What Is Nidhi Company? And How to Start it in India.

Nidhi Company can also be called a type of financial company as we all know that it is not important in human life that how much a person earns. Rather, it is more important that how much man saves for fulfilling his future responsibilities. There are many people in the world who earn well but still they are not able to save for their future plans. Due to which they remain mentally disturbed even after earning more.

 On the contrary, there are some people who have an average income, but they are able to save a large part of it, so they seem to be mentally satisfied and healthy. Talking about Nidhi Company, its goal is also to make life easier for its members by leading them towards savings.

What is Nidhi Company in India

As the name suggests, this word called Nidhi can be interpreted to mean treasury and treasury is created only when the amount saved in it is available. However in the Indian financial sector Nidhi Company is registered under Section 406 of the Companies Act 2013. Nidhi Company is also known by many other names like Benefit Fund, Permanent Fund, Mutual Benefit Companies and Mutual Benefit Fund. Such companies are registered and regulated by the Ministry of Corporate Affairs (MCA).

However, in relation to financial matters, these are directed by the Reserve Bank of India from time to time. These types of companies are quite popular in South India and according to one data, most of the Nidhi companies are established in Tamil Nadu. Such companies borrow money from their members and lend money to them. Nidhi Company is mainly started with the aim of inculcating and inculcating savings habits among the people.

Benefits of starting a Nidhi Company in India

As we have mentioned earlier that the central goal of a Nidhi Company is to inculcate the habit of savings in its members and encourage them to save money. So that whenever they need money they can be able to fulfill them smoothly. Being frugal, they do not need to take loans from other people or banks and become self-sufficient. And due to the habit of saving, they are able to meet their future expenses easily. There are some advantages of starting a Nidhi company in India, some of which are listed as follows.

• Liabilities and Liabilities of the Directors and Shareholders of Nidhi Company are limited. If such company suffers any loss and is going through financial crisis. So in this situation the personal capital or property of any of the directors or members cannot be confiscated by the bank, the creditors or the government.
• The point to be noted here is that a Nidhi Company is regulated under the Nidhi Rules 2014 and they are controlled by the Central Government. The guidelines imposed by the Reserve Bank of India on Nidhi Company are very short. This is the reason that such a company does not even require an RBI license.
• The trust of the members is more in them than in the trusts, cooperatives, NGOs.
• Nidhi companies have proved to be a better option for savings as their main objective is to inculcate the habit of savings among their members. Therefore, it provides loans to its members and shareholders and also takes loans.
• Members and shareholders of Nidhi Company can take loan from this company at quicker and cheaper rates as compared to banks and other financial institutions.
• Such companies are the easiest and safest way to invite the general public to save and deposit money. The bus company needs to take them as its registered members.
• Nidhi companies also extend their services to remote and rural areas where they are free from the services of banks and other NBFCs.
• This type of company is a better credit cooperative society that is why they are preferred by small financiers. Once the company is registered, its members can enjoy all the benefits of the Credit Co-operative Society.
• Since here the loan is given only to the members and shareholders of the company, so it is better and easier than giving loan to an unknown person. This is the reason that the process of giving loan in this is also easy and simple.
• For Nidhi Company Registration there is no need to take license from RBI but only to register the company as Public Limited in MCA.
• The minimum capital fixed for starting a Nidhi Company is Rs 5 lakh which is very less. But this amount will need to be increased by the Nidhi company to 10 lakhs within a year. Apart from this, 30-35 thousand rupees can be spent on license etc.
• Since the process of providing loans etc. to the members is not complicated at all, such companies can play an important role in meeting the financial needs of low and middle income groups.
• As we all know that high eligibility criteria are followed by banks etc. to give loans. Due to which the daily wage earners are not able to get loan from the bank, but such people can easily get loan by becoming a member of Nidhi Company.
• There is no outside partner in these companies because Nidhi Company collects money through its members and provides loans at affordable rates to them when needed. Hence no outsider is involved in the operation of the company.
• Nidhi Company is legally treated as a separate entity which is authorized to acquire assets and debts in its own name.

Some Key Rules to operate of Nidhi Company

There are certain rules laid down for how Nidhi companies will operate in India. As per the Nidhi Rules of 2014, some points have been mentioned in Rule 6 of which some important rules are given below.

• A Nidhi company cannot undertake various types of transactions such as leasing finance, hire purchase finance, chit funds, insurance or acquisition of securities issued by a corporation.
• Such companies can neither accept any deposit from any outsider or corporation nor can they provide any kind of loan to them.
• A Nidhi Company does not have the right to issue preference shares, debentures, or any other debt instruments in any form.
• The operation and control of the functions of Nidhi Company is according to the Companies Act 2013 and Nidhi Rules 2014.
• These companies do not come under the purview of the Reserve Bank of India, so they do not require a license from the RBI to start and operate.
• These companies do not have the right to do micro finance business or vehicle finance business in India.
• Within one year of Nidhi company registration, it is necessary to have at least 200 members.
• The maximum interest rate of 20% per annum cannot be charged on the loan given by this type of company.
• And the rate of interest paid on savings account should not exceed 2% of the rate of interest offered by nationalized banks.
• Nidhi Company can accept savings like Fixed Deposit, Recurring Deposit etc.
• The rate of interest offered on fixed and recurring deposits should not exceed the maximum rate of interest prescribed by the Reserve Bank of India for NBFCs.
• Nidhi Company will operate through only one office in a district in the first three years. And after the completion of three years, Nidhi Company can open its three branches in the same district. Whereas opening branches outside the district requires prior approval from the regulatory director.
• Nidhi companies can provide loans against securities, gold, property, fixed deposits, life insurance, etc. can be considered in the form of security.
• The amount deposited without any purpose in the Nidhi Company should be less than 10% of the total outstanding deposits.
• Annual accounting, audit, tax return etc. procedures should be done as per the rules.

Requirement for setting up Nidhi Company

Certain things are required for the registration or operation of a Nidhi Company. But we have divided these requirements into two parts one is pre-registration requirement and second post-registration requirement. Some of which are mentioned as follows.

Requirement before registration

The following arrangements may need to be made for setting up a Nidhi Company.

• The minimum number of share holders or members must be 7.
• The minimum number of directors must be 3.
• At least i.e. minimum 5 lakh capital is required.
• Director identification number is required for director.
• There is no need to issue preference shares.
• The objective of the company should be to encourage the habit of savings among the members only and only by depositing money in writing and providing them money as and when required under easy rules.

After registration

• The number of members of Nidhi Company should be at least 200 after one year of registration.
• After one year the minimum Net Owned Fund (NOF) of the company should be more than 10 lakhs.
• The deposit ratio for Net Owned Fund (NOF) should be more than 1:20.
• Unused deposits should not exceed 10% of the outstanding deposits.

How to Register a Nidhi Company in India

To register a Nidhi Company in India, it is extremely important to establish a Limited Company as per the Companies Act 2013. Under this, three directors and seven shareholders or members are required to set up a Nidhi company. This process may take up to 30-45 days.

1. First you need to apply for Director Identification Number (DIN) and Digital Signature Certificate (DSC). Which can also be applied online by visiting the office or website of the Ministry of Corporate Affairs (MCA).
2. Once the Director Identification Number (DIN) and Digital Signature Certificate (DSC) are received, then application can be made to MCA through INC-1 form to reserve the name of Nidhi Company. Keep in mind that the name of the Nidhi Company should be unique and should not be similar to any other company. The name of Nidhi Company should be desirable as per government rules and it will end with Limited.
3. Memorandum of Association (MOA) and Articles of Association (AOA) should be prepared after the name of Nidhi Company is approved by the Ministry of Corporate Affairs concerned. While preparing these, special attention needs to be given to the objectives of the company.
4. After that one can apply for incorporation in the Ministry of Corporate Affairs.
5. When the incorporation is issued by the concerned ministry, then the PAN and TAN of the company should be applied for.
6. After that one can apply for tax registration like GST registration. And a current account can be opened in the bank in the name of Nidhi Company.

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