In the current business environment, it is essential for every small business to understand and comply with all relevant laws.
The Reserve Bank of India (RBI) has introduced several measures to support the micro, small and medium enterprises (MSME) sector through compliance with certain regulations for financial monitoring, reporting and audit requirements.
In this post, we look at the know your rights as a Nidhi in India if you own one. We also explore the RBI laws for Nidhi is and their businesses.
Defining a Nidhi in India
A eNidhi is an Indian financial institution that is regulated by the RBI. It is a business run by a group of people for the purpose of lending money.
The interest rate for such loans is either fixed or floating. Nidhis are very common in South India, where they are run by members of a joint family, or people belonging to the same village.
Nidhis are different from banks as they are not a part of the formal financial system. They are businesses that lend money to people in need of short-term financing. Nidhis usually lend money to members of the same community (like a caste, community, profession, or place of residence).
RBI Regulations for e-Nidhi Businesses
- The RBI has set certain regulations for nidhi’s to ensure the safety and security of their customers. This provides protection to the customers of nidhi Company by ensuring that the Nidhi Company in India follow a certain set of guidelines.
- It also ensures that the Nidhi remain compliant with these guidelines. The rules and regulations for Nidhi operate on a risk-based approach where risk is assessed in accordance with the guidelines provided by the RBI.
- Having said that, there are certain basic guidelines that are applicable to all Nidhi.
RBI Laws for Fraud Monitoring and Reporting
The RBI has made it mandatory for all banks and financial institutions to report any fraud or breach of laws or regulations to the respective regulatory authorities. The banks must also keep a record of such reports and maintain them for a period of five years.
This makes it easier for the authorities to track and monitor fraudulent activities. The RBI has issued specific instructions for fraud monitoring and reporting for nidhis. The nidhis have to keep a record of all the instances of fraud reported by them.
They are also required to report the instances of fraud that they have come across.
The nidhis have to report the following instances of fraud:
- 1. When the nidhi comes across instances of false/fictitious identity of customers.
- 2. When customers fail to comply with KYC regulations.
- 3. When customers fail to repay their loans on time.
- 4. When customers claim to have repaid their loans when they have not.
- 5. When customers are found to be involved in illegal activities. 6. Any other instances that fall under the category of fraud.
RBI Amendment to Know Your Customer (KYC) Requirements for Nidhi Businesses
The RBI has issued an amendment to the Know Your Customer (KYC) requirements for certain nidhi businesses.
The amendment has been issued in addition to the rules and regulations that were issued by the RBI in the year 2003. The amendment has been made to provide additional safeguards against money laundering activities and cyber crimes.
One of the major changes to the KYC requirements for nidhis is that the nidhis have to verify their customers’ identities against a government database. They have been given six months to comply with this change in the KYC requirements.
Nidhis have been given six months to design and adopt a new record keeping system to keep records of the documents that they have verified against the government database.
They have also been given six months to train their staff on the new record keeping system.