Introduction

The business model of a Nidhi Company is based on collecting deposits from members and lending those funds back to members on a mutual benefit basis. Since interest is the main source of income, the law regulates how much interest a Nidhi can charge. Rule 16 of the Nidhi Rules, 2014 provides the framework for fixing loan interest rates.

Maximum Rate of Interest

A Nidhi cannot charge unlimited interest. The rule clearly says that the rate of interest on any loan shall not exceed 7.5% above the highest rate of interest offered on deposits by that Nidhi.

Example: If a Nidhi offers 8% on fixed deposits, the maximum rate of interest it can charge on loans = 8% + 7.5% = 15.5%.

This formula ensures that loan rates are always linked to deposit rates, creating fairness between depositors and borrowers.

Method of Calculation

The law requires that interest be calculated on the reducing balance method. This means that as the borrower repays the principal, interest is charged only on the outstanding balance. This method is considered fairer compared to flat-rate methods, as it reduces the interest burden over time.

Uniform Rate for Same Class of Loans

Another safeguard is that Nidhis must charge the same rate of interest to all borrowers of the same class of loan. For example, if gold loans are charged at 12%, all members taking gold loans must be charged at that same rate. This prevents discrimination or preferential treatment.

Transparency Requirement

Nidhis are also required to display the rates of interest for all classes of loans on the notice board at their registered office and every branch. This ensures full transparency for members before they borrow.

Conclusion

Rule 16 keeps interest rates in Nidhis reasonable, fair, and transparent. By linking loan rates to deposit rates, insisting on reducing balance calculation, and mandating uniformity across borrowers, the law protects members while allowing Nidhis to remain financially sustainable.