Frequently asked QnA
Q: What Is A Nidhi Company And How Does It Work?
A: A Nidhi company is a private non-banking financial entity, which promotes and cultivates the habit of saving and thrift among all the members. You may also know Nidhi companies by the name of Mutual Benefit Society/Company. Such companies work with the members-only model, where those who are in need of money can borrow the money and pay the installments with a fixed interest rate, and those who lend money earn the interest rate by lending their money to other members through the company.
Q: How To Identify A Trusted And Best Nidhi Company?
A: There are a few points that you should verify before becoming a member of any Nidhi company. This way, you’ll always pick a Nidhi company that is perfect for your needs and you won’t fall in for any fraud or anything like that.
i. The minimum paid-up share must be more than 5 lakhs.
ii. There must be no preference shares for specific members of the company.
iii. Any Trust or corporate entity can not be a member of Nidhi companies.
iv. You should look for a Nidhi company with a higher number of members.
v. Nidhi companies must not indulge in any Chit funds, so keep an eye on that.
vi. Such companies should not lend or borrow money from non-members or outsiders for profit.
vii. There should be no brokerage and incentive scheme for the members.
viii. Members’ funds or assets must not be pledged by Nidhi companies
i. The minimum paid-up share must be more than 5 lakhs.
ii. There must be no preference shares for specific members of the company.
iii. Any Trust or corporate entity can not be a member of Nidhi companies.
iv. You should look for a Nidhi company with a higher number of members.
v. Nidhi companies must not indulge in any Chit funds, so keep an eye on that.
vi. Such companies should not lend or borrow money from non-members or outsiders for profit.
vii. There should be no brokerage and incentive scheme for the members.
viii. Members’ funds or assets must not be pledged by Nidhi companies
Q: Why is it called a Nidhi Company?
A: Well, “Nidhi” is all about fostering the art of saving and pooling resources among members, with the sole purpose of lending and borrowing for their collective benefit. And it is a fun fact that Nidhi companies were around even before the Companies Act of 2013 brought up by the government of India!
Q: Who regulated a Nidhi Company?
A: It’s none other than the Reserve Bank of India (RBI) itself! The RBI sets the rules, like eligibility criteria, capital needs, net-owned funds, and all that other stuff. Plus, they make sure Nidhi Companies are on point with audits, reserve funds, and transparency..
Q: Is Nidhi Company legal in India?
A: You bet! Nidhi Companies are officially recognized under Section 406 of the Companies Act, 2013, and are kept in check by the Ministry of Corporate Affairs. They follow the Nidhi Rules, 2014, so there’s no need to get RBI’s green light because it is now totally legal to operate a private limited Nidhi company in the country.
Q: What is the loan limit of Nidhi Company?
A: If a Nidhi company’s total deposits are under two crore rupees, they can give out loans up to two lakh rupees. These loans are backed by some shiny security, like gold, silver, or other precious bling. And borrowers have a year tops to pay it back.
Q: Can a Nidhi Company convert to a bank?
A: Nope, a Nidhi Company can not be converted or morphed into an NBFC or Non-Banking Financial Company. It’s just not practical or beneficial for them.
Q: What is the difference between Nidhi and the bank?
A: Nidhi Finance Banks and Non-Banking Financial Companies (NBFC) are almost similar in terms of how they function, both lending and borrowing money for their members. But Nidhi is all about mutual gains and inspiring peeps to save that cash.
