What is known as Nidhi Company?

Microfinance provides financial services to small businesses and entrepreneurs, operating under the framework of Non-Banking Financial Companies (NBFCs) and focusing on microcredit for individuals and small enterprises. In India, microfinance activities are facilitated through two primary business models:

  1. Non-Profit Organizations: This includes entities such as societies, trusts, and Section 8 companies.
  2. For-Profit Institutions: These are profit-making entities, including NBFCs that engage in microfinance operations.

KEY FEATURES OF MICROFINANCE COMPANIES

Before commencing operations, microfinance companies must meet a minimum capital requirement set by the regulatory authorities.

The incorporation of microfinance companies should adhere to either the Companies Act of 2013 or the Companies Act of 1956.

It is essential to obtain the necessary permits or licenses to operate legally.

These companies provide small amounts of financial assistance to underprivileged individuals in society.

MICROFINANCE INSTITUTIONS AS NBFC

Microfinance Institutions (MFIs) are a type of Non-Banking Financial Company (NBFC) that do not accept deposits and are not registered under Section 8 of the Companies Act, 2013. They operate on a smaller scale, similar to the functions of a bank, but are typically smaller in size compared to traditional NBFCs.

 

INTEREST RATES ON LOANS BY MICRO FINANCE COMPANIES

A microfinance company typically levies three types of charges. Here’s an overview:

  1. Processing Charge:
    The processing charge should not exceed 1% of the total loan amount.

  2. Interest Charge:
    The average interest rate must not exceed 26%.

  3. Insurance Premium:
    The actual cost of insurance for group, health, life, and other policies will be charged. As per RBI guidelines, no additional charges are allowed.

COMPULSORY COMPLIANCES FOR MICRO FINANCE COMPANY

Microfinance companies are required to adhere to several compliance regulations. Here are some of the most crucial ones:

  1. Companies Act:
    A Section 8 company must comply with the Companies Act, just like any other type of company.

  2. RBI Compliance:
    The company must meet the Reserve Bank of India (RBI) norms, even if it is not registered with the RBI.

  3. Other Regulations:
    Additional laws, such as the Prevention of Money Laundering Act (PMLA) of 2002, also hold significant importance and must be followed.