7 Non Banking Financial Company Meaning and Benefits for Exporters
Non banking financial companies (NBFCs) are financial institutions that provide various services such as loans, credit facilities, insurance, leasing, hire purchase, factoring, etc. without holding a banking license. They are regulated by the Reserve Bank of India (RBI) under the RBI Act, 1934.
NBFCs play an important role in the Indian economy, especially for the export sector. They offer several benefits for exporters who need funds to expand their business, diversify their markets, or meet their working capital requirements. Some of these benefits are:
More Flexibility And Less Stringent Norms
NBFCs have more flexibility and less stringent norms than banks in terms of lending criteria, interest rates, collateral requirements, repayment terms, etc. This makes them more accessible and convenient for exporters who may not have a good credit history or adequate assets to pledge as security.
Provide Tailor-Made Solutions
NBFCs can provide tailor-made solutions for exporters based on their specific needs and preferences. For example, they can offer pre-shipment and post-shipment finance, export credit guarantee, export bill discounting, foreign currency loans, etc. They can also help exporters with hedging their currency risk and managing their foreign exchange exposure.
Leverage Their Expertise And Network
NBFCs can leverage their expertise and network in the export sector to provide guidance and support to exporters. They can help them with market research, product development, quality assurance, logistics, documentation, etc. They can also connect them with potential buyers, suppliers, and partners in the global market.
Foster Innovation And Entrepreneurship
NBFCs can foster innovation and entrepreneurship in the export sector by providing funds for new ventures, startups, and small and medium enterprises (SMEs). They can also facilitate the growth and development of niche segments such as handicrafts, textiles, gems and jewellery, etc. that have high export potential but face challenges in accessing formal finance.
Contribute To The Social
NBFCs can contribute to the social and environmental impact of the export sector by promoting sustainable and inclusive practices. They can encourage exporters to adopt green technologies, reduce carbon footprint, comply with international standards and norms, etc. They can also support exporters who work with marginalized groups such as women, rural artisans, tribal communities, etc.
In conclusion, NBFCs are an important source of finance for exporters who want to grow their business and compete in the global market. They offer various advantages over banks in terms of flexibility, customization, expertise, innovation, and impact. Exporters should explore the opportunities and options offered by NBFCs and choose the one that suits their needs and goals.
Non-Banking Financial Companies: What Are They and Why Are They Important?
A non-banking financial company (NBFC) is a financial institution that is not legally a bank; it does not have a full banking license or is not supervised by a national or international banking regulatory agency. NBFCs offer various banking services, such as loans and credit facilities, private education funding, retirement planning, trading in money markets, underwriting stocks and shares, and other obligations. However, they are not allowed to take traditional demand deposits from the public, which limits their exposure to regulatory oversight.
NBFCs play a key role in meeting the credit demand that is unmet by traditional banks, especially in developing countries. They provide alternative sources of financing for individuals and businesses who may not have access to or qualify for bank loans. They also introduce competition and innovation in the financial services industry by offering specialized and tailored products to niche markets. According to the World Bank, NBFCs account for 25% of total financial assets in low-income countries and 13% in middle-income countries.
Some examples of NBFCs are investment banks, mortgage lenders, money market funds, insurance companies, hedge funds, private equity funds, and peer-to-peer lenders. These institutions vary in size, scope, and regulation, depending on the country they operate in. Some NBFCs are subject to the oversight of the Dodd-Frank Wall Street Reform and Consumer Protection Act in the United States, which defines them as companies “predominantly engaged in a financial activity” when more than 85% of their consolidated annual gross revenues or consolidated assets are financial in nature.
References:
http://ageconsearch.umn.edu/bitstream/92566/2/20091014_Formatted.pdf
https://www.ifama.org/resources/Documents/v14i5/Sporleder-Boland.pdf
http://www.csc.gov.ph/phocadownload/PolicyReso/POLICYR1202106.pdf
https://www.rbi.org.in/Scripts/FAQView.aspx?Id=92
https://www.ibef.org/industry/non-banking-financial-companies-india.aspx
https://www.eximbankindia.in/lines-of-credit/nbfc
https://www.financialexpress.com/industry/banking-finance/how-nbfcs-can-help-indias-export-sector/2215900/
