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A Complete Difference between NBFC and Nidhi Company

A Complete Difference between NBFC and Nidhi Company

Nidhi Company tries to launch a business with less capital than NBFC Company, which needs significant capital investment. In India, NBFC companies and Nidhi companies operate on different scales, depending on their needs. By choosing Nidhi Company, one may undoubtedly benefit from many benefits. Nidhi Companies are distinct from NBFCs because of a few limitations that prevent them from engaging in some activities that NBFCs can do. One advantage that NBFC has over Nidhi Companies is its expanded customer advantages and roles. In this blog post, you will get to learn about the nuances concerning the Difference Between NBFC and Nidhi Company.

A short glimpse of Nidhi Company.

Nidhi Company is a corporation that is governed by Section 406 of the 2013 Companies Act. A firm called Nidhi Company was founded to promote the intention of promoting the practice of conserving money and being frugal among its members. It exclusively lends money to its members. A company that is incorporated by Section 406 of the Companies Act of 2013 must have the words “Nidhi Limited” in its name. The Nidhi Company is prohibited from conducting business in the areas of chit funds, hire buy financing, leasing financing, insurance, or the purchase of securities issued by corporations. Section 406 of the Companies Act 2013, deals with the procedure for obtaining Nidhi Company Registration.

NBFCs, on the other hand, are a specific category of the financial institution that engages in the lending, advancing, buying of stocks or shares issued by the government or a local authority, leasing, hire-purchase, insurance, and chit business.

Requirements for Nidhi Company

The following are the requirements for Nidhi Company: 

  • The required capital is at least Rs. 5 Lakhs.
  • A minimum of three directors and seven members.
  • Nidhi Company does not allow minors to join.
  • Within a year of its organization, the membership should reach 200 at the very least.
  • The deposit must equal at least 10% of the current deposits.
  • A Net Owned Fund needs to be worth Rs 10 Lakhs.

A short glimpse of NBFC.

A business called NBFC Company was created under the Companies Act of 2013 to offer consumers long-term and specialized loan facilities. When it comes to supplying the financial needs of businesses and the less fortunate members of society, NBFC functions much as banks do. Without receiving an NBFC registration from the RBI, NBFC cannot start its business.

Requirements for NBFC

The following are the requirements for NBFC:

Under the Companies Act of 2013 or any other earlier Act, an NBFC must be incorporated.

  • 2 crores rupees is the minimum net owned fund.
  • According to Section 45I, (a) of the RBI Act, 1934, an NBFC’s business activity must be defined.

Basic key Differences between NBFC and Nidhi Company

To encourage people to save money and establish a fund for its members, Nidhi corporations are created. The location where NBFCs were established to provide monetary support to businesses and the less fortunate members of society, the nation’s economy is being significantly impacted by NBFCs.

Nidhi businesses are not subject to many constraints. Except for activity in the agricultural or industrial sectors, NBFCs are still making loans and buying stocks. Despite being subject to MCA and RBI regulation, Nidhi companies are nonetheless limited in some ways compared to NBFCs.

The following is a basic chart of Differences between NBFC and Nidhi Company:

  • A Nidhi Company may not engage in any other commercial activities or transactions except those specified in the Nidhi Scheme. Because they lack the authority to purchase securities issued by the company in the form of stock or shares, Nidhi Company differs from NBFCs.
  • Additionally, Nidhi Company is not allowed to work with a leasing company and run a chit fund.
  • Nidhi Company does not need RBI clearance before starting its lending activity, whereas NBFCs must first obtain RBI approval before starting their operations.
  • To start their company, NBFC must first obtain RBI[1] clearance.
  • Opening a Current Account – The government forbids Nidhi Companies from opening a Current Account. The Nidhi Company is not treated as a for-profit corporation but rather as a mutual benefit organization whereas NBFCs are required to set up a current account.
  • Nidhi Companies are unable to pay any brokerage fees. Nidhi Companies cannot provide any brokerage or inducement for mobilizing the member’s money.
  • A Nidhi Company is not allowed to get into a partnership to borrow or lend to borrow money or lend money. However, in the case of NBFC, there is no such restriction.
  • Nidhi Company cannot open a branch in India even though it has been profitable for three years running. Even with the Registrar of Companies’ approval, it is one of the necessary conditions and cannot be amended (ROC). However, NBFCs are exempt from this rule.
  • Nidhi Company has a restriction on membership that prevents it from adding a body corporate as a member. A body corporate cannot be a member of a Nidhi Company. So, it is unable to take deposits from these types of institutions.

Conclusion

A growing idea in India is the Nidhi Company. However, Nidhi Companies are subject to the aforementioned limitations, which would prevent the company’s expansion. Additionally, if we discuss NBFCs, their expanded financial services are enhancing their influence in the lending sector. The nation’s economic progress is being significantly aided by NBFCS. You can get in touch with our legal experts at BizAdvisors.io for any information regarding the NBFC and Nidhi Company and the key difference between them.

Read our article:How to Get Loans under Nidhi Scheme in India?

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