Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 from India, involved in loan and advance business, stock acquisition, stock, bond-buying insurance business or chit business but not including its main business includes agriculture, industrial activity or sale, purchase or construction of immovable property.
The work and operations of the NBFC are governed by the Reserve Bank of India (RBI) within the framework of the Reserve Bank of India Act, 1934] (Chapter III-B) and instructions issued by it. On November 9, 2017, the Reserve Bank of India (RBI) issued a notice outlining the norms for outsourcing functions/services by Non-Bank Financial Institutions (NBFCs) As per the new norms, the NBFC can not outsource core management functions such as internal audit, investment portfolio management, strategic functioning and compliance to know your customer norms and loan sanctions. Service provider staff must have access to customer information only to the extent necessary to perform the functions that are outsourced. The NBFC Board must approve a code of ethics for direct sales and recovery agents. For debt collection, NBFC and their outsourcer may not use any kind of bullying or harassment. All NBFCs have been directed to make complaint complaint machines, which will also deal with issues related to services provided by outsourcers.
Video NBFC & MFI in India
Sejarah NBFC di India
The Reserve Bank of India Act of 1934 was amended on 1 December 1964 by the Reserve Bank Amendment Act, 1963. In this new Chapter III-B was introduced to Arrange NBFC 'Acceptance Receipts'.
Different types of Committees to Review the existing framework of NBFCs
James S. Raj Committee
In the early 1970s, the Government of India requested the Banking Commission to Study the Functions of Chit Fund and Examine the activities of Non-Banking Financial Intermediaries. In 1972, the Banking Commission recommended the Uniform Chit Fund Legislation for the entire country.
The Reserve Bank of India prepares a Model Bill to regulate the behavior of chit funds and is referred to study groups under the Leadership of James S. Raj.
In June 1974, the study group recommended a ban on Chit Prizes and other Schemes. Direct Parliament to enact laws that ensure uniformity in the provisions applicable to chit funds across the country.
Parliament enacted two actions. Chits Prize and Money Scheme (Banning) Act, 1978 and Chit Fund Act, 1982
Chakravarty Committee
During the Planning Era, the Reserve Bank of India strives best to 'Manage Money' and develop a 'Monetary Voice' system but not much meaningful success in realizing the social goals of the country's monetary policy.
In December 1982, Dr Manmohan Singh, Governor of RBI appointed the committee under the Leadership 'Prof. Sukhamoy Chakravarty 'reviews the functioning of the monetary system in India.
The Committee recommends an assessment of the relationship between the Banking Sector, Non-Banking Financial Institutions and the unorganized sector to evaluate various Monetary and Credit policy instruments in terms of their impact on the Credit and Economic System.
Maps NBFC & MFI in India
Types of NBFC in India
The different types of NBFCs are as follows:
Asset_Finance_Company_ (AFC) "> Asset Financing Company (AFC)
AFC is a financial institution that runs its main business as financing physical assets supporting producers/economies, such as cars, tractors, lathes, winches, generators, ground transfer equipment and material handling, self-propelled electric industry machinery and general purpose machines. The main business for this purpose is defined as a real financing aggregate/physical asset that supports economic activity and the income arising from it is not less than 60% of total assets and total revenue respectively.
Investment Company (IC)
IC means any company that is a financial institution that runs its core business as a securities acquisition LC means any company that is a financial institution that conducts its main business as a financial provider either by providing loans or advances or otherwise for any activity other than its own activities but not including the Asset Financing Company. Infrastructure Financing Company (IFC)
Infrastructure finance companies implement a minimum of three quarters of their total assets in infrastructure loans. The net fund is over 300 crores and the minimum credit rating of 'A' and Capital to Risk-Weighted Assets Ratio is 15%.
IDF-NBFC is a company registered as NBFC to facilitate long-term debt flow into infrastructure projects. IDF-NBFC increases resources through multiple currency bonds from a minimum maturity of 5 years. Only Infrastructure Financing Companies (IFC) can sponsor IDF-NBFCs.
NBFC Factors
The NBFC factor has a business principle of factoring. Factoring is a financial transaction and type of debtor financing
NBFC Gold Loan in India
Over the years, NBFCs gold borrowing witnessed an increase in Indian financial markets, largely due to the recent period of appreciation of gold prices and consequent increases in demand for gold loans by all parts of society, especially the poor and middle class to meet the fulfilling needs. While there are many NBFCs offering gold loans in India, about 95 percent of the gold loan business is handled by three Kerala-based companies, namely, Muthoot Finance, Manapuram Finance and Muthoot Fincorp. NBFC gold loan growth arising from a variety of factors including Asset Under Management (AUM), number of branches, as well as number of customers etc. NBFC gold loan growth occurs both in terms of the size of the balance sheet and the physical presence of those who are forced to increase their dependence on public funds including bank finance and non-convertible debentures. Aggressive structuring of gold loans resulting from the process of uncomplicated documentation, light and fast as well as higher Loan to Value (LTV) ratios include some of the key factors that boost NBFCs Gold loan growth.
​​Residuary Non-Banking Companies (RNBCs)
The Residuary Non-Banking Company is a NBFC class which is a company and has its business principally accepts deposits, under any scheme or arrangement or by any other means and not an Investment, Asset Financing, Loan Company. These companies are required to maintain investments in accordance with the direction of RBI, in addition to liquid assets.
Difference between NBFC & amp; Bank
NBFCs perform functions similar to banks but there are some differences-
- Provide Banking services to People without holding Bank license,
- NBFC can not accept Giro,
- An NBFC is not part of the payment and settlement system and as such,
- The NBFC can not issue the Self-drawn Check, and
- Deposit insurance facilities from the Deposit Insurance Corporation and Credit Guarantee are not available to NBFC depositors, unlike banks,
- An NBFC is not required to maintain the Reserve Ratios (CRR, SLR etc.)
- The NBFC can not enjoy Agricultural, Industrial, Sale-Buy, Fixed Construction Activities
- Foreign investment is allowed up to 100%.
MFI
Microfinance Institutions, also known as MFIs, microfinance institutions are organizations that offer financial services to low-income populations. Almost all provide loans to its members, and many offer insurance, deposits, and other services. Large scale organizations are considered as microfinance institutions . They are those who offer credit and other financial services to poor strata representatives (except for very poor strata).
MFI goes for NBFC license
An increasing number of microfinance institutions (MFIs) are seeking non-bank financing (NBFC) status from RBI to gain broad access to funding, including bank finance.
Exceptions are granted to NBFCs involved in microfinance activities
The Task Force on Supporting Policies and the Regulatory Framework for Microfinance set up by NABARD in 1999 provides recommendations. Accordingly, it was decided to relieve NBFCs involved in microfinance activities, licensed under Section 8 of the Companies Act, 2013, and which did not receive public deposits, from the scope of Section 45-IA (registration), 45-IB (liquid asset maintenance) and 45-IC (transfer of profit to the Reserve Fund) from the RBI Act, 1934. 010
MFP & amp; SHG-Bank relationship program
In a joint fact-finding study of microfinance conducted by the Reserve Bank of India and several major banks, the following observations were made:
- Some microfinance institutions (MFIs) financed by banks or acting as intermediaries or their partners seem to focus on relatively better areas, including areas covered by the SHG-Bank linkage program. Competing MFIs operate in the same region, and are trying to reach the same poor, producing many loans and overburding rural households.
- Many MFIs supported by banks do not involve themselves in capacity building and group empowerment to the desired extent. MFIs extend loans to newly formed groups within 10-15 days of their establishment, in contrast to practices
obtained in the SHG - Bank linkage program, which takes about six to seven months for group formation and care. Consequently, cohesiveness and sense of purpose are not built into groups formed by this MFI.
- The Bank, as the prime financier of the MFI, does not seem to involve them in terms of their lending systems, practices and policies in order to ensure better transparency and adherence to best practices. many cases, no review of MFI operations performed after approving credit facilities.
Indian MFI
Forbes magazine mentioned seven microfinance institutions in India in the list of 50 top microfinance institutions in the world.
Bandhan, as well as two other Indian MFIs - the Mikrokredit India Foundation (ranked 13th) and Saadhana Microfin Society (15) - have been placed on the Grameen Bank based in Bangladesh (which together with its founder, Mohammed Yunus, was awarded the Nobel Prize). In addition to Bandhan, the Indian Microcredit Foundation and Saadhana Microfin Society, other Indian entries include Grameen Koota (19), Sharada Women's Association for Weak Part (23), Private Microfinance SKS (44) and Asmitha Microfin Ltd (29).
Criticism
Recently, microfinance has come under fire in the state of Andhra Pradesh because of MFI allegations using forced recruitment practices and wearing interest on usury. This allegation resulted in the issuance of the state government of Andhra Pradesh Microfinance Institution on October 15, 2010. The ordinance requires the MFI to register to the state government and grant the state government power, suo motto, to close MFI activities. NBFCs have been influenced by regulations, including the microfinance sector of heavyweight SKS.
Important Links
- Reserve Bank Of India
- Network of Microfinance Institutions
- India Infoline Finance Limited (IIFL)
- Electronica Finance Limited (EFL)
- NBFC Registration
- 50 Large NBFCs in India
References
Source of the article : Wikipedia
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