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Priyanka Bajpayee
| Updated: 15 Apr, 2020 | Category: NBFC, Nidhi Company

How Nidhi Companies are Different from NBFCs? – Nidhi Companies Vs NBFCs

Nidhi Companies are Different from NBFCs

Nidhi Company is a company that aims to start a company with less capital whereas NBFC company requires huge capital investment. In India, NBFC Companies and Nidhi Companies are working at an expansive and restricted scale respectively. There are undeniable advantages that one can enjoy by opting for Nidhi Company. However, there are certain restrictions where Nidhi company cannot perform such activities that NBFC can perform which makes Nidhi Companies different from NBFCs. NBFC’s extended roles and benefits to the customer are a plus point which is prevailing over Nidhi Companies.

In this topic, we will discuss how Nidhi companies are different from NBFCs in terms of the things that an NBFC can perform but the Nidhi companies are restricted to do.

What is Nidhi Company?

Nidhi Company is a company governed under section 406 of the Companies Act 2013. Nidhi company is a company incorporated with the object of encouraging the habit of thrift and saving among its members, receiving deposits and lending the same to its members only. A Company incorporated under section 406 of the Companies Act,2013 shall have the last words’ Nidhi Limited’ as a part of its name.

Requisites for Nidhi Company

  • Minimum capital requirement Rs 5 lakh.
  • A Minimum number of 3 directors and 7 members.
  • Minor cannot be a member of Nidhi Company.
  • The Number of members should increase to at least 200 members within 1 year of its incorporation.
  • The deposit shall not be less than 10% of the outstanding deposits.
  • A Net owned fund should be Rs 10 lakh.

What is an NBFC Company?

NBFC Company is the company incorporated under the Companies act 2013 intending to provide a long term and specialized credit facilities to the customers. NBFC works similarly as the bank in meeting the financial needs of the corporate as well as the weaker section of the society. NBFC cannot commence the business without obtaining a NBFC registration from the RBI.

Requisites for NBFC

  • NBFC shall be incorporated under the Companies Act,2013 or any other previous Act.
  • Minimum net owned fund Rs 2 crore.
  • The business activity of NBFC should be defined under Section 45I(a) of the RBI Act,1934[1].

Read our article:What is Nidhi Company? Know it’s Incorporation Procedure

Difference between Nidhi Company & NBFC – Nidhi Companies Vs NBFCs

Nidhi companies are the companies incorporated to encourage the savings of the people and to create a fund for its members. Where NBFCs are incorporated torender financial assistance to the business and the weaker section of the society. NBFCs are playing a vital role in the country’s economy.

Nidhi companies have few restrictions and limitations. Meanwhile, NBFCs are providing loans, acquiring stocks except the activities related to the Agriculture or industrial sector. Though Nidhi Companies are regulated by the MCA and RBI, still there are certain things that an NBFC can do but a Nidhi Company cannot.

Below-mentioned are the reasons why Nidhi Company is different from NBFCs-

  • Nidhi Company cannot conduct any other business – A Nidhi Company cannot undertake any other activity or transactions other than as mentioned in the Nidhi Scheme. Nidhi company is different from NBFCs as they don’t have a right to acquire securities in the form of stock or share that has been issued by the company.

Further, Nidhi Company cannot conduct a chit fund and hire leasing business.

  • NBFC requires prior approval of RBI before commencing the business – Nidhi Company does not require RBI approval before commencing its lending business.

However, NBFC requires prior approval of RBI before commencing the business.

  • Restriction on issue of Preference Share Capital – A Nidhi Company shall not issue Preference Share Capital for raising funds. Nidhi Companies accept money in the form of deposits, not with any other mode.

However, NBFC can issue Preference Share Capital or Debenture both.

  • Opening of Current Account – Nidhi Companies are not allowed by the government to open a current account. Nidhi Company is treated as a mutual benefit organization and it is not treated as a commercial company.

NBFCs must open a Current Account.

  • Restriction on opening a branch before a certain period – In India, Nidhi company cannot open a branch it earns profits continuously for 3 years. It is one of the mandatory conditions and cannot be changed even if you have asked permission from the Registrar of Companies (ROC).

While, there is no such requirement in the case of NBFC.

  • Nidhi Companies cannot pay any brokerage – For the mobilization of deposits from the member, Nidhi Companies cannot pay any brokerage or incentive
  • Investment and technical Parameters – NBFCs have to meet all the investment and technical parameters. The process involves in the NBFC is very long as compared to Nidhi Company registration as there is less compliance requirement as compared to NBFC.
  • Nidhi Company is Limited within the State – The working of the Nidhi company is limited within the state i.e. the Nidhi company is a brand within a state. However, it is not in the case of NBFC.
  • Restriction to enter into a Partnership – A Nidhi Company cannot enter into a Partnership for borrowing or lending purposes.However, there is no such restriction in the case of NBFC.
  • Nidhi Company cannot add a Body corporate as its member – In case of Nidhi Company there is a restriction on Membership. A Nidhi Company cannot include Body corporate as its member. Hence, it cannot accept deposits from such institutions.

Takeaway

Nidhi Company is a rising concept in India. However, Nidhi Companies have certain restrictions and the above-mentioned restrictions would affect the growth of the business. Further, if we talk about NBFCs, NBFCs extended financial services are boosting the presence in the lending department. NBFCS are playing a vital role in the economic development of the country.

Read our article:Operating Nidhi Company; Know about the Restrictions on Nidhi Company

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Priyanka Bajpayee

Priyanka Bajpayee has done Masters in International Business Law and well versed in content writing covering the area of legal and finance. Also, she has practical experience of almost 1.5 years in Legal compliance and secretarial work.

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