India is a country where procuring a loan, is a process which is not just confined to the boundaries of a bank. Banks with all their corporate glamour and credit rating criteria may intimidate a common citizen of our country, which in most parts, still remains a ‘developing country’. Indians are known worldwide for their creativity when it comes to finding a ‘Jugaad’, a colloquial Hindi term for finding a hack to a challenging situation. And find a ‘Jugaad’they did. Lending money for absurd interest rates became a blossoming business opportunity. What started off as a means for farmers without a piece of land to set their business off soon became a common substitute for banks among both the rural and urban population of our country.
Through this crude concept of moneylending led to the rise of small financial institutes which were mainly involved in the business of lending loans and advances, something which was already in practice in other parts of the world. Over time such businesses grew, they were registered under the companies’ act of 1956, India. They expanded the list of services offered. From acquisitions of shares and stocks, purchasing of bonds to the insurance business and the chit fund business, they seemed to have everything covered. It was almost as if they had become a bank without actually becoming one. These businesses came to be known as Non-Banking Financial Companies (NBFC’s).
What made them successful?
Banks tend to scrutinize an applicant thoroughly before issuing a loan. NBFC’s on the other hand, were comparatively easier to accrue a loan from. Such flexible scenarios made such organizations seem lucrative to Indian masses, so much so that it made the people overlook the higher interest rates.
Their flexibility in functioning serves them the advantage of being able to serve a broader range of clientele. For instance multiple NBFC’s are setup with the motive of funding only a particular kind of a business, currently there are NBFC’s dedicated towards helping businesses pertaining to power generation, transport and so many more.
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