A Nidhi company is one of the oldest and most trusted forms of community-based finance in India. If you have heard the terms "mutual benefit society" or "permanent fund", you have essentially heard of a Nidhi. Here is a clear explanation of what they are, how they work, and the rules that govern them.
What exactly is a Nidhi company?
A Nidhi company is a type of Non-Banking Financial Company (NBFC) recognised under Section 406 of the Companies Act, 2013. Its core purpose is simple: to encourage its members to save, and to lend those savings back to members in need. The word "Nidhi" means "treasure" — the company is a shared pool of funds owned by, and used only for, its members.
Crucially, a Nidhi deals only with its own members. It cannot accept deposits from, or lend to, the general public. This member-only structure is what keeps it simple and community-focused.
How does a Nidhi company work?
The model is straightforward:
- People become members by buying a small number of shares.
- Members deposit money through savings, recurring deposits (RD) and fixed deposits (FD).
- The pooled money is lent to other members — usually as loans against property, gold or deposits.
- Interest earned on loans funds the interest paid on deposits, and the surplus grows the fund.
Because everyone is both a saver and a potential borrower, the interests of the members are naturally aligned.
Key rules a Nidhi must follow
To protect members, the law sets clear conditions. Within a year of incorporation, a Nidhi must generally:
- Have at least 200 members.
- Maintain Net Owned Funds of ₹10 lakh or more.
- Keep the ratio of Net Owned Funds to deposits at no more than 1:20.
- Keep unencumbered term deposits of at least 10% of outstanding deposits.
A Nidhi also cannot carry out chit fund business, hire purchase, insurance, or issue preference shares — its scope is deliberately limited to member savings and lending.
How is a Nidhi different from a bank or NBFC?
| Feature | Nidhi Company | Bank / NBFC |
|---|---|---|
| Who it serves | Only its members | General public |
| Regulator | Ministry of Corporate Affairs | RBI |
| Main activity | Member savings & lending | Broad banking / finance |
| Setup complexity | Relatively simple | High |
Why Nidhi companies remain popular
Nidhis are easy to form, need relatively modest capital, and serve a real need in towns and villages where formal banking access is limited. They build a culture of saving within a community and provide affordable loans to members who might struggle to get credit elsewhere. Good software makes running one far easier — handling member records, deposits, loan EMIs, share accounting and statutory compliance in one place.
Frequently asked questions
No. A Nidhi can only accept deposits from, and lend to, its own members.
They are governed under the Companies Act and the Nidhi Rules, overseen by the Ministry of Corporate Affairs — not directly by the RBI.
At least 200 members within one year of incorporation, along with the required Net Owned Funds.
This article is for general education only and is not legal or financial advice. Nidhi rules and thresholds can change — confirm current requirements with the Ministry of Corporate Affairs or a qualified professional. Shronix Technology provides software for Nidhi companies and does not offer deposits or loans.