In accordance with the section 406(1) of the Companies Act, 2013, ‘Nidhi’ means a ‘company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit’. Therefore, we can say that a person who wants to start a Company with a business model of collecting money from its members and giving away that money as loans with security to members only can opt for incorporation of a Nidhi Company. Under this, a person makes money from difference of rate of interest charged on loans vs. given on deposits.

The lending and borrowing i.e. the financial activity as primary business in India is generally done only through following entities:

  • Banks
  • Non-banking Finance Company (NBFC)
  • Nidhi Company
  • Credit Cooperative Society
  • Micro Finance Section 8 Company
  • Money Lenders

Among the aforementioned, except money lenders all fall under organized sector of such business. However, incorporation of banks, NBFCs and credit cooperative society is a time taking process and cumbersome amount of paper work is also involved. Also, credit cooperative society is less reliable among people primarily because its accounts are not subjected to public inspection on MCA portal. Further, micro finance section 8 company is a not-for-profit organization and for example, is suitable for a money lending/borrowing business in a housing society wherein any amount earned can be ploughed back for the benefit of its members.

Now the only option left in Nidhi Company and accordingly, in this article, we shall study about the benefits and limitations of a Nidhi Company along with the process of incorporation and frequently asked questions (FAQs).


  1. A Nidhi Company is very easy to form i.e., in comparatively less time and paper work like a normal private or public limited company is required to be executed.
  2. It is governed by Income Tax department and Registrar of Companies primarily and no Reserve Bank of India’s (RBI) intervention is required.
  3. The cost of incorporation is very minimal.
  4. The people have more reliability on a Nidhi Company as its accounts are mandatorily subject to audit and further, open for public inspection on MCA portal thereby, having more confidence to invest among customers.


  1. A Nidhi Company can give loans and take deposits only from its members.
  2. A Nidhi Company can give only secured loans against Fixed Deposits, Immovable Property, Jewellery, National Savings Certificates, Insurance Policies and other Government securities. This is the biggest limitation of forming a Nidhi Company as many people intends to give unsecured loans to public on higher rate of interest.
  3. The paper work and yearly secretarial compliances are way too much as compared to a normal public or private Company. However, as compared to an NBFC and Banks, the compliances are less.
  4. A Nidhi Company has restrictions on opening of number of branches and outside the district of its registered office as well. Also, it cannot open any branch before three years of its incorporation anyhow.

The Nidhi Company form of business is suitable and more popular in people who wants to operate it in rural areas as therein people have at least jewellery, lands to put in as security. Further, the people living here does not have access to more organized form of lending as Banks and NBFCs requires a lot of paper work like Income Tax return and on the other hand, money lenders exploit them thereby, Nidhi Company becomes the best suitable option for them to keep their money safe and obtain loans as well.


  1. It should be a public Company with minimum paid up capital of Rs. 5 lacs.
  2. It shall not issue preference shares.
  3. It shall have last words “Nidhi Limited” as a part of its name like for example, ABC Nidhi Limited.
  4. There should be at least 3 Directors which shall mandatorily be member of Nidhi Company.
  5. There should be at least 7 shareholders.


We shall not discuss the process of incorporation, as it is very much similar to incorporation of a normal public or private limited Company except the following additional documents also need to filed:

  1. Declaration under Rule 12 of the Companies (Incorporation) Rules, 2014 to be filed by any of the proposed promoters.
  2. Declaration under Rule 4, 5, 6 and 10 of the Nidhi Rules, 2014 from all the proposed promoters.
  3. Affidavit from the Company that it shall not accept deposits from all proposed promoters.


The Government provides for easy incorporation of Company and gives relaxation in payment of stamp duty rates on authorized capital till Rs. 15,00,000/-. Also, all Nidhi Companies are mandatorily required to have a minimum paid up capital of Rs. 10 Lacs within a period of one year of its incorporation and accordingly, it is advisable to form the Company with authorized capital of Rs. 15,00,000/- as in case, you will increase capital after incorporation, the stamp duty rates of the same amount of capital shall be higher.


1. Can I carry on any other business-like Insurance, garments, etc. in one Nidhi Company only along with Nidhi business?

No, it is explicitly prohibited in Nidhi Rules to carry on any business other than the business of borrowing or lending in its own name for a Nidhi Company.

2. Can I pay incentive or brokerage to mobilise deposits?

No, a Nidhi Company cannot pay any brokerage for mobilizing funds or for deployment of funds or for granting loans from members. 

3. Can I enter into partnership or private agreement with any other financial institution or Nidhi Company or bank or money lender to lend/borrow money?

No, a Nidhi Company cannot enter into any such partnerships/agreement with respect to its borrowing or lending activities.


{The author i.e., Kajal Goyal is a Company Secretary in Practice at Kajal Goyal and can be reached at (M) +91-9999952595 and (E) [email protected]}

Author Bio

Qualification: CS
Company: Kajal Goyal and Associates
Location: Delhi, Delhi, India
Member Since: 11 Jun 2018 | Total Posts: 76
KAJAL GOYAL AND ASSOCIATES, is a Company Secretary proprietorship firm, offering its expertise and one stop solutions for all Corporate compliance requirements to the clients with a strong emphasis on ethics and ‘being on toes’. Capable delivering services related to Companies Act, FEMA, Re View Full Profile

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May 2021