Nidhi Company: An effective alternative to conventional Financial Institutions

What is Nidhi?

A Nidhi Company is a Non-Banking Financial Institute that provides lending and deposit services to its members exclusively. The term “Nidhi” in the Nidhi Company means “treasure”. The name traces its origin from Hindi vocabulary. A Nidhi Company consists of funding from its members and shareholders only. It is a type of company registered under the Company Act, 2013. A Nidhi Company is regulated by the norms set by Ministry of Corporate Affairs (MCA).

A Nidhi Company is a kind of an NBFC (Non-Banking Financial Companies) and the NBFCs are regulated by the Reserve Bank of India.

In the same way, the apex body also, in an indirect way, issues the guidelines about lending and depositing activities for the registered Nidhi Company. But, these companies deal with their members (shareholders) only and they are exempted from the core provisions of the RBI Act and other directions applicable to NBFCs in general. Read Other Useful Content: ISNP

Therefore, Nidhi Company is an ideal legal entity to take a deposit from and lend to a specific group of people, thus encouraging savings among its members so as to meet their financial requirements. 

Benefits for registering a Nidhi Company 

Liability is limited in the case of Nidhi Company personnel (directors and shareholders). In case financial distress, the personal assets of any of the Directors or members are not at risk of being seized by banks, creditors, and government.Nidhi companies are governed by very regulations. As per the rules of Nidhi Rules, 2014, Central Government is the regulating authority, which controls most of its activities and guidelines issued by the RBI are very few.Nidhis have better credibility in comparison to other member-based organizations like Trusts, Cooperative Societies or NGOs.Nidhi companies are better at savings among the members so as to be mutually beneficial. They exclusively lend and borrow to and from its shareholders/members only.Nidhi companies offer loans at a far cheaper rate than the existing financial institutions like Banks and other NBFCs, making it a viable option for people who doesn’t have much for mortgage or a good credit score history. Also the process of loan disbursal and it customized services is much more convenient and efficient.Nidhi Company can easily invite deposits from the general public by just offering them its membership.Nidhis kind of work as a Micro Banking firm which provides banking services to the rural parts of India in far-off locations It gives people access to finances who are devoid of accessing finance from nationalized banks and other NBFCs.Nidhis are a better substitute for credit co-operative society. It is preferred preferred by the small financer.Nidhis operations are quite simple as the borrowing and lending takes place between known people, of same groups, rather than dealing with banks where the procedure is heavy and complex and usually ends up in rejections.Nidhis have a very easy registration process and document submission requirements. Just incorporate your nidhi company as a public limited company under the MCA.Low Capital Requirement: Ministry of Corporate Affairs (MCA) commands the minimum capital requirement of Rs.5 lakhs for the incorporation of a “Nidhi”. And, within 1-year, the capital has to be raised to at least Rs.10 lakhs. The Fees, DIN, DSC & Other Expenses are approx. Rs.25-30,000. These include Government fees that differ from State to State.Nidhi Companies is instrumental in catering to the financial needs of lower and middle-income people. They provide them funds without much formalities and documentation.Members of a Nidhi company are eligible for loans with very few conditions. People who earn minimum wages and belong to lower strata can’t apply for loan from traditional banks because they lack the mortgage and credit history which banks demand from the borrower. Therefore, Nidhi is a good option for such people.Nidhi Company is a separate legal entity that can acquire assets and incur debts in its own name.

Conditions for Registration

There are certain conditions that must be fulfilled by a potential business entity before registering as a Nidhi Company:

Minimum seven shareholders (members)Minimum three directors of the companyMinimum capital requirement INR 5 LacsDIN (Director Identification Number) of all the DirectorsMinimum net owned fund of INR 10 Lacs

Requirement after Registration

By End of year, the number of members or shareholders of the Nidhi Company must be at least 200.NOF maximum should be INR 10 lakhs.Net owned funds to deposits ratio should be more than 1:20Unencumbered deposits should exceed 10 % of outstanding deposits.

Documentation

The following are the requisite documents for registering a Nidhi Company under MCS, Government of India:

Self-attested PAN card copy.Four recent passport size photographs.Self-attested copy of any one of the Identity Proofs like Driving License, Passport, and Voter ID & Aadhaar Card.Self-attested copy of any one of the Address Proof like Bank Pass Book/ Bank Statement, Telephone Landline Bill, Mobile Bill & Electricity BillCompany Address proof like Electricity Bill, Telephone Bill, Mobile Bill & Gas Bill, AND Rent Agreement (if rented) AND NOC for doing Business & for taking Registration.

Process for Nidhi Registration

The procedure for Nidhi company registration in India is as follows:

Choose a unique name for the companyReserve the selected name for registration using RUN applicationObtaining the DSC and DIN of the directors of the company, if not available, apply for them first.Draft MoA (Memorandum of Association) and AoA (Article of Association) of the companySubmit the application online for incorporation.Assessment of the application by the MCA (Ministry of Corporate Affairs)Finally, MCA issues the Certificate of Incorporation for the Nidhi Company to the applicant.

Get your Nidhi Company registered with us

We, at Registrationwala caters to our clients who are applying for the incorporation of their Nidhi Company. Our legal professional provide you complete guidance on how to get your company registered under MCA. Along with this, we will help you create relevant documents for registration as well. Our services include:

Conducting name research for your companyRegistering for and Obtaining DSC and DIN for all the directors of the proposed company.Drafting the MoA and AoAFiling your application online.Conducting follow ups with the Ministry of Corporate Affairs during the application assessment.Granting CoI (Certificate of Incorporation) to you, so that you can begin your business operations as a registered legal entity in the market.

After the successful incorporation, you can also start your own mutual fund business.