A non-banking financial organization is called Nidhi Company. Middle-class and lower-class folks can use it just fine. Because of a few factors—secured investments, fewer paperwork requirements, low minimum interest rates, and others. The Nidhi Company is preferred by the majority of individuals. Tax benefits, ease of management, straightforward ownership transfers, no stamp duty, and other benefits are provided by Nidhi Company Registration. In this article, you will get to learn about the Difference between Nidhi Company and Micro Finance Company

Microfinance, sometimes known as microcredit, is a category of banking service offered to unemployed or underprivileged people or groups that would not otherwise have access to financial services.

While lending is what most organizations involved in microfinance do—microloans can be as small as Rs. 100 or as much as Rs. 25,000—many banks also offer other services including checking and savings accounts, and micro-insurance products and some even offer financial and business education. Giving poor individuals the chance to eventually become self-sufficient is the ultimate purpose of microfinance.

What is Nidhi Company?

Section 406 of the 2013 Companies Act governs Nidhi Company, a corporation. The Nidhi Company was established with the goal of encouraging its members to adopt frugal living and money management. It only extends loans to its members. A corporation must have “Nidhi Limited” in its name in order to be incorporated under Section 406 of the 2013 Companies Act. Chit funds, hire-buy finance, lease financing, insurance, and the acquisition of securities issued by corporations are all off-limits to The Nidhi Company. The lending, advancing, purchasing of stocks or shares issued by the government or a local authority, leasing, hire-purchase, insurance, and chit business are some of the specific activities carried out by NBFCs.

What is Mirco Finance Company?

As their name implies, microfinance organizations are financial institutions that lend money to low-income people, where the need for money is greater than it is in other spheres of society. Typically, traditional financial institutions like banks and other financial organizations are not accessible to these areas. In India, there are two types of microfinance companies that are permitted; one must be registered with the RBI, while the other is similar to a non-profit organization and must first be incorporated as a Section 8 Company under the Companies Act, 2013, without the need for RBI permission.

Basic Difference between Nidhi Company and Micro Finance Company

Among those that offer financial services is the Micro Finance Company. For individuals and businesses, they offer loans, insurance, savings, and other services. The usual sources of finance, such as investors, banks, and others, are not necessary for small business owners. The person receives funding from the microfinance company to use for business investments.

From the MFI, people can safely borrow money for small businesses. According to the 2013 Company Act^[1], Nidhi Company and MFI are registered. The RBI controls its activities. The Micro Finance Company and Nidhi Company operate very differently from one another.

Below is a breakdown of the Difference between Nidhi Company and Micro Finance Company:

·         Numerous services provided to individuals and organizations that are connected to the fund are supported by the Micro Finance Company. It can assist people in conducting educational activities as well as opening savings accounts. They impart knowledge of such concepts as prudent spending, money management, bookkeeping, and saving.

·         To practice saving and gain independence, people incorporate their Nidhi companies. Lower interest rates are offered by the Nidhi Company.

·         The Nidhi Company’s minimum net owned fund requirement is Rs. 5 Lakhs. Five cores are required for MFI. It prohibited its members from creating current accounts because no other business could be conducted.

·         There should be a minimum of seven shareholders in the Nidhi Company. The Micro Finance Company, however, bases its clientele on its ability to reach and assist millions of people.

·         According to Section 406 of the Companies Act of 2013, a Nidhi company is a particular form of entity in the non-banking financing sector. Between their members, they conduct their main activity of borrowing and lending money. They also go by the names Benefit funds, Permanent funds, Mutual benefits, and Mutual Benefit Funds firms. In India, the Ministry of Corporate Affairs is in charge of these organizations and retains the authority to give instructions regarding deposit acceptance procedures. These organizations’ main goal is to help their serving members develop a habit of saving money and being frugal. In India’s southern region, the Nidhi Company concept is quite well-liked.

·         The name “microfinance businesses” refers to financial institutions that lend money to low-income groups, whose needs for capital are generally lower than those of other societal segments. Traditional financial institutions like banks and other financial organizations are typically unavailable in these areas.

·         In rural communities, Microfinance Companies are very well-liked. They have the government’s backing. because they greatly increase employment and the development of agriculture and rural areas.

Conclusion

Millions of people who are too poor to be served by traditional banks, typically because they are unable to provide enough collateral, can now access loans, savings, and other vital financial services thanks to microcredit, microfinance, Nidhi Company, and NBFCs. Banks are typically not for those who lack financial resources. Microloans, micro-savings, microloans, micro car finance, and tiny home loans are additional services that fall under the umbrella of microfinance. Microcredit is one of the financial service innovations that fall under this umbrella. You can get in touch with our legal luminaries at BizAdvisors.io in case you face any difficulty regarding analyzing the Difference between Nidhi Company and Micro Finance Company.

Read our article:A Complete Difference between NBFC and Nidhi Company