FRAMEWORK

  • They are governed by the Ministry of Corporate Affairs, which has the authority to provide them with instructions regarding deposit acceptance transactions.
  • Since Nidhi Companies fall under the category of Non-Banking Financial Companies (NBFCs), the Reserve Bank of India (RBI) also has the authority to issue directions to Nidhi Companies regarding their deposit acceptance activities.  As of now, there is no specific regulatory framework for Nidhi Companies set by the RBI.
  • The RBI has specifically exempted this category of NBFC in India from complying with certain core provisions of the RBI Act and other directions applicable to NBFCs, including registration with the RBI, hence no clearance from the RBI is required to register the company.
  • Every Nidhi organisation must make sure that it has 200 members or more within a year of its founding.

BENEFITS

  • Very Easy formation: The process of forming a Nidhi firm is relatively straightforward, and it is considerably less complex than forming an NBFC or another type of financial institution.
  • Cost-Efficient Registration:  The cost of signing up with Nidhi Company is reasonable. You can invest the Rs 5,00,000 lakh required as minimum capital for Nidhi Company registration within two months of registering your Nidhi Company.
  • No RBI Regulations – less compliance: Nidhi Company is not required to adhere to strict compliances by the RBI.
  • Less level of Risk – Non-payment loans:  It is the most secure method of loan distribution, and the rates charged on loans to members are extremely cheap when compared to those charged by other lenders, further increasing member savings.

In conclusion, Nidhi Companies play a crucial role in promoting thrift, savings, and financial inclusion among their members. Their localized nature and focus on mutual benefit make them an interesting segment within the financial landscape.

FREQUENTLY ASKED QUESTIONS

Q1. Who can become a member of a Nidhi Company?

Ans. Any individual, partnership firm, or corporate entity can become a member of a Nidhi Company by purchasing shares and complying with the company’s membership criteria as outlined in its bylaws.

Q2. What are the restrictions on the activities of a Nidhi Company?

Ans. Nidhi Companies are restricted from engaging in certain activities such as lending to non-members, accepting deposits or lending money outside its members, or carrying on any business other than lending and borrowing activities.

Q3. What is the minimum capital requirement for registering a Nidhi Company?

Ans. The minimum capital requirement for registering a Nidhi Company is Rs. 10 lakhs. This capital must be maintained throughout the existence of the company.

Q4. What are the key compliance requirements for Nidhi Companies?

Ans. Nidhi Companies must adhere to various compliance requirements, including maintaining a minimum number of members, filing annual financial statements and reports with the Registrar of Companies (ROC), conducting regular audits, and complying with the restrictions on its activities as prescribed by law.

Q6. What are the benefits of becoming a member of a Nidhi Company?

Ans. Members of Nidhi Companies benefit from access to affordable credit facilities, attractive interest rates on deposits, and a sense of community and mutual support among members.

DISCLAIMER: This article is for basic informative purposes only. There is no guarantee assured with respect to the accuracy and completeness of the information provided here. It is strongly advised to take the opinion of your Legal Practitioner in order to check the authenticity of any mentioned provision with its corresponding Act, Rules, Regulations, Guidelines or Notifications as prescribed by the concerned authorities from time to time..

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  • Anas

    March 10, 2024 4:49 pm
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    • Anis

      March 10, 2024 4:49 pm
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    March 10, 2024 4:50 pm
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