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Advantages and Disadvantages of Nidhi Company

Advantages and Disadvantages of Nidhi Company

Advantages and Disadvantages of Nidhi Company

Nidhi Company:

A Nidhi company belongs to the category of non-banking finance firms recognized under Section 406 of the Companies Act, 2013, it is governed by the Central Government. The basic business of such a company is to facilitate lending money between the core members of the company. Examples of a Nidhi Company are permanent funds, mutual benefit funds, a mutual benefit company and benefit funds. Advantages and Disadvantages of Nidhi Company are as follows:

Advantages of  Registering a Nidhi Company:

Considering the features, let’s take a look at the advantages of Registering a Nidhi Company in India

1.. Limited RBI Regulations: Owing to their non-dealing with the funds of any person other than their members, the regulations imposed upon the Nidhi’s by RBI is limited. These companies follow the Nidhi Rules, 2014 issued by the center in respect of the activities and workings of Nidhi Companies.

2..Limited Capital Requirement: The Ministry of Corporate Affairs has done away with the minimum capital requirement of INR 5 Lakhs for Nidhis. It is only after Nidhi Rules, 2014, that mandated the infusion of INR 10 lakhs for such companies.

3.. Ease of formation: Unlike other NBFCs, Nidhis don’t have to obtain a license from RBI. They just have to incorporate themselves as a public company with the MCA, infuse the required amount of capital as per Nidhi Rules, 2014 and they are all set to go.

4.. Help in channelizing small savings: The main aim of such companies is to promote the habit of saving and thrifts among lower and middle section of the society. These small sections of the population contribute to the funds of and avail credit from Nidhi companies.

5.. The lower rate of credit: The loans given to the members are at a lower rate of interest than the market rate. This brings greater savings to the members.

6.. No outsider intervention: The Nidhi companies are formed by, managed by, and provide benefits to their members only. The outsider is not allowed to intervene in the working of the Nidhis, neither allowed to deposit money or avail credit from these companies.

Drawbacks of  Registering a Nidhi Company:

1.. Limited Fund Raising: Since the Nidhi Companies accept deposits from their members only, the funds raised are limited in accordance with the number of members.

2.. Limited credit availability: When the funds raised are limited, the availability of credit is also restricted. This defeats the whole purpose for which the Nidhi Companies are established.

3.. Falls under RBI vigilance: Although there are no strict compliances imposed upon the Nidhis by RBI, still their activities are governed by the Reserve Bank especially their deposit acceptance operations.

4.. Other Regulations: The central government issues rules and directions governing Nidhi Companies from time to time. Therefore, they are not totally exempt from the regulatory framework.

The financial market is very vast in India. The financial needs are also continuously increasing. In such scenario, NBFCs are playing a prime role in the sector and the Nidhi Companies are the important branch of it. Although their coverage is limited, their influence is quite significant for the middle class.

Advantages and Disadvantages of Nidhi Company

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