Nidhi Companies have become a growing trend in India. Small financers are being greatly benefitted by incorporating a Nidhi Company. A Nidhi Company requires a low capital, few members and some basic documents for its incorporation. Since, such companies are made only for the mutual benefits of its members or shareholders, so there is less risk as there will be no external factors. In this article, we have covered everything you need to know about Loans under Nidhi Scheme.
Source of Funding for Nidhi Company
The main source of funding for the company comes from its members or shareholders in the form of deposits. Loans are granted by the Nidhi Company at relatively reasonable rates to its members for house construction, or maintenance, so that they can be benefitted at large. After Nidhi Company Registration, the companies are governed by Nidhi Rules 2014, Companies Act, 2013 and some of the Financial Activities of Nidhi Scheme are governed by Reserve Bank of India Act, 1934.
The Nidhi Companies are mainly formed to encourage people to imbibe into the habit of savings so that they can easily face the challenge of financial needs, when the need arises.
Loans under Nidhi Company
The Nidhi Companies provide loans and accept deposits from its members or shareholders only. Under the Nidhi Scheme, there are many provisions of the loans which are governed by them. The amount of interest which is levied on loans under the scheme should amount to at least the rate of interest as prescribed by the Reserve Bank of India (RBI).
Loans under Nidhi Scheme
The following points should be kept in mind while providing loans under the Nidhi Scheme-
- Prior approval of Ministry of Corporate Affairs or Department of Commerce of either the Central or State Government is required to giving out any loan;
- There are limits prescribed on the amount of loan given. If the total deposits of the Nidhi Company come below two crore rupees, then a maximum of two lakh rupees will be issued;
- A Nidhi Company can advance loan up to fifteen lakh rupees, if the total amount of deposits is more than fifty crore rupees;
- The Nidhi Companies are solely incorporated for the mutual benefits of its members or shareholders only. Loans provided under the Nidhi Company will be given only to its members or shareholders and not to any corporate bodies;
- There are some restrictions on loans to be disbursed against securities. It can give loan only against the securities which is mentioned in the provision. As per the law, a Nidhi Company cannot lend any unsecured loan.
Securities under Nidhi Scheme
The securities under Nidhi Scheme under which the company can provide loan are as follows:-
Security against Gold, Silver and Jewellery
This type of loan is very famous amongst the people and it is famously known as gold loan. The repayment period of such loans should not exceed one year. The total value of such loans should not exceed the 80 percent of the total value of gold or silver.
Security against Immovable Property
This type of loan is known as loan against Immovable Property. The repayment period of Immovable Property loans shall not exceed seven years and the repayment of this type of loan should not exceed 50 percent.
Security against FD receipts, National Saving Certificates, Government securities and insurance policies
This type of loan is not very common and famous among the community. However, in the case of loan against fixed deposits, the period of loan shall not exceed the unexpired period of the fixed deposits.
Other relevant Circumstances under Nidhi Scheme
Other instances under Nidhi Scheme related to loans are as follows-
- The guarantee or security for advancement of loans is provided by the company while the credit is delivered to a Subsidiary Company from the financial institution.
- If a Nidhi Company is not profitable for the three previous financial years continuously, then no new loans above 15 percent can be obtained by the members. Those members who have taken or defaulted on a loan from a Nidhi Company cannot accept new credits from such companies.
- Only the representatives or the members of the Nidhi Company are allowed to borrow from the Nidhi Company.
Loans not Allowed by Nidhi Scheme
As per the Nidhi Scheme, there certain types of loans which are not allowed by the Nidhi Company and they are as follows:
- The Nidhi Companies are not allowed to lend money or advance any personal loans on the basis of credibility or Income Tax Return. The loan must be against any security like gold, Immovable property, etc.
- Micro finance businesses are the business which is very famous in rural and semi urban areas. But, no Nidhi Company is allowed to advance loans or lend money in the business of micro finance, other than the registered Non- Banking Financial Corporation (NBFC).
- The Nidhi Companies are not allowed to lend money or advance loans to the business of vehicle finance. Since, these categories required a net worth of Rs.2 croresand it is only allowed to a registered NBFC.
- Further, the Nidhi Companies are not allowed to lend money or advance any kind of loans to the business of Hire Purchase.
It is also pertinent to mentioned here that under the provision, the number of deposits accepted must not exceed 20 percent of the net owned funds. Also, no business or trust can be the company shareholder or member.
The Nidhi Companies are regulated by Section 20A of Companies Act, 1956 and also by the Nidhi Scheme, 2014. In India, where the habit of saving is the primary concern of the public Nidhi Companies has proved a great boon in the society. The greatest advantage that these companies has given is to revive the financial sectors of India which was lacked behind from so many years. The finance business in India is highly complex and strict and so to ease down this sector, Nidhi Companies has been proved to be a better financial business in India.
Since, the capital requirement is low, small financers has been benefitted largely by these Nidhi Companies. Also, such companies are restricted to its members or shareholders only, so there will be no external factors and no unregulated operations. As these companies have been predominant in South India, it is hoped that it will establish on a larger platform in India, sooner.
Read our article:Here’s Why NIDHI Company Cannot Operate Like NBFC