How NBFC is different from Nidhi and Micro Finance Company?

Micro Finance Company, Nidhi Company, and NBFC can only perform specified functions prescribed under the Act/rules/guidelines. They also require additional approval from the concerned authorities. There are significant differences between an NBFC, Nidhi, and Micro Finance Company, and this article is focused on elaborating on such differences.

What is NBFC (Non-Banking Financial Company)?

A company registered under the Companies Act, dealing in the following business activities:

  • Loans and advances, 
  • Purchasing shares/stocks/bonds/debentures/securities issued by the government or local authority or other marketable securities of a like nature, 
  • Leasing, 
  • Hire purchase, 
  • Insurance business, 
  • Chit business 
  • An institution (non-banking) having principal business activity of receiving deposits under any scheme or arrangement in one lump sum or installment by way of contributions or in any other manner. 

It does not include 

  • Any business that has a principal activity of agriculture, 
  • Industrial activities, 
  • Dealing with sale/purchase of any goods (other than securities) or 
  • They provide services, sale, purchase, or construction in regards to immovable property. 

General Requirements:

  1. is covered under section 45-IA of the Reserve Bank of India
  2. Requires prior approval of RBI.
  3. Requires minimum net owned funds of 2 crores
  4. NBFC undertakes the function of financial activity as its primary business objective.
  5. Can a deposit or non-deposit be accepted by NBFC
  6. The types of NBFC can be:
  • Asset Finance Company (AFC) 
  • Investment Company (IC)
  • Loan Company (LC)
  • Infrastructure Finance Company (IFC)
  • Systemically Important Core Investment Company (CIC-ND-SI)
  • Infrastructure Debt Fund (IDF-NBFC)
  • Micro Finance Institution (NBFC-MFI)
  • Non-Banking Financial Company – Factors (NBFC-Factors)
  • Mortgage Guarantee Companies (MGC)
  • Non-Operative Financial Holding Company (NOFHC)

What is Nidhi Company?

A company incorporated as per Chapter XXVI of Companies Rules, 2014 with the OBJECT of:

  • Inculcating the idea of thrift and savings amongst its members,
  • Perform the function of lending money or receiving deposits from its members only for their benefit.

General Requirements:

  • It is covered under section 406 of the Companies Act, 2013.
  • Every “Nidhi” shall have the last words of its name as "Nidhi Limited".
  • It should be a public company with a minimum paid-up equity share capital of five lakh rupees.
  • Cannot issue preference shares.
  • Can accept deposits from or lend to members only.
  • Require net-owned funds of rupees 10 lakhs within one year from the date of its incorporation.
  • Requires a minimum of 200 members.
  • Must comply with rules made by central govt, for regulation of such companies.

What is a Micro-Finance Company?

Financial institutions provide financial assistance to those sectors which do not have access to banks and other financial institutions. It focuses on encouraging low-income groups and helping them become more self-sufficient.

General Requirements:

  • Governed by Section 8 of the Companies Act 2013 and RBI Regulations.
  • Require minimum Net Owned Funds of Rupees 5 crores and in case of North East States requirement of minimum Net Owned Funds is Rupees 2 Crores.
  • They do not accept deposits.
  • The loans are without collateral.
  • The loans are for a short period of time.
  • These companies have to follow minimum compliance.

Before getting into the business related to financing operations, the business owner must consider all the relevant information regarding the incorporation of such companies, pre, and post-incorporation requirements, and other compliances to be followed by such company.

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