NIDHI COMPANY VS MICROFINANCE COMPANY
What is a Microfinance Company?
Unemployed or low-income people or groups who would not otherwise have access to financial services can take advantage of the microfinance program. Through the use of microfinance, people can obtain the right small business loans in a secure setting and in compliance with moral lending standards.
Microfinance is the concept of offering banks’ and insurance firms’ services to clients who wouldn’t otherwise use them. It is a significant type of aid for development. Banks and insurance firms typically avoid serving these customers since doing so is exceedingly expensive. These services are offered by specialised nonprofit organizations. The two main mechanisms for providing financial services to these clients were:
(1) Relationship-based banking for sole traders and small businesses;
(2) Group-based systems, where several entrepreneurs join together to apply for loans and other services,
In recent years, microfinance has developed into a larger movement with the aim of: “a world in which as everyone, especially the poor and socially marginalized people and households have access to a wide range of affordable, high-quality financial products and services, including not just credit but also savings, insurance, payment services, and fund transfers.”
There are two ways of registering a microfinance company in India:-
A microfinance company can be registered as;
- a section 8 company,
- and also as an NBFC in India.
1) The process of registering a microfinance company as a section 8 company is as-
- Get DSC ready and submit it for name approval:
Making applications for both “DSC and DIN” is the first stage. This takes a day or two. It is utilized for electronically signing documents submitted to the ROC in order to incorporate a company. Physical documents are not permitted to use “DSC.” The company incorporation process requires a DSC because the company registration process is entirely online. After that, you must submit a name approval request. The Central Registration Center will process name applications submitted through RUN (CRC). The CRC will conduct a thorough review of the name approval before communicating its approval or rejection to the applicant through email. The name must be distinctive and end with terms like “foundation,” “Sanstha,” etc. Additionally, a total of six names may be submitted at once.
- Apply for a Director Identification Number (DIN):
A Director Identification Number is a special number granted to current directors of incorporated companies. Any person who is going to be appointed as a director of a company, as well as any director who is currently serving on the board, receives this identification number from the central government. The director can use the same DIN number for life after receiving it, regardless of the company in which they are employed. The DIN number remains unchanged even if the company changes.
- Certificate of Incorporation:
The third step is to submit the required paperwork and the “Certificate of Incorporation” to the appropriate authorities. The form is combined with all the required attachments, including declarations, MOAs, and AOAs. Due to the fact that “Stamp Duty” is a state matter, the corporation must pay it regardless of the capital amount. Once the company is incorporated, you can start the microfinance business in India. But keep in mind that section 8 prohibits you from accepting any deposits. Apply for PAN and TAN right away after that because you need both to open a bank account.
2) The procedures for registering a microfinance firm through an NBFC are as follows:
- Register a company:
Forming a private or public company is the first step in becoming registered as an NBFC microfinance company. A private business must have a minimum of two members and a capital of Rs 1 lakh. A public business must have a minimum of 7 members.
- Raise capital:
Forming a private or public company is the first stage in becoming registered as an NBFC microfinance company. A private business must have a minimum of two members and a capital of Rs 1 lakh. A public business must have a minimum of 7 members.
- Deposit the capital:
After raising capital, the next step is to deposit it as a fixed deposit in a bank and secure a “No Lien” certificate.
- Apply for a license:
The NBFC must then complete an online license application and submit it together with all of the certified documentation. The Reserve Bank of India’s regional office must also receive a paper copy of the application and license. The following documents must be in hand with the NBFC at the time of filing:
- Articles of Association and the Memorandum of Association
- Certificate of Incorporation
- Copy of the board resolution
- a copy of the auditor’s report detailing the receipt of a fixed deposit
- The net owned fund is shown in the banker’s certificate of no lien.
- Banker’s assessment of the business
- current directors’ credit report
- Certificate of Directors’ Net Worth
- Education/professional qualification evidence that the director
- The director’s KYC and income documentation
- proof of employment history
- Structure plan of the organisation
THE DIFFERENCE BETWEEN NIDHI COMPANY AND MICRO-FINANCE COMPANY:-
|SR.NO.||NIDHI COMPANY||MICRO-FINANCE COMPANY|
|1||A NIDHI company is formed to help its members by providing them with loans.||Microfinance is a financial service targeted at individuals and small businesses that have no access to traditional banks and the services related to them.|
|2||The Nidhi company is regulated by the MCA ( Ministry of Corporate Affairs).||Micro-finance company is regulated by the RBI (Reserve Bank of India).|
|3||It’s a non-profit based organisation as it provides financial help to its members for their development.||It’s also a non-profit organization that works to provide financial help to small enterprises and weaker sections of society.|
|4||NIDHI Company gives loans on the basis of collateral security.||They don’t give loans on collateral security.|
|5||The minimum paid-up capital for a NIDHI company is Rs. 10 lacs.||Its minimum NOF should be 5 crores.|
|6||The NIDHI company takes deposits from its members only.||They don’t take deposits from their members.|
|7||They provide loans to their registered members only.||They provide loans to the public.|
|8||It comes under section 406 of the Companies Act, 2013.||Mostly Registered In Section 8 of Companies Act, 2013 + regulations of RBI are too applied.|