WHAT CONDITION NIDHI COMPANY CAN PROVIDE A LOANS TO ITS MEMBER?

Introduction

YOU NEED TO KNOW WHAT CONDITION NIDHI COMPANY CAN PROVIDE A LOANS TO ITS MEMBER?

What Condition Nidhi Company Can Provide A Loans to Its Members:

According to the regulations governing Nidhi Companies in India, they can provide loans to their members under specific conditions. The loans are extended only for meeting the financial needs related to housing, education, or for other specified purposes. The maximum amount of such loans is typically limited to a certain percentage of the value of the securities offered by the member. Additionally, the loans are subject to a maximum repayment period as defined by the Nidhi Company’s policies and regulations. Visitofficialwebsite

What is the criteria for Nidhi Company loan

Maximum finance against gold shall be up to 80%.
The time period for repayment shall be 12 months.
The rate of Interest shall not exceed 7.5%+ maximum rate of Interest on a gold loan.
The maximum loan to be advanced is Rs. 2 Lakh.

Objectives of Nidhi Companies

The objectives of Nidhi Companies are closely aligned with the principles of financial inclusion and member empowerment. These objectives include:

Promoting Savings: Nidhi Companies encourage their members to save regularly, fostering a culture of thrift and financial discipline.
Providing Loans: Nidhi Companies provide loans to their members, particularly for small-scale business activities and personal financial needs.
Facilitating Financial Inclusion: Nidhi Companies play a crucial role in reaching underserved and financially excluded individuals, particularly in rural areas.
Ensuring Transparency: Nidhi Companies are expected to operate with transparency and fairness, ensuring that the interests of their members are protected.
Fostering Community Support: Nidhi Companies often serve specific communities or regions, which strengthens social ties and support systems among members.

What is the rule 15 of Nidhi Rules 2014

Rule 15 of Nidhi Rules, 2014 specifies that the amount of loans that a Nidhi company can provide depends on the deposits it accepts from the members. The following table shows the amount of loan that a Nidhi Company can grant based on the deposits it accepts from its members.

What is the maximum continuous period in a Nidhi Company

Members of Nidhi Company are only eligible to open an account and deposit by way of saving, recurring, and fixed deposits. Members can opt for a fixed deposit for a minimum period of six months, and such a deposit can be accepted for a maximum period of sixty months that is 5 years.

Can Nidhi Company give unsecured loans

What all are allowed to Nidhi Companies. Nidhi Companies are not allowed to provide or give unsecured loans to its Members and is not allowed to do Micro Finance Business and hence is only allowed to lend secured loans to its Members only.

Can employees take loan from company

Other Types of loans provided by the ‘Name of the Company’ to its employees are as follows: Personal Loans – The amount given as personal loans shall never go past the employee’s net income for a month. Repayments for such loans shall NOT exceed ‘Percentage’ of the employee’s monthly income.

Legal Framework for Nidhi Companies

Nidhi Companies are regulated by the Ministry of Corporate Affairs in India and are subject to the Companies Act, 2013. To operate as a Nidhi Company, the following requirements must be met:

Incorporation: The company must be incorporated as a public limited company.
Minimum Capital Requirement: The minimum paid-up equity share capital must be Rs. 10 lakhs.
Membership Requirement: To be classified as a Nidhi Company, it should have a minimum of 200 members.
Nidhi in Name: The name of the company should include the term “Nidhi Limited.”
Restrictions on Objectives: The primary objective of the company must be cultivating the habit of thrift and savings among its members and lending to them for their mutual benefit.
Regulatory Compliance: Nidhi Companies must adhere to the Nidhi Rules, 2014, and any other guidelines issued by the Ministry of Corporate Affairs.

Conditions for Providing Loans

Membership Criteria

One of the key conditions for a Nidhi Company to provide loans to its members is that it should have a minimum of 200 members. These members are often individuals from the local community or region where the Nidhi Company operates. To become a member of a Nidhi Company, an individual typically needs to meet the following criteria:

Purchase a minimum number of equity shares in the company, as specified in the articles of association.
Pay an admission fee, which varies from company to company.
Provide the necessary Know Your Customer (KYC) documents for identification and address verification.
Comply with any additional membership requirements specified by the company.

Once a person becomes a member, they gain access to the financial services provided by the Nidhi Company, including the ability to take loans as per the terms and conditions set by the company.

Loan Types and Eligibility

Nidhi Companies offer various types of loans to their members, with eligibility criteria often varying based on the purpose of the loan. Common types of loans provided by Nidhi Companies include:

Personal Loans: These loans are typically for personal expenses such as medical emergencies, education, marriage, or home renovation. Eligibility criteria may include a minimum membership duration and a good repayment history.
Business Loans: Nidhi Companies may extend credit to members for starting or expanding small businesses. The eligibility criteria for business loans often involve a business plan, the member’s financial stability, and the potential for the business to generate income.
Gold Loans: Members can pledge gold jewelry or ornaments to secure a loan. The loan amount is determined based on the value of the gold and the company’s policies.
Fixed Deposit Loans: Some Nidhi Companies provide loans against fixed deposits held by members in the same company. The loan amount is typically a percentage of the fixed deposit amount.
Property Loans: Nidhi Companies may also offer property loans for members looking to purchase or construct homes. These loans are secured by the property itself.

The eligibility criteria for these loans may differ from one Nidhi Company to another, but they generally require that the member has been associated with the company for a specified period and has a reliable repayment history. The nature and extent of collateral or security may also vary based on the type and amount of the loan.

Loan Amount Limits

The Nidhi Rules, 2014, impose restrictions on the loan amount limits that Nidhi Companies can provide to their members. These limits are in place to ensure that the loans serve the purpose of small-scale financial assistance rather than facilitating speculative or trading activities. Some of the key loan amount limits include:

Loans against fixed deposits should not exceed 75% of the deposit amount.
Loans against gold, silver jewelry, and other approved securities should not exceed 80% of the value of the security.
The total amount of loans to any single member should not exceed the maximum limit set by the Ministry of Corporate Affairs.

These limits help in maintaining the stability and financial integrity of Nidhi Companies and ensure that they continue to focus on their core objective of serving their members’ financial needs.

Interest Rates and Terms

Interest rates on loans provided by Nidhi Companies are subject to regulation to prevent usurious practices and ensure fair treatment of members. The Nidhi Rules, 2014, specify that Nidhi Companies should not charge interest on loans at rates exceeding 7.5% above the highest rate of interest on deposits.

The terms and conditions of loans provided by Nidhi Companies should be fair, transparent, and communicated clearly to members. This includes details about the repayment schedule, interest calculations, and any other charges or fees associated with the loan. These terms are often outlined in the loan agreement, which members are required to sign before availing themselves of the loan.

Security Requirements

To mitigate risks associated with lending, Nidhi Companies often require members to provide collateral or security against loans. The nature and extent of security depend on the type and amount of the loan. Common forms of security include:

Gold and Jewelry: Nidhi Companies frequently accept gold jewelry and ornaments as collateral. The value of the gold is assessed, and the loan amount is determined based on a percentage of that value.
Fixed Deposits: Loans can be extended against fixed deposits held by the member in the same Nidhi Company. The fixed deposit serves as collateral for the loan.
Property: For property loans, the property itself serves as collateral. The company may hold a legal charge or mortgage on the property until the loan is repaid.

The use of collateral provides a level of security for Nidhi Companies, reducing the risk of default and allowing them to offer loans at competitive interest rates.

Can a Nidhi accept deposit, give loans, give interests and receive interests in cash or not

The provisions applicable to Nidhi are contained in Section 406 of The Companies Act 2013 read with Nidhi Rules 2014.

As per Rule 6:

No Nidhi shall carry on the business other than the business of borrowing or lending in its own name.
No Nidhi shall accept deposits from or lend to any person, other than its members.
No Nidhi shall take deposits from or lend money to any body corporate.

Since nothing has been specified regarding cash, which may indicate that complying with the provisions stated above, cash transactions are allowed provided that they do not over rule the provisions of Sec 269SS and Sec 269T of Income Tax Act 1961.

What is the preliminary process for the registration of a Nidhi company

The preliminary process for the registration of a Nidhi company in India includes the following steps:

Minimum Requirements: Ensure that the company meets the minimum requirements to qualify as a Nidhi company, such as having at least 200 members within one year of incorporation, a minimum net owned fund of INR 10 lakhs, and complying with other criteria specified under the Companies Act, 2013.

2. Name Approval: Choose a unique name for the Nidhi company and submit it for approval to the Registrar of Companies (RoC). The name should include the term “Nidhi Limited” at the end, as per the guidelines provided.

3. Director Identification Number (DIN): Obtain DIN for all the proposed directors of the Nidhi company by filing Form DIR-3 with the MCA (Ministry of Corporate Affairs) along with the necessary documents.

4. Digital Signature Certificates (DSC): Obtain DSC for the proposed directors, as it is required for filing electronic forms and documents. DSC can be obtained from certified agencies or through online portals.

5. Memorandum and Articles of Association: Draft the Memorandum of Association (MOA) and Articles of Association (AOA) of the Nidhi company, which outline its objectives, rules, and regulations. These documents must comply with the provisions of the Companies Act, 2013.

6. Application for Incorporation: File Form INC-32 (SPICe) with the RoC to apply for the incorporation of the Nidhi company. Along with the form, submit the MOA, AOA, and other necessary documents, such as address proof, identity proof of directors, and declaration of compliance.

7. PAN and TAN Application: Apply for a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) for the Nidhi company. These can be obtained from the Income Tax Department by submitting the relevant forms and documents.

8. Bank Account Opening: Open a bank account in the name of the Nidhi company and deposit the required minimum capital as specified by the RBI.

9. Post-Incorporation Compliance: After registration, ensure compliance with ongoing regulatory requirements, such as filing annual returns, conducting regular audits, and adhering to the guidelines issued by the RBI and the MCA.

It is important to note that the Nidhi company registration process may have additional requirements and may vary slightly depending on specific circumstances and regulatory updates.

Role of Nidhi Companies in Financial Inclusion

Nidhi Companies play a significant role in promoting financial inclusion, particularly in India and other countries with similar institutions. Their unique approach to financial services makes them a valuable tool for empowering individuals and communities. Here’s how Nidhi Companies contribute to financial inclusion:

How auriga accounting help you to define condition of nidhi company providing loan

Auriga Accounting, a financial software or service provider, can be a valuable tool for Nidhi Companies in managing their operations, including defining the conditions for providing loans to their members. While Auriga Accounting itself doesn’t define these conditions, it can assist Nidhi Companies in the following ways to establish, manage, and monitor the conditions for providing loans:

1. Record Keeping and Compliance:

Member Data Management: Auriga Accounting software can help Nidhi Companies maintain accurate records of their members, which is crucial for ensuring compliance with the minimum membership criteria and other regulatory requirements.
Loan Documentation: The software can assist in generating and storing loan documentation, making it easier to maintain transparency and comply with regulatory requirements regarding the terms and conditions of loans.

2. Risk Assessment and Management:

Credit Scoring: Some accounting software may offer credit scoring modules, which can help Nidhi Companies assess the creditworthiness of members and determine eligibility for loans.
Portfolio Analysis: Accounting software can assist in tracking the performance of the loan portfolio, including monitoring repayment rates and identifying potential risks.

3. Interest Rate and EMI Calculations:

Interest Rate Management: Auriga Accounting software can automate interest rate calculations based on regulatory restrictions. This ensures that interest rates do not exceed the prescribed limits.
EMI Calculation: The software can help in determining equated monthly installments (EMIs) for loans, making it easier to set clear repayment terms for members.

4. Security Management:

Collateral Tracking: If collateral is required for loans, Auriga Accounting software can help in managing and tracking the details of the collateral, including its value and legal documentation.
Security Release: The software can automate processes for the release of security or collateral upon successful loan repayment.

5. Regulatory Reporting:

Compliance Reporting: Auriga Accounting software can generate reports that help Nidhi Companies comply with regulatory reporting requirements. This can include reports on membership, loan disbursement, loan repayments, and other relevant data.

6. Financial Statements:

Financial Statement Generation: The software can assist in generating accurate financial statements, which are essential for regulatory compliance and transparency.

7. Audit Trail:

Transaction Tracking: Accounting software typically provides an audit trail that allows Nidhi Companies to track all financial transactions related to loans, ensuring transparency and accountability.

8. Alerts and Notifications:

Loan Approvals and Reminders: The software can be configured to send alerts and notifications to members and staff regarding loan approvals, repayments, and other important events, ensuring timely compliance with loan conditions.

9. Data Analysis:

Data Analytics: Some accounting software may offer data analytics capabilities to help Nidhi Companies analyze the performance of their loan portfolio, identify trends, and make informed decisions.

10. Documentation Management:

Digital Record Keeping: Auriga Accounting software can facilitate digital record-keeping for all loan-related documents, ensuring easy access and retrieval when needed.

It’s important to note that while Auriga Accounting can be a valuable tool for Nidhi Companies, the software’s effectiveness in defining and managing loan conditions depends on how it is configured and utilized by the Nidhi Company’s management and staff. Additionally, the software should always be used in compliance with the regulatory framework and guidelines governing Nidhi Companies to ensure that the defined loan conditions adhere to legal requirements.

December 22, 2024