In this article, we will be understanding a great difference in NBFC Vs Nidhi Company Vs Micro-Finance.

What is NBFC

An NFBC involves the business of loans, advances, or procurement of shares, stocks, debentures, bonds as well as securities irrespective of the fact, issued by a government or local authority. However, it excludes associations or establishments whose primary business includes agricultural activities, industrial activity, or purchase or sale of any goods or services. The primary business of a Non-banking financial company involves receiving deposits enlisted under any scheme in one lump sum or in installments whether by contribution or by any other process. In this article, we will be explaining the difference between an NBFC, a Nidhi company, and a Microfinance company.

NBFC, Nidhi Company, Microfinance company Denifition with Regulations

NBFC Registration and Regulations

Once the establishment is done under the Companies Act, the public deposits which are by NBFCs needs to follow certain rules and regulations as stated by the Reserve bank of India.

  1. Deposits repayable on demand is not permitted in NBFCs
  2. The minimum 12 months tenure of public deposits months and the maximum tenure of 60 months can be received.
  3. The interest rate on deposits must not be higher than the ceiling rate as directed by RBI.
  4. The deposits are not protected and RBI doesn’t guarantee their repayment.

What is Nidhi Company

In the Indian language, the word Nidhi denotes TREASURE. The main objective of incorporating a Nidhi company is to cultivate the habit of thrift and savings amongst its members. Such companies run on the principle of receiving deposits from and lending to, its members only for their mutual benefits and which complies. Although, the Indian financial sector recognizes a Nidhi Company to be a mutual benefit society notified by the Central/ Union Government. Any company is involved in Nidhi business like borrowing from and lending to members only, are identified under diverse names like Nidhi, Permanent Fund, Benefits Funds, Mutual Benefits Funds and Mutual Benefits Company.

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Requirements and regulation for Nidhi Company

There are some necessities of Nidhi company which are listed below:

  • Any Nidhi company established under section 406 of the Companies Act, 2013 will be considered as a public company.
  • It is compulsory to obtain a minimum paid-up equity share capital of Rs. 5 lakh.
  • No preference shares would be issued.
  • If in certain cases, the preference shares have already been issued then it will be redeemed as per the terms.
  • The goal of Nidhi company registration should be incorporating and promoting the habit of thrift and savings amongst its members, as described previously.

The right name of the company needs to include ‘Nidhi Limited’ as its part.

What is a micro-finance company

Micro-finance is also identified as microcredit. A micro-finance company imparts financial services including loans, savings, and insurance to entrepreneurs and person who owns a small business. Generally, these small business owners restricted access to conventional sources of capital such as banks or investors. The main objective of a microfinance company is to provide money to the individuals so that the owner is able to invest in his/her business. However, the consumers are interested in the small value of loans to invest in specific equipment as well as for the capital to start a small business.

Our LegalRaahi blog can aid you to share further differences between NBFC, Nidhi Company, Microfinance Company with the registration process. For registering your NBFC now click here.

Regulations for Micro-finance company

  • No minimum capital is required. The registration involves a very simple process. Deposit mobilization from the public is not permitted in case of societies,
  • For a trust, there is no minimum capital requirement. Deposit mobilization form the public is not permitted. Besides, the scope for expansion is limited.
  • In the case of NBFC-MFI, the RBI would take up the registration. A minimum capital of 5 crores required to start MFI. Again, deposit mobilization from the public is not allowed.
  • For corporative societies, the Registration process is as simple as others except for Maharashtra. It has permission to collect deposits from members.

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