{"id":1454,"date":"2021-01-19T10:02:04","date_gmt":"2021-01-19T10:02:04","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=1454"},"modified":"2023-03-16T12:29:27","modified_gmt":"2023-03-16T12:29:27","slug":"conversion-of-nidhi-company-to-nbfc","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/conversion-of-nidhi-company-to-nbfc\/","title":{"rendered":"Conversion of Nidhi Company to NBFC:  A Complete Guide"},"content":{"rendered":"\n<p class=\"has-drop-cap\">In India, the concept of Nidhi Company is emerging as a popular trend, as it the cheapest way to incorporate an NBFC or Non Banking Financial Company. It shall be considerate to note that an NBFC is governed by the Apex Bank, i.e., RBI. In contrast, a Nidhi Company is governed by the provisions specified in the Companies Act 2013. Moreover, it shall be considerate to record that the conversion of Nidhi Company to NBFC is not possible in India.<\/p>\n\n\n\n<p>In this blog, we will discuss the concept and reasons as to why conversion of Nidhi Company to NBFC is not possible.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3a22e358ecc\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3a22e358ecc\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/conversion-of-nidhi-company-to-nbfc\/#Concept_of_Nidhi_Company\" title=\"Concept of Nidhi\nCompany\">Concept of Nidhi\nCompany<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/conversion-of-nidhi-company-to-nbfc\/#Concept_of_NBFC\" title=\"Concept of NBFC\">Concept of NBFC<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/conversion-of-nidhi-company-to-nbfc\/#Reasons_as_to_Why_Conversion_of_Nidhi_Company_to_NBFC_is_not_Possible\" title=\"Reasons as to Why Conversion of\nNidhi Company to NBFC is not Possible\">Reasons as to Why Conversion of\nNidhi Company to NBFC is not Possible<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/conversion-of-nidhi-company-to-nbfc\/#Capital_Requirement\" title=\"Capital\nRequirement\">Capital\nRequirement<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/blog\/conversion-of-nidhi-company-to-nbfc\/#Registration_Requirement\" title=\"Registration\nRequirement\">Registration\nRequirement<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/blog\/conversion-of-nidhi-company-to-nbfc\/#Cannot_Issue_Preference_Shares\" title=\"Cannot Issue\nPreference Shares\">Cannot Issue\nPreference Shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/swaritadvisors.com\/blog\/conversion-of-nidhi-company-to-nbfc\/#Cannot_Open_a_Current_Account\" title=\"Cannot Open a\nCurrent Account\">Cannot Open a\nCurrent Account<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/swaritadvisors.com\/blog\/conversion-of-nidhi-company-to-nbfc\/#Can_Deal_only_with_Members\" title=\"Can Deal only with\nMembers\">Can Deal only with\nMembers<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/swaritadvisors.com\/blog\/conversion-of-nidhi-company-to-nbfc\/#Cannot_Open_Branch_before_Three_Years\" title=\"Cannot Open Branch\nbefore Three Years\">Cannot Open Branch\nbefore Three Years<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/swaritadvisors.com\/blog\/conversion-of-nidhi-company-to-nbfc\/#Can_a_Nidhi_Company_Apply_for_NBFC_Registration_if_it_satisfies_all_the_Conditions_Necessary\" title=\"Can a Nidhi Company Apply for NBFC\nRegistration if it satisfies all the Conditions Necessary?\">Can a Nidhi Company Apply for NBFC\nRegistration if it satisfies all the Conditions Necessary?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/swaritadvisors.com\/blog\/conversion-of-nidhi-company-to-nbfc\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Concept_of_Nidhi_Company\"><\/span><strong>Concept of Nidhi\nCompany<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The term Nidhi Company means a business entity that is although an NBFC but is governed by the provisions of section 406 of the Companies Act 2013. Also, it needs to comply with the rules and regulations mentioned in the Nidhi Rules 2014. Therefore, to obtain <strong><a href=\"https:\/\/swaritadvisors.com\/nidhi-company-registration\" class=\"text-primary\">Nidhi Company Registration<\/a><\/strong> in India, one needs to adhere to both the provisions mentioned above.<\/p>\n\n\n\n<p>Further, this business\nstructure deals only with its members and their welfare. That means it works\nfor the mutual benefit of the members. Furthermore, the other name for this\nbusiness format is Mutual Benefit Finance Company.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Concept_of_NBFC\"><\/span>Concept of NBFC<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The term NBFC or Non\nBanking Financial Company means a business entity that is governed by the\nprovisions and directions issued by RBI. That means these entities are strictly\nmonitored by RBI. <\/p>\n\n\n\n<p>Further, for obtaining\nNBFC Registration in India, one must have a net worth of Rs 2 crores. Also, the\nprincipal business of an NBFC is to receive deposits either in instalments or\nlump sum by way of contributions. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Reasons_as_to_Why_Conversion_of_Nidhi_Company_to_NBFC_is_not_Possible\"><\/span>Reasons as to Why Conversion of\nNidhi Company to NBFC is not Possible<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As mentioned under\nthe&nbsp;provisions of the <strong>Nidhi Rules 2014<sup><a href=\"https:\/\/www.mca.gov.in\/Ministry\/pdf\/Nidhi_19032020.pdf\" class=\"text-primary\"><strong><em>[1]<\/em><\/strong><\/a><\/sup><\/strong>, a Nidhi Company is not allowed to\nengage in any other business activity than the ones provided in the rules.\nHenceforth, the Nidhi Rules clearly restricts a Nidhi Company to enter into the\nbusiness activities of other NBFC\u2019s. <\/p>\n\n\n\n<p>Further, given below is a basic difference between NBFC and Nidhi Company which will provide a clear understanding as to why the Conversion of Nidhi Company to NBFC is not possible:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" loading=\"lazy\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/23-Converted-swarit-719x1024.png\" alt=\"Conversion of Nidhi Company to NBFC Reasons \" class=\"wp-image-1456\" width=\"369\" height=\"526\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/23-Converted-swarit-719x1024.png 719w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/23-Converted-swarit-211x300.png 211w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/23-Converted-swarit-768x1095.png 768w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/23-Converted-swarit.png 1263w\" sizes=\"(max-width: 369px) 100vw, 369px\" \/><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Capital_Requirement\"><\/span>Capital\nRequirement<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>To incorporate a Nidhi Company, a minimum of Rs 5 lakhs are required as the Net Worth. However, a minimum of Rs 2 crores are required to obtain <strong><a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\" class=\"text-primary\">NBFC Registration<\/a><\/strong> in India.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Registration_Requirement\"><\/span>Registration\nRequirement<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Unlike an NBFC, Nidhi Company does not\nrequire prior approval from RBI to operate in India. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Cannot_Issue_Preference_Shares\"><\/span>Cannot Issue\nPreference Shares<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>In India, Nidhi\nCompanies are restricted to raise funds either by way of preference shares or\nby issuing debentures. That means it is not allowed to take deposits from the\ngeneral public. <\/p>\n\n\n\n<p>In contrast, an NBFC is\nallowed to take deposits from the general public.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Cannot_Open_a_Current_Account\"><\/span>Cannot Open a\nCurrent Account<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>In India, a Nidhi Company is not allowed\nto open a current bank with its member, whereas an NBFC can get a current bank\naccount opened.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Can_Deal_only_with_Members\"><\/span>Can Deal only with\nMembers<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A Nidhi Company can only lend or borrow\nmoney from its members, as no public dealing is allowed. In the case of NBFC,\nno such restriction prevails.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Cannot_Open_Branch_before_Three_Years\"><\/span>Cannot Open Branch\nbefore Three Years<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>In India, a Nidhi\nCompany is not allowed to open its branch offices, until it earns profit for a\nconsecutive period of three years. Also, it shall be taken into due\nconsideration that such a condition is of mandatory nature and is not eligible\nto be compromised in any situation.<\/p>\n\n\n\n<p>However, the same is\nnot the case with an NBFC registered in India. <\/p>\n\n\n\n<p>No Membership or\nService Charge<\/p>\n\n\n\n<p>A Nidhi Company cannot\ncharge any service charge or fee from its members for the issuance of shares.\nHowever, it is permitted to charge some processing fee on the loans taken by\nthe members.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Can_a_Nidhi_Company_Apply_for_NBFC_Registration_if_it_satisfies_all_the_Conditions_Necessary\"><\/span>Can a Nidhi Company Apply for NBFC\nRegistration if it satisfies all the Conditions Necessary?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The simple answer to this question is that the conversion of Nidhi Company to NBFC is not possible and the simplest way to obtain NBFC Registration is to wind up the affairs of the Nidhi Company permanently. <\/p>\n\n\n\n<p>If an individual still needs to undergo a conversion of Nidhi Company to NBFC, then, in that case, he\/she needs to change the company\u2019s name, objectives mentioned in Memorandum of Association, rules specified in Articles of Association, and other legal necessities. However, the same is neither practically advised nor feasible to convert as per Indian Laws.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In a nutshell, the concept of Nidhi Companies comes with several\nrestrictions and limitations. However, the same has been an emerging business\nformat as well. Therefore, it is better to reach professionals to have a better\nunderstanding prior to applying for registration. <\/p>\n\n\n\n<p>On the other hand, an NBFC offers a wide range of financial\nservices, such as chit funds, loans, etc. Also, the same is termed as game\nchanger mechanism for the country\u2019s economy.<\/p>\n\n\n\n<p>However, it shall be taken into due consideration that conversion of Nidhi Company to NBFC is not possible. A Nidhi Company can only offer both secured and unsecured loans but only to its member. In contrast, an NBFC is able to provide both the secured and unsecured loans to the general public. But due to several restrictions, it is always advised to go for an NBFC if the applicant wants to grow at a larger scale.<\/p>\n\n\n\n<p><b>Also, Read:<\/b> <mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/complete-overview-of-regulations-for-nbfcs\">A Complete Overview of Regulations for NBFCs<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In India, the concept of Nidhi Company is emerging as a popular trend, as it the cheapest way to incorporate an NBFC or Non Banking Financial Company. It shall be considerate to note that an NBFC is governed by the Apex Bank, i.e., RBI. In contrast, a Nidhi Company is governed by the provisions specified [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":1455,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[58,8],"tags":[190],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/1454"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=1454"}],"version-history":[{"count":7,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/1454\/revisions"}],"predecessor-version":[{"id":12634,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/1454\/revisions\/12634"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/1455"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=1454"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=1454"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=1454"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}