Can Nidhi Company do Micro Finance (MFI) business or Give Personal Loans in India?

Introduction

Nidhi Companies are not allowed to do a Micro Finance business in India. Micro Finance credit is a type of business which has been specifically assigned to Non-Banking Financial Companies (NBFC) with a minimum net owned fund of Rs.5 crore.

However, section 8 companies are also allowed to do micro credit business without registering with the Reserve Bank of India and without net owned fund of 5 crore.

Read: How to Register a Micro Finance Company in India

Nidhi Company businesses – What all are allowed

As said, Nidhi Company is not allowed to do micro finance business or in other words, Nidhi Company is not allowed to provide unsecured loans to its members. Nidhi Company can only lend a secured loan that too only to its members. Further,

Nidhi companies can advance loan only towards the following securities:

• Gold Loan: This is one of the main streams of business for Nidhi Companies. Gold loan by Nidhi Companies are very popular and are subject to certain rules and regulation as per Nidhi Rules, 2014. Here are the following conditions:

• The maximum finance against the gold shall be up to 80%.
• The maximum repayment period shall be 12 months.
• The rate of interest shall not exceed 7.5% plus the maximum rate of interest on gold loan.
• A Nidhi Company can advance maximum loan of 200,000 if deposits does not exceed Rs.2 Crore.

• Loan against immovable Property: This type of loan is not very famous with Nidhi Company. However, this is an option through which Nidhi Company can pay loans to those person who does not have the gold with them. This loan is also subject to certain conditions:

• The maximum loan can be rs.200,000 if deposits does not exceed Rs.2 Crore.
• The repayment period of loan shall not exceed 60 months.
• The maximum finance can be up to 50%.
• Further, this type of loan cannot exceed 50% of the total loan amount.

• Loan against FDR and Deposits: This type of loan is also advanced under Nidhi Company. Nidhi can advance loan against FDR and also even against the deposits kept by it. Further, this type of loan is also subject to certain restrictions:

• The repayment period under this loan shall not exceed the period of Fixed Deposit.
• The maximum finance under this case shall be up to the value of Fixed Deposit under Nidhi Company.

• Loan Against NSC/Government Bonds: This type of loan are very rare but Nidhi company can advance loan against these securities as well.

• Unsecured loan by Nidhi Company: This type of loan is completely prohibited by Nidhi Company.

• Vehicle Finance by Nidhi Company: This type of loan is also not allowed under Nidhi Company. Vehicle finance is allowed to Non-Banking Financial Companies (NBFC) in India.

Read: How to register Vehicle Finance Company in India

Conclusion

We have tried to summarise the type of loan allowed under Nidhi companies in India. In case you have any doubt, please email us at agam@hubco.in or call at 9540618336.

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