Microfinance

Microfinance is a type of financial service provided to unemployed or low-income individuals or groups who would otherwise have no other means of gaining financial services. The goal of microfinance is to provide these individuals with the opportunity to become self-sufficient by providing a means to save money, borrow money, and insure against risks. Typical microfinance services include small loans (microloans), savings accounts, insurance, and money transfer services.

Microfinance institutions (MFIs) aim to fill the gap left by traditional financial services and provide credit to those at the bottom of the economic pyramid. These loans are typically small in scale, do not require collateral, and are based on the borrower's promise to repay. The success of microfinance lies in its ability to promote economic development and reduce poverty by fostering entrepreneurship in underserved sectors.

Nidhi Company

A Nidhi Company, also known as a Mutual Benefit Society, operates under the principle of mutual benefit in India, where it promotes savings and offers loans exclusively to its members. It is categorized under the non-banking financial sector regulated by the Ministry of Corporate Affairs. Nidhi Companies are strictly for borrowing and lending money between their members, functioning on the fundamentals of mutual benefit and trust. These companies are more common in India and must adhere to the rules laid out in Nidhi Rules, 2014.

The operations of a Nidhi Company are similar to those of a cooperative society, as they deal only with their shareholder-members. The primary source of funds for these companies is the contribution from their members. The funds collected from the members are used to provide loans to, and receive deposits from, these members. In terms of regulatory requirements, Nidhi Companies are restricted from dealing with securities or investments in any form outside their membership.

Together, microfinance institutions and Nidhi Companies play a vital role in the financial inclusion of the broader population by providing access to financial services that are tailored to the needs of the economically weaker sections of society. These institutions help build financial habits, including savings and responsible borrowing, which are crucial for long-term economic stability and growth.