Nidhi companies are extremely important in the Indian financial sector for small investors & depositors to invest in a secure and controlled environment. These companies try to inspire saving and thriftiness among their people and use the savings for mutual benefit. This blog will provide a clear and simple explanation of what Nidhi companies are, the way they’re organised and how they operate.
What is a Nidhi Company?
A Nidhi Company is an NBFC in accordance with the Companies Act, 2013. Unlike conventional banks, Nidhi companies lend and borrow money among members. The word ‘Nidhi’ itself means ‘treasure’ in Sanskrit, and the company’s mission is encouraging savings among its members.
Basic Structure of a Nidhi Company
This is what the basic structure of a Nidhi company registration requires:
1. Minimum Membership:
A Nidhi company ought to have more than seven members. Of these, 3 must be directors.
2. Membership Expansion:
The company must add 200 members Within a year of registration.
3. Capital Requirements:
The company has to have a net owned fund (NOF) of Rs. Ten lakhs or even more.
4. Deposits:
The company can accept deposits only from members.
Main Functions of a Nidhi Company
Nidhi businesses promote saving and investments among members. A few of the essential functions they perform are:
- Encouraging Savings: Nidhi companies encourage members to save by providing members interest on deposits.
- Providing Loans: Members borrow money from the company at low rates. This helps with financial and personal needs without the excessive costs of conventional banks.
- Investment in Government Securities: The collected deposits are often invested in government securities and bonds.
Loan Structure & Restrictions
Nidhi companies have guidelines regarding how much money can be borrowed from the amount deposited. The following are are the guidelines:
- For deposits of upto Rs. 2 crores: Members may borrow up to Rs. 2 lakhs.
- For deposits from Rs. 2 crores & Rs. Twenty crores: Members may borrow up to Rs. 7.50 lakhs.
- For deposits from Rs. 20 crore & Rs. Fifty crores: Members may borrow up to Rs. Twelve lakhs.
- For deposits exceeding Rs. Fifty crores: Members may borrow up to Rs. Fifteen lakhs.
Tenure of Loan:
- The loan tenure is six months minimum, and sixty months maximum.
- Members must make regular deposits to receive loans.
Advantages of Nidhi Companies
Nidhi companies provide many benefits for their members and are thus attractive for savings and loans. The advantages are mentioned here:
- Simple Registration: Registering a Nidhi company is relatively simple and can be done online.
- Flexible Financial Management: Members can manage their finances without involving third parties.
- Low-Interest Loans: Members can borrow at lower interest rates than conventional banks.
- Encouragement to Save: The objective of a Nidhi company is to motivate members to save for mutual benefit.
Restrictions & Drawbacks of Nidhi Companies
Nidhi companies have several benefits but there are also restrictions and drawbacks:
- Limited Business Activities: Nidhi companies can not operate chit funds, lease financing, hire buy or insurance.
- Membership-Only Transactions: Money may be deposited or even borrowed Only by members of the Nidhi company. No non-members can participate.
- No Current Accounts: Members can’t open current accounts with the Nidhi company.
- Advertising Restrictions: Nidhi companies can not advertise their activities. This prevents them from attracting new members via public promotions.
- Use of Funds: The collected funds can’t be utilised as security deposits in other financial exchanges, restricting The company’s flexibility in financing.
How To Become a Member of a Nidhi Company
Membership in a Nidhi company is easy. The steps are basic:
- Eligibility: Anyone joining a Nidhi company should abide by its rules and regulations.
- Application: Complete the membership application form with necessary personal and financial information.
- Deposit: Make an initial deposit, which might depend on the company policy.
- Approval: The application is reviewed by the company’s directors and in case approved, the individual is a member.
Conclusion
Nidhi companies help in saving and loaning money to members. They offer a secure and controlled setting for small investors to help save and borrow cash at lower prices. Several restrictions apply but benefits of being part of a Nidhi company often outweigh the disadvantages. Knowing the structure and organisation of Nidhi companies helps people to make good financial investments and savings.
FAQs
What is the Nidhi Company business model?
Nidhi companies offer mutual benefit models where members save and also receive loans at low interest rates. They take deposits from members and make loans inside the group to promote thrift and security.
What are Nidhi companies in India?
Nidhi companies are NBFCs that borrow and lend money amongst members. They hope to encourage saving and mutual financial aid.
Who controls Nidhi Company?
Nidhi companies are governed by members and directors under the principles of MCA and RBI.
Which organisation regulates a Nidhi Company in its operation and deployment of funds?
Nidhi companies are governed by the Ministry of Corporate Affairs in their operational matters and deployment of money with RBI oversight.
How does the Nidhi Company structure work?
A Nidhi company must have seven members, including three directors. It must grow its membership to more than 200 people within a year from registration and maintain a net run fund (NOF) of Rs. Ten lakhs or even more.
How many directors must Nidhi Company have?
A Nidhi company must have a minimum of 3 directors in its core management structure.
