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In recent years, FinTechs have created a lot of excitement throughout value chains in the Indian financial market.
NBFCs allow individuals to apply for various loans based on their requirements. (Representative image)
Following its independence, India’s economy has grown tremendously, with several industries contributing to its development and expansion. Among many sectors, non-banking financial businesses (NBFC) continue to play an important role; they fill the gaps in the financial system, contribute to economic growth and help excluded populations integrate into society.
Unlike traditional banks, which may have strict lending standards and a more comprehensive regulatory structure, NBFCs are known for their adaptability, responsiveness and customer-centric initiatives. This versatility enables them to efficiently serve specific markets like rural areas and small enterprises while promoting financial inclusion on a larger scale. In the fiscal year 2023, 9480 NBFCs were reported by Statista, facilitating credit to key and niche sectors of the Indian economy.
Here’s a look at some of the offerings of NBFCs that help in meeting different customer requirements:
Loan Services
NBFCs allow individuals to apply for various loans based on their requirements. This may include personal, business, auto loans, etc. without the need for a mortgage or LAP. Since not everyone requires the same loan amount or duration, services such as loan amount, payback term and interest rates are calculated based on the customer’s demands. Moreover, NBFCs have more relaxed eligibility requirements than traditional banks, allowing a larger spectrum of consumers to obtain loans.
Rural Lending and Microfinance
NBFCs usually concentrate on delivering financial services to underdeveloped and rural areas where individuals lack access to basic amenities. These organisations provide microfinance loans to entrepreneurs with small enterprises who do not have access to traditional credit. Usually, loans credited by NBFCs are smaller in size and focused on specific revenue-generating endeavours.
Individual Loans
NBFCs provide consumer credit choices for the purchase of home products like electronics, appliances and furniture, along with group or corporate financing. The EMI (equated monthly instalments) may depend on whether they provide zero or low-interest packages based on the products purchased. This in turn assists buyers to purchase any products of their choice.
Easy Mortgages and Housing Loans
Being specialists in housing financing, NBFCs provide services to those seeking to purchase real estate and construct buildings. Though their home loans are not similar to those offered by traditional banks, they offer personalised repayment schedules and low interest rates. By adopting a variety of creative techniques, these organisations make home financing more accessible to individuals and companies, contributing immensely to the expansion of the real estate industry and meeting the need for low-cost mortgage solutions.
Capital Finance
NBFCs offer to work on large loans intended for firms’ immediate financial requirements. These loans serve as a bridge for cash flow shortages, guaranteeing smooth operations and on-time payments. In addition, NBFCs help firms handle short-term costs more efficiently by offering flexible guidelines and speedy approvals. Such specialised finance aids in optimising working capital cycles and ensuring business continuity.
In this way, NBFCs’ services help to sustain operations and promote growth across the FinTech industry.
Technologies setting new standards for FinTechs and NBFCs
In recent years, FinTechs have created a lot of excitement throughout value chains in the Indian financial market. Owing to its enormous potential to disrupt the existing and traditional banking systems, the FinTech sector is gaining traction in lending, asset management, deposits and the credit system. By leveraging novel technologies in their processes, FinTech companies are effectively overcoming challenges and developing products and services like last-mile delivery, alternative credit models, fraud detection, regulatory compliance, enterprise automation for accounting, treasury and reconciliation for traditional NBFCs.
Previously, lenders have taken a ‘one size fits all’ approach, evaluating all sorts of customers against a single credit policy, resulting in the exclusion of a substantial number of creditworthy consumers. With FinTechs adopting and developing models based on artificial intelligence (AI), machine learning, and advanced analytics, NBFC lenders have taken a more personalised approach to financing by adding segment-specific criteria, backed up by alternative data sources and making scorecard-based credit decisions. This strategy helps organisations extend the client base by allowing sales teams to target a vast pool of potential consumers and offer suitable items based on their credit ratings.
Furthermore, advanced analytics and AI are assisting NBFCs to collect payments and make better monitoring choices. Traditionally, NBFCs have used client account balances and credit scores to prioritise non-performing and overdue accounts and develop collection methods. However, with growth in accounts with little or no credit history, NBFCs are required to adopt big data processing capabilities to derive and synthesise insights from existing and previously used data sets of non-performing accounts by analysing large amounts of information.
Looking at the growing capabilities and benefits of NBFCs in India, PWC has projected that by 2030, these organisations will experience a paradigm shift. Technology, collaborations, governance, talent resilience and risk compliance are some of the variables that will actively contribute to the expansion of the NBFC industry.
-The author is the Founder and Managing Director of AMU, a NBFC. Views expressed are personal.