HOW DOES THE NIDHI COMPANY USE FUND IT RECEIVES?

Introduction

YOU NEED TO KNOW HOW DOES THE NIDHI COMPANY USE FUND IT RECEIVES?

Nidhi Companies are non-banking financial institutions (NBFCs) in India that are primarily involved in borrowing and lending money between their members. These companies are categorized under Section 406 of the Companies Act, 2013, and are regulated by the Ministry of Corporate Affairs, Government of India. The primary objective of a Nidhi company is to cultivate the habit of thrift and savings among its members. Visitofficialwebsite

Core Functions and Objectives:

Nidhi Companies have specific objectives and core functions:

Promoting Savings: They encourage members to save money regularly, fostering a culture of thrift.
Providing Loans: Nidhi Companies primarily lend to their members, supporting their financial needs, especially in areas with limited access to traditional banking services.
Mutual Benefit: The focus is on benefiting members within the community, thereby promoting self-help and financial cooperation.

Mobilization of Funds:

Nidhi Companies receive funds primarily through the following avenues:

Savings Accounts: Members deposit their savings into Nidhi Companies’ savings accounts.
Fixed Deposits: Nidhi Companies offer fixed deposit schemes to attract funds from members.
Recurring Deposits: Regular monthly savings deposited by members contribute to fund mobilization.
Loans and Advances: The interest on loans granted to members forms a source of revenue.

Fund Utilization for Lending:

Nidhi Companies utilize the funds they receive primarily by lending to members:

Loan Products: They offer various loan products, such as personal loans, gold loans, and small business loans, to cater to the diverse financial needs of members.
Credit Evaluation: Nidhi Companies assess the creditworthiness of members applying for loans and determine the loan amount and terms.
Interest Income: Interest charged on loans becomes a source of income for the Nidhi Company.

Is Nidhi Company a chit fund

A Nidhi Company is an NBFC that can only lend money or accept deposits, whereas a Chit Fund is also a committee like a Nidhi Company but only accepts payments made in instalments over a set period of time by its members. This is the main distinction between the two.

How do I register a nidhi company

Nidhi Company is a Non-Banking Financial Company that is regulated by the Reserve Bank Of India. It provides the service of lending and depositing to its member. Nidhi Company is registered as a Public Company. A minimum of seven members is needed to start a Nidhi Company and three members must be the directors of the company.

The procedure of Nidhi Company Registration:

Obtain DSC (Digital Signature Certificate)
Obtain DIN (Director Identification Number)
Apply for Name Approval, fill out the reserve unique name form for the reservation of Name.
Drafting of MOA and AOA under INC 32, INC 33
Submit the online application for a Certificate of Incorporation
After the approval of the document, the registrar provides the CIN along with PAN and TAN.

Financial Inclusion and Empowerment:

Nidhi Companies play a significant role in promoting financial inclusion:

Serving Underserved Areas: Nidhi Companies extend their services to areas where traditional banks are limited or absent.
Small Business Support: They offer credit to small business owners, contributing to local economic development.
Empowering Women: Many Nidhi Companies promote women’s financial empowerment by offering tailored savings and loan products.

Can Nidhi Company give vehicle loan

For Gold Loan: In the case of a gold loan, the maximum amount of loan which can be provided is 80 % of the Gold value. Loan against Property: Loan against property the maximum amount which can be provided is 50% of the property value. No loan for vehicles: No loan for vehicles can be provided by Nidhi companies.

What is the difference between Nidhi and Chit Fund

A Nidhi company operates similarly to an NBFC, allowing its members to make deposits (perhaps on a recurrent basis) and issue loans. A committee that permits its members to contribute predefined monthly installments for a predetermined duration is known as a Chit Fund

What are the new Nidhi Rules 2023

The following are the rules regarding membership in Nidhi Company. A Nidhi Company shall have at least 200 members at all times. Initially, it can be incorporated with 7 members, but it shall increase the number of members to 200 within 120 days of incorporation.

What are the rules for Nidhi finance

One year after establishment, Nidhi Company must have at least 200 members. At least 10 lakh more than should be the amount of Net Owned Funds that a company has. Paid-up equity capital, reserves, and surplus make up the Net Owned Fund (NOF). Deposits can’t exceed 20 times the amount of money you own.

Risk Management and Prudential Norms:

Nidhi Companies implement risk management strategies and prudential norms to mitigate potential risks:

Asset Quality: Regular assessment of the quality of assets to prevent non-performing assets (NPAs).
Liquidity Management: Maintaining sufficient liquidity to meet member withdrawal demands.
Security Measures: Implementing security measures to safeguard members’ deposits and the company’s financial stability.

What are the advantages and disadvantages of a Nidhi company

Here are some key advantages and disadvantages of a Nidhi company:

Advantages:

Nidhi companies have less regulatory compliance compared to other NBFCs. They do not require a license from the RBI and only need to register with the MCA as per the Nidhi Rules, 2014.
Nidhi companies aim to promote savings and thrift among middle and lower income groups by providing loans at lower interest rates.
Nidhi companies operate only for the benefit of their members. Outsiders cannot invest in or avail credit from Nidhi companies.
Nidhi companies can raise funds from their members, though the amount is limited due to their restricted membership.

Disadvantages:

The funds raised by Nidhi companies are limited since they can only accept deposits from members. This restricts their ability to provide loans.
Though Nidhi companies have less compliance, they are still regulated and governed by the RBI and central government rules. They do not have complete regulatory exemption.
Nidhi companies have to comply with deposit acceptance rules of the RBI which adds some regulatory burden.
The central government issues directions and amendments to the Nidhi Rules from time to time which Nidhi companies have to follow.

What is Nidhi Company Registration in India

The process of Nidhi Company Registration involves several steps:

Obtain Digital Signature Certificate (DSC): The proposed directors of the Nidhi Company must obtain a DSC, which is used to verify the authenticity of documents submitted electronically.
Obtain Director Identification Number (DIN): Each director must also obtain a DIN, which is a unique identification number issued by the Ministry of Corporate Affairs (MCA).
Name Approval: The company must apply for name approval to the MCA. The name should end with ‘Nidhi Limited’.
File Incorporation Application: Once the name is approved, the company can file an incorporation application to the MCA along with necessary documents like Memorandum of Association (MoA) and Articles of Association (AoA).
Commencement of Business: After the company is incorporated, it must file a declaration for the commencement of business.

Nidhi Companies are governed by both the Companies Act, 2013 and Nidhi Rules, 2014. They are created primarily for cultivating the habit of thrift and savings amongst its members. The funds contributed by the members are used by the Nidhi Company for lending to members in need.

Conclusion to nidhi company fund

Nidhi Companies serve as vital financial intermediaries, mobilizing funds primarily from their members and utilizing them through lending operations. They have a significant role in financial inclusion and empowering local communities, especially in areas with limited access to traditional banking services. Through prudent financial management and adherence to regulatory norms, Nidhi Companies continue to serve their members and contribute to their financial well-being.

How auriga accounting help you to define nidhi company fund receive

Auriga Accounting can help you define and manage the funds received by Nidhi Companies by providing a comprehensive platform for tracking, recording, and reporting financial transactions. Here’s how Auriga Accounting can assist in defining the funds received by Nidhi Companies:

Fund Categorization:
- Savings Accounts: Create categories or accounts specifically for savings accounts to record the funds received from members’ regular deposits.
- Fixed Deposits: Establish separate categories for fixed deposit schemes to track funds mobilized through term deposits.
- Recurring Deposits: Create categories for recurring deposits to monitor funds received from members’ monthly contributions.
- Loan Disbursements: Record loans granted to members and categorize the funds dispersed to borrowers.
Transaction Entries:
- Transaction Records: Record all financial transactions, including deposits, withdrawals, fixed deposit renewals, and loan disbursements.
- Loan Repayments: Track the repayments made by borrowers, as they represent the return of funds back to the Nidhi Company.
Member Management:
- Member Accounts: Maintain individual member accounts, tracking their deposits, fixed deposits, and recurring deposits.
- Loan Accounts: Manage loan accounts for borrowers, monitoring their outstanding loan balances and repayment schedules.
Interest Calculation:
- Interest Income: Calculate interest income accrued on fixed deposits, recurring deposits, and loans to members.
- Interest Expenses: Track interest expenses incurred on deposits, such as recurring deposit interest payments.
Report Generation:
- Financial Reports: Generate financial reports that provide a clear overview of the funds received, categorized by source, including savings, fixed deposits, and recurring deposits.
- Interest Reports: Create reports that display interest income and expenses associated with fund mobilization.
Compliance Management:
- Regulatory Compliance: Ensure that Nidhi Companies adhere to regulatory requirements and financial norms by using the software to calculate and report income, interest, and other financial metrics.
- Audit Trail: Maintain a transaction history and audit trail, which is essential for regulatory compliance and financial transparency.
Risk Management:
- Asset Quality: Implement risk management strategies by monitoring asset quality and identifying non-performing assets (NPAs).
- Liquidity Management: Use the software to track liquidity and ensure that the company maintains sufficient funds to meet member withdrawal demands.
Security and Data Protection:
- Security Measures: Implement data security and access controls to protect member data and financial information.
- Backup and Recovery: Regularly back up financial data to prevent data loss and ensure business continuity.
Document Storage:
- Attachment of Documents: Attach and store relevant documents, such as member applications, fixed deposit receipts, and loan agreements, within the software for easy reference and audit purposes.
Notifications and Reminders:
- Payment Alerts: Set up notifications and reminders within the software to manage deposit renewals, interest payments, and loan repayments.