What is Nidhi Company?

A Nidhi company is one that belongs to the non-banking Indian Finance sector and is recognized under section 406 of the Companies Act, 2013. Their core business is borrowing and lending money only between their members.

They are also known as Permanent Fund, Benefit Funds, Mutual Benefit Funds and Mutual Benefit Company. It is regulated by Ministry of Corporate Affairs. Reserve Bank of India is empowered to issue directions to them in matters relating to their deposit acceptance activities. However, in recognition of the fact that these Nidhi Company deal with their shareholder members only.

Nidhi Companies were existed even prior to the existence of companies Act 1913. The basic concept of Nidhi is “Principle of Mutuality” (“Paraspara Sahayata”). Thus Nidhi function for the common benefit advantage of all their Members/Share holders..

Background or history Nidhi Company

·         Long before the financial institutions were regulated and proper financial framework was established, idea of group lending and borrowing existed but not by the same name or in the same way as it exists today as Nidhi Company.

 

·         In Hindi, Nidhi refers to finance, treasure or fund. Nidhi’s used to grant secured loans against tangible assets for personal purposes like family functions, marriages, medical issues, education, property purchase, etc.

 

What is Nidhi Company?
·         A Nidhi Company or Mutual Benefit Society/Fund or any other name by which you may know it, is a company created for the mutual benefit of its members. This mutual benefit comes from group lending and borrowing.

 

·         Within these companies the members make deposits and these deposits are used to give secured loans to the members at a reasonable interest rate. The basic idea of a nidhi company is to save its members from the exploitation of money lenders who charge high interest rates.

 

·         By becoming members of Nidhi’s people develop habit of savings and self-reliance.