Nidhi Companies

Introduction

As per Section 406 of the Companies Act, 2013, 'Nidhi' means a company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit and which complies with such rules as are prescribed by the Central Government for the regulation of such class Companies.

For more than a century, Nidhis was generally promoted by public-spirited men drawn from lawyers, professionals and affluent local like auditors, educationists etc. 

Nidhi Companies are non- banking financial companies and are engaged in the business of accepting deposits and making loans to their members.

Characteristics of a Nidhi Company

Some characteristics of a Nidhi Company may be summarised as follows-

1. It is allowed to transact business only with its members and with nobody else. In case, a person wishes to place a deposit with a Nidhi or borrow money from a Nidhi, he must first become a member of a Nidhi by subscribing to 10 equity shares or shares equivalent to Rs 100.
2. No Nidhi shall issue preference shares after the commencement of the Companies Act,2013
3. They are incorporated as public companies with a minimum paid-up equity share capital of Rs 5 lakhs.
4. They are allowed to open branches complying with rule 10 of the Nidhi Rules, 2014, do not operate on a pan India basis.
5. A director of a Nidhi shall be a member and shall hold office for a term up to 10 consecutive years on the Board of a Nidhi.
6. Loans provided only to its members and must be fully secured.
7. Nidhi can declare dividend not exceeding 25% and any higher amount shall be specifically approved by the Regional Director.
8. Nidhi shall adhere to the norms of revenue recognition and classification of assets concerning mortgage loans or jewellery loans.

Incorporation of a Nidhi Company

1. For incorporation of a Nidhi Company, the procedure of incorporating a public company has to be followed. For example, filing of MOA and AOA, availability of name etc. 

2. Object clause of the MOA must be restricted to cultivating the habit of thrift and savings amongst its members, receiving deposits from and lending to its members only for mutual benefit and another restricted purpose.

3. After its incorporation, every Nidhi shall ensure that within one year of its commencement it has:

a) not less than 200 members

b) unencumbered term deposits of not less than 10% of outstanding deposits

c) net owned funds of Rs 10 lakh

d) ratio of net owned fund deposit not more than 1:20.

Benefits of incorporating a Nidhi Company

The following are some of the benefits of incorporating a Nidhi Company-

1. In case Nidhi Companies, the repayment is guaranteed as the loans are secured and due to peer pressure, borrowers ensure that loan is repaid on due dates since borrowers are the members themselves.
2. A Nidhi Company mobilises small savings, most of the middle class and disburses loans to eligible borrowers. 
3. Nidhi Companies offer a higher rate of interest on deposits. Thus, it makes an attractive investment opportunity for people, especially for senior citizens.
4. The Board of directors of a Nidhi Company consists of senior persons who are experienced in handling finances and who have popular and well respected in social circles. It lends credibility to the institution.