How NBFC Start-Ups Are Fuelling Micro Business Growth In India?
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How NBFC start-ups are fuelling micro business growth in India?

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Co-Founder & MD

At a time when there is so much focus on doubtful loans arising in banks from their wholesale borrowers, the NBFCs are rapidly growing their loan books by delivering finance to micro, small and medium-sized enterprises in India. Add to this the large number of NBFCs targeting retail consumers and housing sector, it doesn’t come as a surprise when we see the number of NBFCs grow in India. As per the data of March 2015, the number of NBFCs registered with the Reserve Bank of Indiawas 11,842 NBFCs.

 There are over 50 million MSMEs operating in India today. Thebanks have remained overly cautious in extending credit facilities to MSMEs ,while a host of non-banking financial companies have already stepped up to meet the credit deficit demands. The financial stability review published by Reserve Bank of India estimates that lending by NBFCs (loans and advances) grew at a whopping 16.6% in the fiscal year 2015-16, while the bank credit expanded 10.0% during the same period.

 The MSME sector is being increasingly looked upon as the next major driver of the new Indian success story. A number ofnew non-banking financial companies are catalysing the growth of MSMEs by driving change on the strategic dimensions mentioned below:

 1.  Disrupting the status quo

Necessity is the mother of invention and NBFCs have had to stay nimble to compete with the might of the banks. NBFCs have brought about innovations in products, delivery methods and ways of operating, in order to attract their target audience. Gold loans, loans against property, loans against shares, commercial vehicle finance are a few of the innovations of NBFCs of the past decade.

These companies have experimented with data sciences to overcome the lack of credit bureau scores and even the formal income documents.  The use of social profiling, e-KYC, digital taxdata, electronic banking history and so many other data sources, is helping new NBFCs disrupt the status quo in financial services.

 2.  Making business credit accessible

The new age NBFCs are making it much simpler for small businesses, especially the diversified MSME sector in India to access credit facilities. The recent new-age finance companies have taken the entire process of business credit online and created an Uber moment in the financial services space. They have established the last mile connect with enterprises, either digitally or by establishing lean local branches. They are not afraid to experiment with organizing loan camps, building on regional festivities or events to create more awareness about business loans.

With simplified and seamless proceduresand a mix of conventional as well as unconventional risk mapping procedures, these NBFCs canbecome India’s answer to the widespread credit deficit, especially when a host of public sector banks are trying to re calibrate their bad-debts.

3.  Helping the Unbanked, Undocumented Strata

New age finance companies have taken the colossal task of spreading financial inclusion and bringing SMEs spread across the nation under the ambits of organized financial services. Oftentimes, as part of their business mandate, new age financial companies assist MSMEs with bookkeeping and other documentation.

Furthermore, with their last mile connect NBFCs help in addressing various concerns and queries for MSMEs and help them take a much informed decision. In certain cases, NBFCs go beyond their financing role to actively support MSMEs in adopting best business practices and managing their business better.

NBFCs have thus carved an unprecedented niche of loyal customers , by figuring out a way to extend credit facility to various segments deprioritised by banks, such as, non-salaried people, rural enterprises, low-income households, micro enterprises etc.

There is no denying that NBFCs have punched above their weight and have thus expanded the overall credit market in the nation. While the banking and formal institutions of finance have continued to grow, they have not kept pace with the hunger for credit in a fast growing country. The Indian MSME sector is set to bloom, and the Government of India has started deploying programs such as Make in India, Skill India andDigital India, to bolster the MSMEs and make then a crucial engine for the growth of our economy. The new age NBFCs with focus on MSME lending are clearly in a good space.