Non-Banking Financial Company is a company that provides financial services such as loans, advances, investments and insurance but doesn’t offer banking services. This type of company is growing in popularity all over the world because it fills a gap in the market for people who don’t want to go through a traditional bank. 

NBFC

NBFC or Non-Banking Financial Company is a company that provides financial services and banking facilities without having a full-fledged banking license. In India, an NBFC is registered and regulated by the Reserve Bank of India (RBI).

NBFCs in India are classified into three categories:

• asset finance companies
• loan companies
• investment companies

The most important function of an NBFC is to provide credit to the Non-Farm Non-Government Sector (NFNGS). This sector comprises small businesses, traders, farmers, and professionals who are not served by banks.

NBFCs also offer a wide range of services such as:

• hire purchase finance
• leasing
• bill discounting
• term loans
• venture capital
• bridge loans
• equipment finance
• factoring

Services of NBFC

Hire Purchase Finance: This is a type of financing in which the financer buys equipment or other assets for the customer, who then makes fixed monthly payments to the financer until the full purchase price is paid.

Leasing: This is a type of financing in which the lessee (customer) makes periodic payments to the lessor (finance) for the use of an asset. At the end of the lease period, the lessee has the option to purchase the asset or return it to the lessor.

Bill Discounting: This is a type of financing in which the NBFC buys bills of exchange (promissory notes) from companies at a discount and then collects the full amount from the buyers when the bills mature.

Term Loans: This is a type of loan in which the borrower receives a lump sum of money and repays it in fixed instalments over a fixed period of time.

Venture Capital: This is an investment made by a venture capitalist (an individual or a company) in a startup or early-stage business.

Bridge Loans: This is a type of loan that is given to companies that need money to meet short-term financial needs. The loan is usually given for a period of one to two years and must be repaid in full at the end of the term.

Equipment Finance: This is a type of financing in which the financer buys equipment or other assets for the customer, who then makes fixed monthly payments to the financer until the full purchase price is paid.

Factoring: This is a type of financing in which a company sells its receivables (invoices) to an NBFC at a discount. The NBFC then collects the full amount from the buyers when the bills mature.

Benefits of NBFC

• Non-banking financial companies offer a wider range of products as compared to banks. This includes services such as insurance, mutual funds, venture capital, etc.
• NBFCs are more flexible when it comes to lending as they have a higher risk appetite. This means that people who may not qualify for a loan from a bank can approach an NBFC instead.
• The interest rates offered by NBFCs are usually lower than those offered by banks.
• Non-banking financial companies are not as regulated as banks, which means they can offer products and services that are not available from banks.
• NBFCs have a smaller branch network as compared to banks, which means they are able to offer faster and more efficient services.
• Non-banking financial companies are not bound by the same reserve requirements as banks, which allows them to offer higher returns on deposits.

Demerits of NBFC

• Non-Banking Financial Companies are not entitled to enjoy all the privileges that are available to scheduled commercial banks.
• They cannot accept demand deposits from the public
• They are not allowed to mobilize their liabilities into fresh deposits
• NBFCs cannot issue cheques drawn on itself
• They are not allowed to issue ATM or debit cards, credit cards
• Non-Banking Financial Companies cannot undertake government business.

Conclusion

NBFCs have been around for a long time now and play an important role in the economy. They offer innovative financial products and services to cater to the needs of different customer segments. In addition, they are more nimble than banks when it comes to meeting customer demands. This has made them very popular with students who need quick loans for their education-related expenses. In fact, NBFCs account for more than 60% of all student loans in India.