Different Types of Financial Companies in India

  • October 31, 2023
  • Update date: October 15, 2024
  • Dushyant Sharma

In the past years, the involvement of technology has increased in businesses helping them automate most of their operations. Similarly, the finance industry opts for different technology options to grow at a large level and perform better with the help of technology operations. But with technology understanding the market and the business target audience is also important. 

 

Different finance companies have their own target sector, for example, the NBFC provides lending services to people in rural areas and to those who don't get loans from banks or other financial institutions. In the article, we shared types of finance companies and their requirements.

What are the Finance Companies?

Finance companies are the ones that lend money to their customers such as individuals, businesses or manufacturers for different purposes. Basically, finance companies are an alternative to banks. However, these companies do not have as much documentation and collateral requirements as the banks. In the current market, there are different types of finance companies that have different ways to register and obtain NBFC licenses. The different types of finance companies are as follows:

  • Non-Banking Financial Companies (NBFC)
  • Micro Finance Company through Section 8 Company
  • Trust and Societies
  • Nidhi Companies
  • Local Finance License
  • Producer Companies

Non-Banking Financial Companies (NBFC)

An NBFC is a company that is registered under the Companies Act, of 1956 and included in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities that are issued by the Government or local authority. A non-banking institution is a company that has a principal business of receiving deposits. These deposits can be in one lump sum amount or in installment or it can be in any other manner. Having an NBFC license is a must for a company to provide financial services.

Requirements to Registered as an NBFC with RBI

Any company registered under the Companies Act, 1956 and wants to start an NBFC as defined under Section 45I(a) of the RBI Act, 1934 should comply with the following:

 

  • The company must be registered under Section 3 of the Companies Act, 1956.
  • Must have a minimum net owned fund of Rs. 200 lakhs. The minimum net-owned fund is required for specialized NBFCs such as NBFC-MFIs, NBFC-Factors, and CICs.

Trust and Societies

Societies are a group of individuals that are associated with the purpose of promoting any charitable, scientific or literary work. The societies were registered under the Societies Registration Act 1860 and the trusts were registered under the Indian Trusts Acts 1882. The trust, on the other hand, is an arrangement between parties where one holds the ownership over property on behalf of another person or individual.

Nidhi Finance Company

A Nidhi company is a type of company that is a part of the Indian non-banking financial sector which is recognised under Section 406 of the Companies Act, 2013. A primary objective of these businesses is to lend or borrow money between their members.

 

These companies are also known as permanent funds, benefits funds, mutual benefit funds, quasi-banks and mutual benefit companies. These companies are regulated by the MCA (Ministry of Corporate Affairs) and it provides a finance company license to deal with their shareholders only. Basically, the concept of Nidhi company is based on the ‘principle of mutuality’. However, these companies are mostly in the southern part of India. And the 80% of these are located only in Tamil Nadu. 

Requirements to Setup a Nidhi Company

  • The minimum share capital that is required to set up a Nidhi company is Rs. 10 lakhs which must increase to Rs. 20 lakhs after 4 months.
  • Minimum 7 members are required and out of these 3 must be elected as a Director of the company.
  • Must be incorporated as a public company.

Section 8 Company

As per the Companies Act, 2013, a Section 8 company is an organization whose primary objective is to promote arts, commerce, science, research, education, sports, charity, social welfare, environment protection or any other similar activity. The profit of these organisations goes to achieve their mission and they do not share the profit as a dividend among their shareholders.

Requirements to Set Up a Section 8 Company

  • No minimum capital is required as the government provides finance company registration flexibility in capital structure.
  • Has a separate legal entity and perpetual existence like other registered companies.
  • Has 100% tax exemption for those who are registered under section 12AA of the Income Tax Act. They can use the profit for charitable purposes.

Producer Companies

A producer company is a company that is formed or registered under the Companies Act with the objective of production, harvesting, pooling, grading, handling, marketing, selling and export of primary produce to its members or import of goods or services for their benefit. The primary products can include agriculture, dairy, fisheries, beekeeping, animal husbandry or any other primary produce that is specified by the Central Government.

Local Finance Company

The people who require money but do not borrow it from banks because of poor credit history or not having documents to complete a KYC process. As the banks and other big financial institutions have strict criteria for taking loans and require collateral as security.

 

However, the state legislature has an exclusive authority to govern the money-lending businesses. Maharashtra and Tamil Nadu have their own money-lending regulations. Money lenders are also known as local finance companies. These companies fill an unregulated gap in the market that banks didn’t fill. 

Conclusion

To conclude, there are different finance companies that have served different purposes. For example providing loans to customers, and vendors, and lending money for other reasons. The types that discussed above, need different documentation and the process also varies as per the authority under which that company lies. 

 

The finance company registration is a required license to help the people who cannot access the banks and other financial institutes. With the launch of NBFCs, the Indian economy has witnessed the growth and evolution of financial services with the establishment of several finance companies. If you are looking for registration for an NBFC license, Nidhi Company License or any other finance company license then reach out to Registrationwala.


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Dushyant Sharma
Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.

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