In the context of Hindu scriptures, Nidhi is a treasure, constituted of nine treasures (nawanidhi) belonging to Kubera (also spelt as Kuvera), the god of wealth. Nidhi is a hindi word which means Finance or Capital also. In India, every month hundreds of Nidhi companies are registered. The main purpose to register Nidhi Company is to start the loan or microfinance business. Mostly popular in rural and semi-urban areas, Nidhi companies are a legal method for entrepreneurs or promoters to start the micro financing business.
Purpose of starting a Nidhi company
The main reasons for starting a Nidhi company are as follows:
- Lending money to members
- Taking deposits from members
- Offering related financial services to members
As it is clear from above reasons, that the main purpose of Nidhi company is to do legal money lending business. Nidhi Company is preferred by many entrepreneurs and promoters since the capital requirement is only Rs. 10 Lakhs to start a nidhi company. As compared to NBFC registered with RBI, which require Rs. 2 crores capital to start up, nidhi is a cheaper option. Both RBI NBFC and Nidhi companies are registered under The Companies Act, 2013. But Nidhi Company need not register with RBI.
ADVANTAGES OF A NIDHI COMPANY
- Easy to start a Nidhi company in 20-30 days verus a NBFC which takes upto 1 year.
- Cheap to start a nidhi company. Cost approx. Rs. 25000. See cost
- Easy to manage since reporting requirements are less as compared to RBI NBFC.
- Less capital required – Rs. 10 lakhs capital versus NBFC 2 crores.
- Business startup time is fast as no additional license is required.
- Easy to open bank account for nidhi company.
DIS-ADVANTAGES OF A NIDHI COMPANY
- Minimum 7 members are required out of which 3 must be directors.
- Difficult to find 7 independent members having same like minded thought process.
- Business is restricted to 1 district only chosen during registration.
- Management costs can be high if reporting not done regularly.
- In-fighting among members to gain control and power.
- Difficult to raise external capital from investors.
REQUIREMENTS AND DOCUMENTS REQUIRED TO REGISTER NIDHI COMPANY
The main requirements to register a nidhi company are as follows:
- Minimum 7 members
- Minimum 3 directors (out of above)
- Minimum 5 lakhs capital. This has to be increased to 10 lakhs by year end.
- Choose any one district across India to work in.
The main documents required to register a nidhi company are as follows:
- DSC for all 7 members
- DIN for all 3 directors (out of above)
- Office electricity bill or other utility bill as address proof.
- Signed INC-9 and Dir-2
- PAN Card of all 3 Directors
- Identity proof of all Members and directors
- Address proof of all Members and directors
All Nidhi companies will have the words “NIDHI LIMITED” after their company name to identify them as Nidhi companies.