{"id":29297,"date":"2021-04-23T12:22:08","date_gmt":"2021-04-23T06:52:08","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=29297"},"modified":"2024-07-24T12:14:43","modified_gmt":"2024-07-24T06:44:43","slug":"nbfc-vs-mfi-know-the-differences","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/nbfc-vs-mfi-know-the-differences\/","title":{"rendered":"NBFC Vs MFI: Know the Differences"},"content":{"rendered":"\n<p class=\"has-drop-cap\">India\u2019s population is rising\nrapidly, and so is the percentage of unbanked people. Unlike metropolitan and\nurban areas, the rural section of our society lacks adequate banking support.\nMainstream banks are often criticized for providing credit to clients with\nhealthier fiscal backup.<\/p>\n\n\n\n<p>There is a good percentage of people in our country who are unable to obtain collateral-backed loans, and that\u2019s why they are often routed to <a href=\"https:\/\/corpbiz.io\/nbfc-registration\" title=\"NBFC Registration in India\"><strong>NBFC<\/strong><\/a> vs MFI. To be specific, NBFCs and MFIs don\u2019t adhere to the legal definition of the bank even though they provide similar services. While most of the banks revolve around strict RBI compliances, these institutions emerged as a sigh for relief for financially challenged people.<\/p>\n\n\n\n<p>Easy Funding is the USP of Non-Banking Financial Companies and Micro Finance Institutions. Even though both these entities sound similar, there are some differences between them. Let\u2019s discuss NBFC vs MFI.&nbsp;<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/nbfc-vs-mfi-know-the-differences\/#Understanding_NBFC_vs_MFI_via_Tabular_Representation\" >Understanding NBFC vs MFI via Tabular Representation&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/nbfc-vs-mfi-know-the-differences\/#Non-Banking_Financial_Companies_in_India\" >Non-Banking Financial Companies in India<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/nbfc-vs-mfi-know-the-differences\/#Non-Banking_Financial_Company_%E2%80%93_A_Shadow_for_Banking_Sector\" >Non-Banking Financial Company \u2013 A Shadow for Banking Sector<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/nbfc-vs-mfi-know-the-differences\/#Micro_Finance_Institution_%E2%80%93_A_Smaller_Version_of_NBFC\" >Micro Finance Institution \u2013 A Smaller Version of NBFC<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/nbfc-vs-mfi-know-the-differences\/#NBFC-MFIs_should_Stick_to_Following_Specifications_to_Remain_Operational\" >NBFC-MFIs should Stick\nto Following Specifications to Remain Operational<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/nbfc-vs-mfi-know-the-differences\/#NBFC_vs_MFI_at_a_Glance\" >NBFC vs MFI: at a Glance<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/nbfc-vs-mfi-know-the-differences\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Understanding_NBFC_vs_MFI_via_Tabular_Representation\"><\/span>Understanding NBFC vs MFI via Tabular Representation&nbsp; <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/04\/Understanding-NBFC-vs-MFI-via-Tabular-Representation.png\" alt=\"Understanding NBFC vs MFI via Tabular Representation  \" class=\"wp-image-29304\" width=\"482\" height=\"447\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/04\/Understanding-NBFC-vs-MFI-via-Tabular-Representation.png 813w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/04\/Understanding-NBFC-vs-MFI-via-Tabular-Representation-300x279.png 300w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/04\/Understanding-NBFC-vs-MFI-via-Tabular-Representation-768x713.png 768w\" sizes=\"(max-width: 482px) 100vw, 482px\" \/><\/figure><\/div>\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Non-Banking_Financial_Companies_in_India\"><\/span>Non-Banking Financial Companies in India<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Non-Banking Financial\nCompanies play a considerable part in strengthening the nation\u2019s economy by\nfacilitating easier funding access to unbanked and financially challenged\npeople. NBFCs are involved in an array of services, starting from microfinance\nto insurance.<\/p>\n\n\n\n<p>In the past few years, the Reserve\nBank has imposed bank-oriented regulations on NBFCs that limit their operation\nscope. The tighter compliances are endangering the future of NBFCs as well as\nthe Indian economy.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Non-Banking_Financial_Company_%E2%80%93_A_Shadow_for_Banking_Sector\"><\/span>Non-Banking Financial Company \u2013 A Shadow for Banking Sector<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Non-Banking Financial Company\nprovides a wide array of financial services to recognized &amp; unrecognized\nsectors.<\/p>\n\n\n\n<p>As per the RBI\u2019s definition,\nNBFC is a financial institution that works under the ambit of Companies act\n2013, involved with the business of Loans &amp; advances, Acquisition of shares\n\/bonds\/ stocks\/ debentures\/ securities issued by the Indian Government or other\nmarketable securities of like nature, hire-purchase, leasing, chit business,\ninsurance business, but does not cover any institution whose core business\nrevolves around agriculture, manufacturing, and trading\/construction of the\nimmovable property.<\/p>\n\n\n\n<p>Further, as per RBI, the\nadherence to the following conditions is mandatory for institutions seeking to\npursue financial activities as \u201cprincipal business.\u201d&nbsp;<\/p>\n\n\n\n<ul>\n<li>Financial assets comprise more than 50 % of the total\nassets.<\/li>\n\n\n\n<li>Earnings from financial assets comprise more than 50 % of\nthe gross income.<\/li>\n<\/ul>\n\n\n\n<p>The term \u201c<strong><em>Principle business<\/em><\/strong>\u201d is\nnot briefly described under the Act by the RBI. However, Reserve Bank has laid\ndown some mandatory conditions without which grant of license are not possible.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Identical Financial Operation <\/h3>\n\n\n\n<p>In simple terms, NBFCs refers\nto an institution that renders various financial services, just like banks. On\nthe surface, the NBFCs\u2019 operation seems identical to that of banks; some\nfunctions are legally isolated from the NBFCs. These are as follow:-<\/p>\n\n\n\n<ul>\n<li>Acceptance of Deposits;<\/li>\n\n\n\n<li>An issue of cheques drawn &amp; being a part of the payment\n&amp; settlement system;<\/li>\n\n\n\n<li>The deposit insurance facility of Deposit Insurance &amp;\nCredit Guarantee Corporation;<\/li>\n<\/ul>\n\n\n\n<p><em><strong>Reserve Bank of India<\/strong><\/em><sup><a href=\"https:\/\/www.rbi.org.in\/\"><em><strong>[1]<\/strong><\/em><\/a><\/sup> usually sets out the regulating norms for NBFCs, which are subjected to rectification. By virtue of the prevailing Act, RBI holds the right to deploy various norms to regulate NBFCs\u2019 operations from time to time. All NBFC are mandated to obtain a license from Reserve Bank before starting the business.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Micro_Finance_Institution_%E2%80%93_A_Smaller_Version_of_NBFC\"><\/span>Micro Finance Institution \u2013 A Smaller Version of NBFC<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Micro Finance Institution is usually perceived as a type of NBFC that provides a broad portfolio of financial services, including loans to the lower strata of society. Generally, they cater to the need of people residing in rural areas. Unlike NBFCs, they usually disburse the smaller loan amount to the credit seekers. Banks act as a significant source of funding for these institutions through which they make lending possible. An increasing number of <a href=\"https:\/\/corpbiz.io\/microfinance-company-registration\" title=\"Microfinance Company Registration in India\"><strong>MFIs in India<\/strong><\/a> are seeking NBFC status from the Reserve Bank of India due to improved fund availability.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Conditions to be Met by NBFC-MFI for Obtaining the License&nbsp;&nbsp;<\/h3>\n\n\n\n<ul>\n<li>NBFC-MFI must have non-deposit taking NBFC status.<\/li>\n\n\n\n<li>The applicant company must possess minimum NOF of Rs. 2 Cr\n&amp; Tax must be paid on it. However, based on increase in prices, real GDP\nand regulatory judgment, the entry point norms proposed to be revised from \u20b92\ncrore to \u20b920 crore.<\/li>\n\n\n\n<li>Net assets should comprise 85% of&nbsp;\u201cQualifying assets\u201d*<\/li>\n\n\n\n<li>At least 50% of loans should be disbursed for productive\npurposes.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"NBFC-MFIs_should_Stick_to_Following_Specifications_to_Remain_Operational\"><\/span>NBFC-MFIs should Stick\nto Following Specifications to Remain Operational<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul>\n<li>NBFC-MFIs should disburse&nbsp;collateral-free&nbsp;loans.<\/li>\n\n\n\n<li>NBFC-MFIs should make loans accessible to rural borrowers\nhaving annual household income not more than Rs. 1, 25,000.<\/li>\n\n\n\n<li>NBFC-MFIs should make loans accessible to urban and\nsemi-urban borrowers having annual household income not more than Rs. 2, 00,000.<\/li>\n\n\n\n<li>The total borrower\u2019s indebtedness should not surpass Rs.1,\n25,000. These institutions are not allowed to take education and medical-based\nloans into account for the indebtedness\u2019s estimation.<\/li>\n\n\n\n<li>In 2019, Reserve Bank increased the lending limit from INR 1,\n00,000 to INR 1, 25,000 per eligible borrowers.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"NBFC_vs_MFI_at_a_Glance\"><\/span>NBFC vs MFI: at a Glance<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul>\n<li>In comparison between NBFC vs MFI, NBFC\u2019s operation scale is\nrelatively smaller than that of banks. Similarly, MFI has a limited scope of operation\nwhen contrasted with NBFCs.<\/li>\n\n\n\n<li>NBFC stands for a non-banking financial company that\nprovides a diverse credit option to lower-income groups and predominately\noperates in regions other than rural areas.<\/li>\n\n\n\n<li>MFI, aka microfinance institutions, on the other hand, were\nmainly found in the rural areas and have a limited portfolio of financial\nservices as compared to NBFC.<\/li>\n\n\n\n<li>MFI disburse smaller loan amount and mainly caters to the\nneed of underprivileged sections of society<\/li>\n\n\n\n<li>NBFC facilitates bigger loan amounts like 50,000 and upward\nto those in the middle of the economic pyramid.<\/li>\n\n\n\n<li>The micro-finance institutions render smaller loan amounts\nin the range of 10-20000 rupees to poor people and self-help groups.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Both NBFCs and MFIs are playing\na crucial role in steering the Indian economy in the right direction. The\ndevelopment of the lower strata of the society is important for the overall\neconomic growth of the nation. The availability of adequate finances will\nempower lower-income groups to contribute to the nation\u2019s development\nsignificantly.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>India\u2019s population is rising rapidly, and so is the percentage of unbanked people. Unlike metropolitan and urban areas, the rural section of our society lacks adequate banking support. Mainstream banks are often criticized for providing credit to clients with healthier fiscal backup. There is a good percentage of people in our country who are unable [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":29303,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[91],"tags":[1687],"acf":{"service_id":"8"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":9644,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/29297"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=29297"}],"version-history":[{"count":8,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/29297\/revisions"}],"predecessor-version":[{"id":68546,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/29297\/revisions\/68546"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/29303"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=29297"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=29297"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=29297"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}