A Nidhi Company is a unique type of Non-Banking Financial Company (NBFC) in India. Nidhi Companies are formed primarily to cultivate the habit of saving among its members and provide them with loans. They operate on the principle of mutual benefit, where members pool their resources to help each other. Only individuals can be members of a Nidhi Company. These members are also the shareholders of the company. Nidhi Companies can only lend money to their members and accept deposits from their members. They cannot engage in other NBFC activities like chit funds, hire purchase finance, or leasing. They typically operate within a specific geographical area or community, serving the financial needs of the local population. Nidhi Companies are registered under the Companies Act, 2013 and are governed by the Nidhi Rules, 2014. They are not required to obtain a license from the Reserve Bank of India (RBI) but must comply with the regulations set by the Ministry of Corporate Affairs.

Nidhi companies were originally incorporated by the government with a strong social and economic purpose. Here's a look at the key reasons behind their creation:

Promoting Savings and Thrift:  

  • Inculcating a Saving Habit: Nidhi companies were designed to encourage and cultivate the habit of saving among the general public, particularly within local communities. By providing a safe and accessible platform for savings, they aimed to promote financial stability and self-reliance.  

  • Mobilizing Small Savings: Nidhi companies effectively mobilize small savings from individuals and channel them back into the community through loans, fostering economic growth and development at the grassroots level. 

Providing Accessible Credit:

  • Meeting Credit Needs of the Common Man: One of the primary objectives was to provide easy and affordable credit to the common man, who often faced difficulty accessing loans from traditional banks. Nidhi companies bridge this gap by offering small loans with minimal documentation and flexible repayment options.

  • Supporting Small Businesses: Nidhi companies also provide credit support to small businesses and entrepreneurs, helping them grow and contribute to the local economy.  

Fostering Financial Inclusion:

  • Reaching Underserved Communities: Nidhi companies play a crucial role in reaching underserved communities, particularly in rural and semi-urban areas, where access to formal financial services may be limited.  

  • Empowering Individuals: By providing access to savings and credit facilities, Nidhi companies empower individuals and communities to take control of their finances and improve their economic well-being.

Encouraging Self-Help and Mutual Aid:

  • Community-Based Model: Nidhi companies operate on the principle of mutual benefit, where members pool their resources to help each other. This fosters a sense of community and encourages self-help and cooperation.  

  • Grassroots Development: By promoting financial self-sufficiency and mutual aid within communities, Nidhi companies contribute to grassroots development and social upliftment.

Reducing Reliance on Informal Money Lenders:

  • Combating Usury: Nidhi companies offer a regulated and transparent alternative to informal money lenders, who often charge exorbitant interest rates and exploit borrowers.

  • Protecting Vulnerable Communities: By providing affordable credit, Nidhi companies help protect vulnerable communities from the clutches of exploitative lending practices.

In essence, the government incorporated Nidhi companies to promote financial inclusion, encourage savings and thrift, provide accessible credit, foster community development, and reduce reliance on informal money lenders. They serve as a vital link in the financial ecosystem, empowering individuals and communities to achieve their economic aspirations. Based on available data and industry reports, it's estimated that there are several thousand Nidhi companies registered in India, potentially ranging from 3,000 to over 6,000. A significant majority of Nidhi companies are concentrated in South India, particularly in Tamil Nadu. Manappuram Nidhi Limited, Muthoot Fincorp Nidhi Limited and Kerala State Financial Enterprises (KSFE) Nidhi Limited are some of the common Nidhi companies.

Nidhi companies are gaining popularity in India due to their unique combination of community focus, accessibility, affordability, simple operations, lower regulatory burden and contribution to financial inclusion. As more people become aware of their benefits, Nidhi companies are poised to play an even more significant role in the Indian financial landscape.

  • Increased online searches for "Nidhi company" indicate growing public interest.

  • Media coverage of Nidhi companies has increased, highlighting their role in financial inclusion.

  • Government initiatives promoting financial inclusion indirectly support the growth of Nidhi companies.

 

Eligibility Criteria for Nidhi Company Registration

Before you start the registration process, ensure you meet these key criteria:

  1. Minimum Members: You need at least 7 members to initiate the registration process. These members will also be the initial shareholders of the company.  

  2. Minimum Directors: You must have at least 3 directors to form the company. These directors should be Indian residents.  

  3. Minimum Capital: A minimum paid-up equity share capital of Rs. 5 lakhs is required. This demonstrates the company's financial capacity to operate.

  4. No Preference Shares: Nidhi companies are not allowed to issue preference shares. They can only issue equity shares.  

  5. Restrictions on Business: Nidhi companies can only engage in borrowing and lending activities with their members. They are prohibited from carrying out certain businesses, such as:  

    • Chit-fund business

    • Hire purchase finance

    • Leasing finance

    • Insurance business

    • Acquisition of securities of any other company

  6. Name Requirement: The name of the company must always include "Nidhi Limited" at the end.  

 

Conditions to be Fulfilled After Registration

Within one year of incorporation, a Nidhi company must fulfill these additional conditions to maintain its Nidhi status:

  1. Minimum Membership: It must have at least 200 members.  

  2. Net Owned Funds: The company's net owned funds (equity share capital + free reserves - accumulated losses - intangible assets) should be Rs. 10 lakh or more.

  3. Unencumbered Term Deposits: Maintain unencumbered term deposits (fixed deposits not used as collateral) of at least 10% of the outstanding deposits.  

  4. Ratio of Net Owned Funds to Deposits: The ratio of net owned funds to deposits should not exceed 1:20. This ensures the company has sufficient capital to back its deposit liabilities.  

 

Registration Process for Nidhi Companies

  1. Obtain Digital Signature Certificate (DSC): All directors need to obtain a DSC for online filing of documents.  

  2. Apply for Director Identification Number (DIN): Each director needs to apply for a DIN.

  3. Name Approval: Apply for the approval of the desired company name with the Registrar of Companies (ROC). Ensure the name includes "Nidhi Limited" and complies with naming guidelines.

  4. Drafting of Documents: Prepare the following documents:

    • Memorandum of Association (MoA): Defines the company's objectives and scope of activities.

    • Articles of Association (AoA): Outlines the company's internal rules and regulations.

  5. Filing of Application: File the incorporation application with the ROC along with the required documents and fees.

  6. Verification and Approval: The ROC will verify the application and documents. If everything is in order, they will issue a Certificate of Incorporation.  

  7. Apply for Nidhi Status: Once incorporated as a public company, apply to the ROC for Nidhi status by filing Form NDH-1 along with the necessary documents and fees.  

  8. Compliance with Nidhi Rules: After obtaining Nidhi status, the company must comply with all the Nidhi Rules, 2014, including maintaining the required member base, net owned funds, and deposit ratios.

 

Documents Required for Nidhi Company Registration

  • Proof of registered place of business

  • Identity proofs and address proofs of members and directors

  • PAN card copies of members and directors

  • Photographs of members and directors

  • No Objection Certificate (NOC) from the landlord (if applicable)

  • Digital Signature Certificate (DSC)

  • Director Identification Number (DIN)

  • Memorandum of Association (MoA)

  • Articles of Association (AoA)

CorpZo's Role

CorpZo can simplify this entire process for you. We can assist with:

  • Obtaining DSC and DIN

  • Name approval and reservation.

  • Drafting MoA and AoA.

  • Filing the incorporation application.

  • Applying for Nidhi status.

  • Ensuring compliance with Nidhi Rules.

By understanding the eligibility criteria, registration process, and leveraging professional assistance from CorpZo, you can successfully establish your Nidhi company and contribute to the financial well-being of your community.

Contact CorpZo today to learn more about starting your own Nidhi company and contributing to the financial well-being of your community.