Assets Finance Company (AFC) is a for profit business company that finances the physical assets like machinery, automobiles, and cars. However, in order to succeed with asset finance company registration, prior registration with the Reserve Bank of India is required. The Reserve Bank of India has the power to impose a fine or penalty, or even can prosecute a company in a court of law, if the company is found doing business without registration. The AFC is also known as a non-banking financial institution (NBFC). Thus, its registration follows similar process as for NBFC Registration.

An Asset Finance Company, as per the Reserve Bank of India, is a financial institution which does its principal business by financing of physical assets, and supports economic or productive activity relating to automobiles, generator sets, earth moving, tractors, machines, and material handling equipment as well as general purpose industrial machines.

For the above purpose, the principal business is defined as physical assets which supports economic activity, and in this business, the income should not be less than 60% of the total assets and total income respectively.

If you are interested to incorporate your Private Limited Company for NBFC registration; as a prerequisite, you should have at least two persons to begin with.

The minimum documents which would be required for your Asset Finance Company Registration are as below:

• Copy of PAN Card
• ID Proof (any one of Aadhaar Card, Driving License, Passport, Voter ID)
• Address Proof (any one of Bank Statement, Mobile Bill, Telephone Bill, electricity bill)
• Passport size photo

Besides, the following documents are required for registration of the registered office:

• Ownership documents or rent agreement
• Electricity bill
• Copy of No Objection Certificate (NOC) issued by the owner.

In India, the procedure of an Asset Finance Company registration is complex. The entire process of an AFC registration takes months as it needs the permission of the Reserve Bank of India. However, the license of is so important that waiting for that much of time worth doing it.

Let us understand the procedure of Asset Finance Company registration:

• Step #1: Company Registration
  The very first step is to register your company in India. It can be private or public. The nature of the company depends on the choice of promoters. In the beginning, the AFC may be registered for any amount of capital.
• Step #2: Raise Authorized and Paid-up Share Capital to Rupees Two Crores
  The second step is to raise the authorized as well as paid-up share capital up to two crores rupees. One could do it in the very first step. However, as there is a risk of rejection, it is advised to do it only after incorporation.
• Step #3: Obtain Certificate by Depositing Rupees Two Crore in Fixed Deposit
  In the third step, the sum of Rs.2 crore should be put in the bank as fixed deposit and a certificate of no lien is obtained from the bank.
• Step #4: Get the Certified Copies, and Complete the Checklist for RBI Registration
  The following documents are required—
  
  • Certified copy of the Certificate of Registration
  • Certified copy of the extract of the main object clause of the MOA on the financial business.
  • Certified copy of the Board’s resolution
  • A copy of the receipt of the Fixed Deposit & banker’s certificate of lien which shows balances to support Net Owned Funds.
  • Bankers Report on the Applicant Company/ group companies.
  • CIBIL records of all shareholder (more than 10% share in Company) and directors
  • Education & Experience proof of promoters
• Step #5: Fill online application
  An online application needs to be filed with the RBI. After the filing, the company would get a Company Application Reference Number.
• Step #6: Submit the Hard Copy to RBI’s Regional Office
  In this last stage, the hard copy along with all the required documents needs to be submitted to the regional office of the RBI.

In today's dynamic economic landscape, the need for accessible and inclusive financial services is more important than ever. Nidhi Companies have emerged as a unique solution, containing the spirit of community-driven financial growth. These specialized Non-Banking Financial Companies (NBFCs) operate under the purview of the Companies Act 2013, with a primary focus on fostering a culture of savings and providing micro-lending services among their members.

In this article, we delve into the jumble of Nidhi Company registration, exploring the benefits it brings to both the company and its members. Furthermore, we outline the necessary conditions to obtain Nidhi status and highlight the key role played by Nidhi Companies in promoting financial inclusion and encouraging a savings-oriented culture.

• What is Nidhi Company?
• What is the process of Nidhi Company Registration?
• What are to documents required for the Nidhi Company?
• What are the benefits of Nidhi Company registration?
• What are the conditions to get Nidhi status?
• FAQs

Nidhi Company is a type of NBFC (a non-banking finance company) registered under Section 406 of the Companies Act 2013. Its primary function is to accelerate lending money between the prime members of the company. By doing so, the members of the company are encouraged to save money and put them into the company. The company then gives loans or advances to its member (or shareholders) and buys government securities/stocks/debentures/ bonds with the deposits. The Ministry of Corporate Affairs controls this type of company, and the RBI keeps an eye on all its money matters.

Steps to get Nidhi Company Registration:

Obtaining DSC and DIN:
Getting the DSC (Digital Signature Certificate) and DIN (Directors Identification Number) from the MCA-certified agencies is the first step for all directors. The agencies ask for basic documentation and charge standard fees for these services. DSC is used to sign the e-form and other documents electronically in a secure and legit way. It authenticates the document.

Name Approval:
You have to propose 3 distinct names for your Nidhi company. The names should be original and not resemble any existing company. MCA will select one name from the three options. The selected name will be valid for 20 days only as per the Company Act rule 8.

Drafting Articles of Association and Memorandum of Association:
You have to submit the articles of association and the memorandum of association to the Register of Companies (ROC) along with the statement of subscription. The main objective of the Nidhi company should be clearly stated in MoA and AoA.

Getting CIN (Certificate of Incorporation):
It usually takes around 15-25 days to form a Nidhi company and get the registration certificate. This certificate will authenticate your company, and you will also receive the identification number (CIN).
You are almost ready to start your Nidhi company. At this stage, you have to apply for PAN, Bank account, and TAN for your company. It normally takes around a week to get the PAN and TAN, and then you have to open a bank account by providing documents like the certificate of incorporation MoA and AoA to the bank.

The following documents are required for the registration of a Nidhi company:

• Photographs of passport size
• NOC from the landlord/owner of the premises
• DSC of the directors
• DIN of the directors
• MoA of the company
• AoA of the company
• PAN card: It is essential for filing the financial transactions and taxation of the company
• Proof of address: Any government-issued identity proof with address such as bank statement, driving license, residence card, etc.
• Proof of residence: Any utility bill or bank statement with name and address
• Passport: It is mandatory only for foreign directors of Nidhi companies. Indian directors do not need to submit passport.
• Proof of registered office: It is important for availing government schemes and loans for Nidhi companies.

Simplified Establishment:
Creating a Nidhi Company is a straightforward process that involves minimal complexity. The key requirements for setting up a Nidhi Company are having at least seven members, appointing three directors, and completing a hassle-free documentation process.

Exemption from Reserve Bank of India Regulations:
One significant advantage of a Nidhi Company is that it is not required to comply with the guidelines set by the RBI (Reserve Bank of India). This allows the Nidhi Company to establish its own rules and regulations, granting it greater flexibility and autonomy.

Reduced Financial Risk:
In a Nidhi Company, all lending, borrowing, and depositing transactions are carried out exclusively among the members. This closed-loop system significantly reduces the risk of encountering financial issues within the Nidhi Company, providing a sense of security for its members.

Affordable Registration:
Registering a Nidhi Company is a cost-effective option for directors, as the process is relatively simpler compared to registering other types of Non-Banking Financial Companies (NBFCs). This economical registration not only benefits the directors financially but also facilitates the acquisition of business loans when necessary, promoting the growth of the company.

Focus on Savings:
The fundamental concept and objective of a Nidhi Company revolve around promoting saving habits among the Indian populace. By emphasizing the importance of savings, Nidhi Company aims to foster a culture of financial stability and prosperity among its members.

Net-Owned Funding System:
A distinguishing feature of a Nidhi Company is its utilization of the net-owned funding system. This approach involves members investing funds directly into the business, thus raising capital. By adopting this system, a Nidhi Company becomes a cost-effective venture for its owners, facilitating business growth and expansion.

To attain the coveted Nidhi Status, certain conditions must be met:

• A Nidhi company must not accept deposits from its members or lend money to them if:
  • it violates the Nidhi Company New Rules or their provisions,
  • the central government has denied its application in Form NDH -4,
• Any public company that wishes to be declared as a Nidhi company must submit Form NDH-4 within 120 days from the date of its formation.
• The Company must include a declaration that all of its directors and promotors are fit and proper persons along with Form NDH-4.
• The minimum paid-up share capital has increased from 5 lakhs to 10 lakhs.
• Nidhi Company that existed before the enforcement of Nidhi Company New Rules must comply with all the requirements within 18 months from the date of enforcement.
• The filing of Form NDH 1 within 90 days from the Company's incorporation is not required for the companies formed on or after the enforcement of Nidhi Company New Rules.
• The Net owned funds requirement for Nidhi company has changed from 10 lakhs to 20 lakhs.
• If a Nidhi company wants to open more than three branches outside the district or any branch outside the district, it must apply in Form NDH 2.

The company name must have “Nidhi Limited” in it. Alternatively, the phrase “Mutual Benefit” can be used as well.

The norms and regulations of the Companies Act of 2013 apply to Nidhi Businesses because they are like public companies. RBI regulates the interest rate on deposits that Nidhi Businesses can pay. However, RBI has given Nidhi Companies an exemption from this regulation. Therefore, the main provisions of RBI do not affect them. Nidhi Rules, 2014.

The time taken to incorporate a Nidhi Company may vary depending on the availability of documents, approval from authorities, and other factors. However, it usually takes around 20 to 30 working days to complete the process.

When filing documents through the Internet, it is important to establish the identity of the sender or signee electronically. The Ministry of Corporate Affairs (MCA) requires that Directors use their Digital Signature to sign certain application documents. This ensures the authenticity and security of the documents being filed.

Microfinance institutions (MFIs) have urged the Centre to consider prioritising vaccinations for their employees and self-help group workers.

• This request is in order to ensure that lines of credit remain open for the poor amidst the rising second wave of Covid-19 infections.

• About:
  
  • MFI is an organization that offers financial services to low income populations.
    
    • These services include microloans, microsavings and microinsurance.
  • MFIs are financial companies that provide small loans to people who do not have any access to banking facilities.
    
    • The definition of “small loans” varies between countries. In India, all loans that are below Rs.1 lakh can be considered as microloans.
  • In most cases the so-called interest rates are lower than those charged by normal banks, certain rivals of this concept accuse microfinance entities of creating gain by manipulating the poor people’s money.
  • Microfinance sector has grown rapidly over the past few decades and currently it is serving around 102 million accounts (including banks and small finance banks) of the poor population of India.
  • Different types of financial services providers for poor people have emerged - non-government organizations (NGOs); cooperatives; community-based development institutions like self-help groups and credit unions; commercial and state banks; insurance and credit card companies; telecommunications and wire services; post offices; and other points of sale - offering new possibilities.
  • Non Banking Finance Company (NBFC)-MFIs in India are regulated by The Non-Banking Financial Company -Micro Finance Institutions (Reserve Bank) Directions, 2011 of the Reserve Bank of India (RBI).
• Major Business Models:
  
  • Joint Liability Group:
    
    • This is usually an informal group that consists of 4-10 individuals who seek loans against mutual guarantee.
    • The loans are usually taken for agricultural purposes or associated activities.
  • Self Help Group:
    
    • It is a group of individuals with similar socio-economic backgrounds.
    • These small entrepreneurs come together for a short duration and create a common fund for their business needs. These groups are classified as non-profit organisations.
      
      • The National Bank for Agriculture and Rural Development (NABARD) SHG linkage programme is noteworthy in this regard, as several Self Help Groups are able to borrow money from banks if they are able to present a track record of diligent repayments.
  • Grameen Model Bank:
    
    • It was the brainchild of Nobel Laureate Prof. Muhammad Yunus in Bangladesh in the 1970s.
    • It has inspired the creation of Regional Rural Banks (RRBs) in India. The primary motive of this system is the end-to-end development of the rural economy.
  • Rural Cooperatives:
    
    • They were established in India at the time of Indian independence.
    • However, this system had complex monitoring structures and was beneficial only to the creditworthy borrowers in rural India. Hence, this system did not find the success that it sought initially.
• Benefits:
  
  • They provide easy credit and offer small loans to customers, without any collateral.
  • It makes more money available to the poor sections of the economy, leading to increased income and employment of poor households.
  • Serving the under-financed section such as women, unemployed people and those with disabilities.
  • It helps the poor and marginalised section of the society by making them aware of the financial instruments available for their help and also helps in developing a culture of saving.
  • Families benefiting from microloans are more likely to provide better and continued education for their children.
• Challenges:
  
  • Fragmented Data:
    
    • While overall loan accounts have been increasing, the actual impact of these loans on the poverty-level of clients is not clear as data on the relative poverty-level improvement of MFI clients is fragmented.
  • Impact of Covid-19:
    
    • It has impacted the MFI sector, with collections having taken an initial hit and disbursals yet to observe any meaningful thrust.
  • Social Objective Overlooked:
    
    • In their quest for growth and profitability, the social objective of MFIs—to bring in improvement in the lives of the marginalized sections of the society—seems to have been gradually eroding.
  • Loans for Non-income Generating Purposes:
    
    • The proportion of loans utilized for non-income generating purposes could be much higher than what is stipulated by the RBI which is 30% of the total loans of the MFI.
    • These loans are short-tenured and given the economic profile of the customers, it is likely that they soon find themselves in the vicious debt trap of having to take another loan to pay off the first.

• MFIs need to focus on creating a sustainable and scalable microfinance model with a mandate that is unequivocal about both economic and social good.
• MFIs should ensure that the ‘stated purpose of the loan’ that is often asked from customers at the loan-application stage is verified at the end of the tenure of the loan.
• RBI should encourage all institutions to monitor their impact on society by means of a ‘social impact scorecard’.