Promotional role of NBFI, Management of fund27/09/2022 0 By indiafreenotes
A robust banking and financial system are essential components to channelize the growth of an economy. NBFC’s are financial intermediaries that play a vital role in developing Indian economy. It offers credit facilities to remote areas and supports those individuals who are often overlooked by the banks. Non-Banking Financial Companies underpins the weaker sections of the society, thereby bringing equilibrium in the nation. This write-up underlines the role of NBFC in the economic development of India.
NBFC Marketing is the procedure in which the activities are operated by a Non-Banking Financial Company are marketed to potential and upcoming customers of the Non-Banking Financial Company. There is no specific procedure to consider for NBFC Marketing. But, Non-Banking Financial Companies are becoming essential in the customer’s eyes considering the development of technology and AI (Artificial Intelligence). There are various ways to consider marketing the potential financial products of the Non-Banking Financial Company.
The key goal of setting up this prestigious sector has not been profitability. These institutions work with the sole aim of making financial services accessible to one and all. The unique objective set them apart from the banks and made them the prime drivers of growth.
NBFC sector plays an extremely crucial role in the development of the country’s core infrastructure. By offering quicker funds and credit to the Indian trade and commerce industry, these entities are enabling the nation-wide growth of large infrastructure projects. Furthermore, small businesses, start-ups, and MSMEs/SSIs are dependent on funds offered by NBFCs. As these small businesses expand their operations, their need for skilled and unskilled labor goes up to fulfill the increase in operations. Thus, indirectly, each new NBFC registration creates more job opportunities at the macro-economic level.
The customer base of NBFC vs bank is pretty wide. NBFCs cater to the urban, as well as unorganized rural areas, offering loans to satisfy different requirements. Whereas banks provide finance to the organized sector only. This has resulted in the amount of money lent by the NBFCs to the consumers has been phenomenally more as against banks. Over the last few years, consumer lending has seen a continuous rise, with NBFCs catering to a large portion. With the growth in the economy, the requirement for loans is bound to surge. And NBFCs, along with banks, can give a strong push to the growth and development of the Indian economy.
Growth of NBFC & Their Role
In the last two decades, the capital market in India has witnessed significant ups and downs. The volume of capital market transactions has increased sharply. The functioning diversified. New financial institutions like merchant banks, mutual funds, and venture capital companies have come up and become essential. New financial instruments, such as Fully and Partly Convertible Debentures (FCDs and PCDs), commercial papers, CDs, etc., have emerged. These reflect the growing diversification and measure of the sophistication of the financial services sector catering to the needs of growth capital and money markets. The volume of new issues is presently between Rs. 15,000 crores and Rs.20,000 crores. The number of shareholders runs into several million, indicating the growth of the cult of equity. Commercial banks that deal in the money market are entering the capital market through their merchant banks and mutual funds subsidiaries. They are going to leasing and venture finance also.
They are responsible for providing financial services but are not regulated by a separate governing body and do not hold a full-fledged license for conducting banking operations. Unlike banks, they do not accept demand drafts and are not a part of the Payment and Settlement system.
Further, NBFCs often take a lead role in providing innovative financial services to Micro, Small, and Medium Enterprises (MSMEs) most suitable to their business requirements. An NBFC would often take a lead in innovating and customizing the financial services to fund various industries. Such as transportation, employment generation, wealth creation, bank credit in rural segments, and aid financially weaker sections of the society. Their role in providing assistance and guidance during emergencies cannot be ignored either.
NBFC Role in Revolutionising the Economy
- Growth: In terms of year-on-year (YoY) growth rate, the NBFC sector beat the banking sector in contributing to the economy every year. On average, this segment grew by 22% every year, in its initial stages. Despite the slowdown in the economy and various setbacks faced in the last few years, the sector is still growing and enhancing operations.
- Profitability: NBFCs have been more profitable than the banking sector because of lower costs. This enabled them to offer cheaper credit to customers. As a result, the amount of money lent to customers by NBFCs is higher than that of the banking sector with more customers opting for NBFCs.
- Enhancing the Financial Market: An NBFC caters to the urban and rural poor companies and plays a complementary role in financial inclusion. These financial companies bring much-needed diversity to the market by diversifying the risks, increasing liquidity in the markets thereby bringing efficiency and promoting financial stability to the financial sector. They highlight the public issues of corporations as well as providing funds needed by the start-up companies as capital. The financial market is dependent on the functions that are taken care of by these lending companies.
- Infrastructure Lending: NBFCs by lending to infrastructure projects, contribute largely to the economy. This is very important for the growth of a developing country like India. The amount involved is quite large, the projects being risky, with no surety of returns, and profits occurring after a longer time-frame. These factors deter banks from financing these projects. Since their inception, NBFCs have contributed more to infrastructure lending than banks.
- Promoting Inclusive Growth: All the top NBFC in India cater to a wide variety of customers; both in urban and rural areas. They finance projects of small-scale companies, which is important for the growth in rural areas. They also provide small-ticket loans for affordable housing projects. Microfinance provided by them plays an important role to attain stable financial inclusions. All these activities by the institution with an NBFC License help promote inclusive growth in the country.
- Upliftment in the Employment Sector: With the growth in operations of the small industries and businesses, the policies of NBFCs are uplifting the job situation. More opportunities for employment are arising with the influence of the NBFCs in the private as well as government sectors. The business activities in the private sector provide more employment opportunities and occupation practices. And NBFC plays a key role in their growth and stability.
- Mobilization of Assets: With more public preferring to deposit in NBFCs because of their higher rate of interest, NBFCs allow mobilization of resources; funds, and capitals. Due to their easier norms for investing, these companies create a balance between intra-regional income and asset distribution. Turning the savings into investments, these companies contribute to economic development as compared to traditional bank practices. Proper organization of capital helps in the development of the trade and industry, leading to economic progress. They operate not intending to maximize their profit and are, therefore, engaged in activities that generate zero or very low revenue.
- Financing for Long-Term: NBFC plays a key role in providing firms with funds through equity participation. As against traditional banks, NBFCs supply long-run credit to the trade and commerce industry. They facilitate to fund large infrastructure projects and boost economic development. Long-term finance permits growth with stable and soft interest rates. The economy thrives when businesses of SSIs and MSMEs flourish.
- Raising the Standard of Living: NBFCs collaborate with the government for the upliftment of the society. The NBFCs attract deposits from the general public and convert it into capital for industrial and other sectors for smooth economic development. The rise in businesses consequently raises the demand for workforce and creates employment opportunities raises the purchasing power of individuals and, subsequently, raising demands. This works to upgrade the living standards of a society. Also, foreign deposits are attracted to these financial institutions and support economic process and development.
- Innovative Products: NBFCs, by being flexible in terms of lending and investment opportunities than banks, are more proactive in innovating financial products. This facilitates their growth in an exceedingly prudent manner. They fine-tune their selling campaigns in regard to their target customers. These corporations are the game changers within the developing economy. For instance, the factorization & bill payment service has been revolutionized. NBFC P2P is a relatively new segment in India that is already creating waves by providing considerably higher margins and facilitating loans at a lower cost.
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