Non-banking financial companies (NBFCs)- Surging ahead

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act and regulated by Reserve Bank of India (RBI) which is generally engaged in the business of loans and advances. However, there may be some NBFCs engaged in the business of acquisition of various kind of securities issued by Government or local authorities or other marketable securities.

NBFCs lend and make investments and hence their activities are akin to that of banks; however, there are a few differences as given below: -

i. NBFC cannot accept demand deposits;

ii. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;

iii. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.

Profitability of NBFCs:

NBFCs are more profitable than the banking sector because of lower costs. This helps them offer cheaper loans to customers. As a result, NBFCs’ credit growth – the increase in the amount of money being lent to customers – is higher than that of the banking sector. Credit grew an average 24.3% per year for NBFCs as against 21.4% for banks. This shows that more customers are opting for NBFCs.

NBFCs: An indispensable part of Indian financial system

NBFCs have emerged as important financial intermediaries, particularly for the small-scale and retail sectors, undeserved areas and unbanked sectors and it is expected that this will continue to present a big growth opportunity in the days to come.

ICRA, a globally reputed rating agency said it "expects the NBFC - retail credit, which stood at Rs 7.5 trillion as on March 31, 2018, to expand at 19-21 per cent during FY2019, as key growth drivers for large asset sub-categories remains intact. This sector has witnessed diverse investment structures ranging from strategic investments, private equity investments to debt funding through the NBFC route.

Non-banking financial companies (NBFCs) have undergone a significant transformation over the past few years.

As per research studies, NBFC sector was Rs 22.1 lakh crore as of March 2018 and borrowings grew at 19.1 per cent during FY17-18, loans and advances increased 21.2 per cent and investments increased 13.4 per cent. The sector plays a critical role in the core development of infrastructure, transport, employment generation, wealth creation opportunities and financial support for the economically weaker sections.

It also supports urban and rural people in achieving their dreams. The sector has been benefiting from the lower interest rate regime and a massive growth in under penetrated sectors, where the reach of banks was limited.

NBFCs 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. All these help promote inclusive growth in the country.

NBFCs have emerged as important financial intermediaries, particularly for the small-scale and retail sectors, underserved areas and unbanked sectors and it is expected that this will continue to present a big growth opportunity in the days to come.

Prest Loans is an RBI registered NBFC that is working in this domain and benefiting the underbanked by disbursing loans with timely approval, and least amount of paperwork. The mantra of their success has been understanding the need of the small business owners who may need funds on a short notice due to a sudden increase in demand or a festive season. While traditional lenders have a long turnaround time (TAT) for sanctioning and disbursement, Prest Loans can approve and disburse loans in three days.

• Disbursed to 300+ small businesses, MSMEs

• Loan ticket size Rs 0.50 lakh–Rs 25 lakh

• New loans worth Rs 15 crore disbursed in a year

• Mobile app in Hindi and English coming soon

Thus, smalltime traders like grocery stores, cloth merchants, tea shops, sweet shops, bag manufacturers, building material traders, home improvement sellers can heave a sigh of relief with the overwhelming success of the NBFC sector and Prest Loans in particular!

Source:

https://goo.gl/bHJbtP 

https://goo.gl/NNLgV1

Nineteen years ago on July 26, Pakistan intruded Indian terrain and this led to a bloody conflict. India secured victory against Pakistan after a three-month conflict that led to a loss of lives from both sides with the Indian side losing nearly 490 officers, soldiers and jawans. During the war, the Indian Army evicted Pakistani intruders and succeeded in recapturing the Tiger Hill and other posts as a part of Operation Vijay. The rough terrain and high altitude Himalayan regions made the war more difficult. Kargil Vijay Diwas is a celebration of Indian army soldiers’ spirit and valour!

 Today, as Sunil Singh, a Naik in the Indian Army, bids farewell to his colleagues in the Indian army, his reporting officer exclaims with pride, “You are the best Naik, I had in the army. Your contribution to the Indian Army is immense and I hope to see you shine for the rest of your life! Convey my regards to your family. Jai Hind!”

Sunil Singh salutes the office and exclaims “Jai Hind” and boards the bus back home. As he heads back home, he ponders over the next phase of life with one question that keeps coming back to him. “The dream of serving Indian Army is over. Now, what?”

He visualized being welcomed by his villagers with flowers and garlands and now he would be living with them but with his standards set high by working in the Indian Army, he couldn’t have been just another villager! He was aware of the sad state of affairs in his village and he wanted to make a difference. He knew that women in his village were not able to live upto their potential and were not gainfully employed.  Soon, he reached his village. After being welcomed by the villagers, he had a face to face meeting with the Panchayat and asked for their suggestions on how to employ the womenfolk so that their household work does not get disturbed while they work. Buoyed by the noble thoughts of the Ex-Serviceman, Panchayat offered him various suggestions. Among those suggestions, the idea that Sunil liked the most was that of setting up a small scale Utensils factory.

Soon, Sunil Singh started researching about the process of setting up the Utensil factory, talked to raw material suppliers and the machines required. He gauged the sentiment of the villagers and he was happy to know that many of them, especially womenfolk were ready to work in the factory at nominal wages. He gauged the heavy demand for such utensils in the nearby cities and towns. Sunil was delighted, he had a mission in life and on paper, and everything seemed to be right in place!

Finally, he got down to the financial requirements of the small scale utensils factory and he realized that he didn’t have enough savings to start the factory on his own. The amount of capital investment, operational expenses and unforeseen expenses seemed too big for his pocket! He knew he had to avail a business loan for the venture. Since he had served in the Indian Army for 2 decades and during that he didn’t feel the need to avail a loan so he had a low credit history. With a low credit history and a negative CIBIL score, his loan plea was turned down by all the banks in his vicinity.

Disappointed with the state of affairs, he approached the Panchayat members for some ideas and encouragement. One of the Panchayat members informed him about his son who had availed loan from Prest Loans (www.prestloans.com) to set up his business unit in the heart of Delhi. On enquiring further, Sunil gathered that Prest Loans provides loans to Idea-preneurs not just based on the financial score but also other factors. He checked up the website of Prest Loans and gathered that Ex-servicemen were valued and respected at Prest Loans and were being offered various incentives in the form of Zero Processing fee for Business loans and Lower Interest rate for Business loan. Immediately, he visited the Prest Loans’ website and applied for a business loan. Within a few minutes, a Prest Loans representative called up Sunil and understood his entire business plan and offered him the most favorable loan offering. Prest Loans helped Sunil complete the required paperwork seamlessly and within 72 hours, Sunil Singh had the loan amount credited in his account. Thus, Sunil Singh realized that Prest Loans was indeed true to its motto of timely approval, less paperwork and quick loan disbursal!

Within a few weeks, he was able to give shape to his dream and set up a small scale utensil factory and provided employment to the villagers, especially the women in his village. Furthermore, his intention and zeal was highlighted in the local press and he became a mini celebrity!

Suresh opened a bakery shop a few years ago and served his customers with lip smacking and mouth-watering pastries and cakes! As the word grew about Suresh’s bakery shop, many bakery shops opened up near Suresh’s bakery shop. While some had a glitzy look, others offered nice ambience and some were better at home delivery and organizing birthday parties. Gradually, Suresh’s revenues started dwindling and the footfall decreased exponentially. Suresh realized that just opening up a bakery shop and selling cakes would not help, he would need to expand his operations and he would need money for the expansion. He needed a quick and easy business loan with a transparent process and which involved less paperwork. He approached a lot of public and private sector banks for the same but was rejected by them while citing one reason or the other. Finally, Prest Loans – www.prestloans.com – a new age online lending NBFC understood his requirements and disbursed him a loan with least paperwork and in a timely manner! 

A few years ago there was a void in the Indian economy. Banks were not comfortable lending money to small enterprises as they perceived it to be quite risky. Instead, they provided financing to formal, medium-sized enterprises that were less of a risk. As a consequence, Indian Micro, Small and Medium Enterprise (MSME) sector suffered from dearth of easy finances and proper credit instruments. Furthermore, banks mostly offer credit against a collateral, and MSMEs, particularly micro and small exporters, are not in a position to do so, depriving them of access to the formal credit market.

Considering that MSME play a pivotal role in Indian economy, a number of Non-Banking Financial Companies (NBFCs) were set up like www.prestloans.com, and as they were a bit more local, they helped provide financing to smaller entities and filled the credit void. The closing of the credit gap has led to the fast growth of India's MSME sector. To a large extent, the fast growth of the sector can be attributed to the various government policies being put in place to provide these enterprises with credit, and safeguard their interests. Today, these initiatives have made it easier for MSME owners to procure finance for their firms.

Key Features of Business Loans for SMEs

Government has relaxed several policies and frameworks in disbursing loans for this sector paving the way for disbursing quick & easy loans. Following are the salient features:

1. Collateral free loans: Under the Credit Guarantee Fund Trust Scheme for Micro and Small Enterprises (CGTMSME Scheme), banks and NBFCs like www.prestloans.com; are provided with a framework to sanction loans worth Rs 1 crore to micro and small enterprises, without any collateral security. These loans can be term loans, or working capital loans, but the money acquired cannot be used for marketing or technology and development. With an unsecured loan, start ups don't have to put up their valuable assets as security. Unfortunately, due to the unsecure nature of the loan, creditors are quite selective about sanctioning these types of loans, and only few start ups actually get approval on their applications. If you do not wish to avail of a loan under this scheme, many banks and financial institutions provide collateral-free loans, but of a lesser value. Mostly, you can get a loan up to Rs. 30 lakhs without putting up any collateral or having to provide a guarantor for the loan.
2. Flexible Pay Back Option Loans: You can choose to avail of a flexible loan that offers certain added benefits over an existing term loan. Many financial institutions provide flexible pay back options, allowing you to pre-pay the loan with idle funds without an additional penalty fee or cost. It also allows you to re-avail the pre-paid amount within the drop-line facility at any time within the loan tenure, without any additional documentation. Depending on the creditor you choose, you might even be able to pay for only 5% of the utilized loan amount every month, with interest being charged only on the outstanding amount, reducing the financial burden on your start up.
3. Online Applications: Almost every bank and financial institution that offers business loans will allow you to apply for the loan directly from their website. This allows you to complete the application from the comfort of your home and prevents you from having to make several trips to the lender's office to fill out forms and submit all the necessary documentation. www.prestloans.com is one such NBFCs which is a pioneer in providing, Business Loans, SME Loans (Long & Short term).  
4. Instant Approvals: Depending on the amount of your loan, the kind of business you deal in, and the urgency of your loan application, it is possible to apply online for a loan, and even get instant approvals for the same.
5. Longer tenure: As per recent RBI directions to support MSMEs, the Banks and NBFCs are allowed a time period of 180 days (as against 90 days earlier for NPA provisioning purposes) to “square up their accounts”. This goes a long way in removing hurdles for disbursing new loans to MSME sector.

For instance, government has initiated the Pradhan Mantri Mudra Yojana for development and refinancing activities relating to micro industrial units. The purpose of Micro Units Development and Refinance Agency (MUDRA) is to provide funding to the non-corporate small business sector. (Read more at our blog: Transforming lives of the poor hard working Indian class through PMMY at http://prestloans.com/BlogDetail/%20Transforming%20lives%20of%20the%20poor%20hard%20working%20Indian%20class%20through%20PMMY?id=18)

Things to keep in mind while applying for loan

When you apply for a loan, there is a small chance that your application could get rejected. Primarily there are two reasons why this could happen.

Firstly, your credit history might not be very good, so the bank might not think of you as a safe option. Interestingly, even if you haven't availed a loan ever you CIBIL score might be negative. This is because banks do not have any historical data to depend on. But do not despair it's fairly easy to maintain a decent CIBIL Score, and you can even get a loan despite negative CIBIL Score, see our blog for further details

(https://prestloans.com/BlogDetail/How%20to%20get%20a%20loan%20despite%20Negative%20CIBIL%20score?id=17)

Secondly, your business plan could be weak, and the creditor might assume that you will be unable to repay the loan at a later stage. Before applying for a loan, it's always a good idea to check your credit history and make sure it is up to date. Then, formulate a concrete business plan, and attach it with your application. Ensure that you have all the documents the creditor asked for in the loan application, and this will increase the chances of your loan getting approved.

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MSMEs are the power engines of the economy. Micro, Small and Medium Enterprise (MSMEs) constitute majority percent of total enterprises in most of the economies and are credited with generating highest rate of employment growth and also account for a major share of industrial production and exports. In the Indian context they can be considered as the backbone of national economy. A catalyst for socio-economic transformation of the country, the sector is critical in meeting the national objectives of generating employment, reducing poverty, and discouraging rural-urban migration. These enterprises help to build a thriving entrepreneurial eco-system, in addition to promoting the use of indigenous technologies.

For any business to take off adequate investment is required and most banks have very stringent checks and processes before approving a loan application. More often than not, loan application of an MSME entrepreneur is rejected due to multiple reasons like lack of hard collateral, properly documented feasbility of a business plan, long vinatage of healthy banking transactions, strong audited financials and so and so forth.

As a consequence, Indian Micro, Small and Medium Enterprise (MSME) sector suffers from dearth of easy finances and proper credit instruments. Furthermore, banks mostly offer credit against a collateral, and MSMEs, particularly micro and small units, are not in a position to do so, depriving them of access to the formal credit. Futhermore, essentially what happens in a typical Indian scenario is this "He is poor, his neighbour is poor. How do they manage? They borrow from each other." I read the above lines during my college days and I still remember and like it. It fully explains the importance of borrowing for all of us. Most of us must have borrowed at some point in life whether it is friendly borrowings from friends and relatives. It also throws a light on a traditional indian man's borrowing tendancy. He is quite apprehensive in approaching banks/NBFCs for a loan and would traditionally, prefer to take it from his neighbour or friend.

Sensing this void, GOI launched several schemes which can give the required boost to these MSMEs. Like, Credit Guarantee Fund Trust Scheme, Pradhan Mantri Mudra Yojana. (Read more at our blog: Advent of quick and easy business loans at www.prestloans.com).

Business owners enjoy several benefits when they opt for an institutional loan. The money may be used for various purposes, such as working capital, inventory and equipment. Borrowers also have flexibility in repaying the loan as per cash flow to ensure that there is no stress while servicing the borrowed amount.

The loan repayment affects the monthly and annual expenditure of the business. One lesser-known beneficial aspect of such loans is the tax deduction. Here are some basic tax benefits of a business financial arrangement:

Tax benefits under business loans

·       Understanding Interest - The business loan interest is the additional amount that the borrowers need to pay for borrowing the money. It is a fee paid to the lenders for allowing the usage of the funds.

·       Understanding tax deductible expenses - These are necessary and ordinary expenses that are beneficial for businesses to generate income. The deductible expenditures may be subtracted from the revenues before arriving at the tax liability. In other words, these expenses may be reduced from the gross revenue to lower the taxable income. The interest paid on the loan availed for the business is deductible, which helps lower the taxes for the company. You are advised by the tax authorities in India to maintain well-documented accounts of these payments as proof if such need arises in the future.

·       Deducting the business finance tax - Yes, it’s true. Interest on business finance tax is deductible. Those companies that avail business finance are given benefits by tax authorities. Under this, the interest paid on borrowed amount is subtracted from the gross income. The promoters of the company maintain proper accounts of this payment which will serve as a proof in future if any need arises.

One important thing to consider is that the repayment amount is not tax deductible. This is because principal repayment means to pay back the money borrowed. The amount that you borrowed is not an income for business but an expense. This is the amount which is not earned which is why this amount is not tax deductible. Failure to repay the borrowed amount will lead to severe consequences. Therefore, every business must assess the situation first and then make a decision, whether or not they want to take a business loan.

Source:

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https://bit.ly/2xEWchZ

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https://bit.ly/2sTleVI

I am a small-town girl who was born in Muzaffarnagar, Uttar Pradesh. I used to live in a huge joint family. As you can imagine, when 20 people live with each there can never be a dull moment. I still burst out laughing when I recollect how a monkey pull my bhabhi's nose up and down repeatedly.

I was a practically a non-existent member of my family, since I was the youngest one and I was a girl. And, everyone was so confident that I will not be able to do anything in my life. Moreover, it was considered as a waste of money to educate a girl child, after all, she has to just get married, have kids. And like my mom used to say, it's going be really hard to find a husband of an educated girl, so what's the point of studying, sit at home and learn how cook & do household work with me. Inspite of all odds, my father encouraged me to study.

One day, someone came to my father's shop and said that he wanted to buy a gold chain for his girl as she had come second in class 10th board examination. And my father was shocked and said, "Hey!!! My daughter came first!" He did not even realize that until then that it was a big achievement that should be celebrated. And then, the party started!!! My father ordered 10 kg Laddus and offered it to everyone while boasting about my achievement! After all, I had come first in the entire district and I was the first amongst all siblings to have passed class 10th exam!!!

Time quickly flew, and before long I completed my Masters. I came to know about a teaching staff vacancy at my college and for no rhyme or reason, I submitted the application.

When I got an interview call, everyone in my family was furious that I had gone behind their back and taken such a bold decision on my own. All of them strictly opposed this idea. They told that I was hell bent in spoiling family's reputation. Surprisingly, my father handled the situation very calmly and told everyone that her daughter will become a teacher. He declared that I should be allowed to make my own choices in my life. He then blessed me.

I was really surprised when I cleared the interview round and got the job! Within the first year of teaching itself, I realized that I loved cooking different varieties of Chaats. All my family members loved my Tikkis, Samosas, Cutlets and Pakodas. Me, the invisible kid, was finally getting noticed! Very soon, I was serving my dishes to the guests and they kept on asking as to who made them! I loved welcoming guests, extending warmth, making them feel at home and then cooking for them. I loved playing the host!! I wanted to do this for a living and I pitched this idea to my father, he liked it but said that he was short of funds. So, my dream never materialized.

Gradually, time flew, I got married and settled down in Delhi. I was hosting a family get-together at my home, when my father approached me and asked me whether I was still keen on opening a "restaurant". I wasn't interested, I was happy and content with my live but my father again encouraged me. He reminded me how passionately I had talked about it before my marriage but I still wanted an excuse to back out so I told him that I didn't have sufficient funds. 

The very next day, he told me about Prest Loan's website www.prestloans.com and that they quickly process loans within 3 days. He told me that unlike banks, their paper work is far less cumbersome and documentation is almost negligible. He made me pick my mobile and open their website www.prestloans.com on my browser. There! I had applied for a loan in just 2 minutes from a new age NBFC!!

Today, at the age of 30, I am a proud owner of a tiny eating joint near my home in Delhi. Even foreigners love the Delhi Chaat cooked Veena's Style!!! In the peak hours, there are long queues people wanting to just grab a bite of my Tikki! 

All thanks to my father and of course Prest Loans!!

Papa, I really want to thank you for support all my life. Without your blessings and guidance, I would have never ever done anything in my life. I am nothing without you.

And papa, Thank you very much for Veena's Style; my childhood dream, my very own restaurant.

A very happy Father’s Day to you!!

And a huge thank you to you as well Prest Loans – www.prestloans.com, if you had not shown confidence in my idea, my dream would have never materialized.

Unemployment and low GDP rate has given rise to a new wave of Micro, Small and Medium Enterprises namely MSMEs. They are small sized entities defined in terms of their investment. They help  in the growth of economy by providing employment to a large number of people who may dream of opening and running their own businesses. Also MSMEs contribute to exports,  manufacturing sector production and extending support to bigger industries by supplying labor, raw material, basic goods, finished parts and components, etc. 

What’s the Indian lookout  of MSMEs?

MSME has emerged as the most dynamic and vibrant sector of developing countries like India. It not only helps in the economic progress of rural areas but also provides surplus employment opportunities within a substantial lower capital cost in comparison to large industries. This sector solicits to empower the marginalised community encompassing on people’s skills and agencies like pottery, crafting, selling  foods and luxurious items and much more. MSMEs greatly contribute to the robust GDP of nations like India and ensures the smooth progress and growth of the domestic industrial units. Owing to its vast potentialities, the government of India is now encouraging the growth of MSME sector with advanced skill training facilities. The government is also providing financial aid via Commercial Banks, RRBs, Small Finance Banks, Cooperative Banks, MFIs and NBFCs like www.prestloans.com. Prosperity of this sector also reduces dependence on foreign items as our domestic market is quite capable of producing the same items with reduced expenditure costs. Along with that the organizational operations, MSME is not so complex and can be easily understood even by a person of average knowledge. 

Key focus areas of MSMEs

Given the current economic scenario, some of the key national imperatives by MSMEs to propel India into the next wave of growth include:

• Creating employment opportunities for special segments such as women workforce, physically challenged, traditional industries, etc.

• Financial inclusive growth to the lower income class across rural, rurban and urban economies 

• Developing capabilities for reducing import burden and dependence on overseas for local demand fulfillment

• Enhancing and widening export capabilities and becoming globally competitive, developing global technologies and innovation

• ‘Make in India’ – Ease of doing business 

• Developing infrastructure for improving standards of living for wider population as well as for improving business environment and capabilities. 

How MSMEs can uplift the employment rate?

From the perspective of employment generation, it is critical to nurture and promote entrepreneurship by creating a suitable business environment. Typically, entrepreneurship tends to be innovation-driven and can also help generate solutions to India’s most feared social and economic problems, such as skill development, affordable health care, energy dependence, urbanisation, and financial inclusion. Entrepreneurship-led economic growth is more robust and inclusive pace. MSME largely comprise first-generation entrepreneurs, thereby, drastically increasing the employment rate in the rural as well as lower urban areas. India needs an entrepreneurial ecosystem that encourages innovative startups. MSMEs and startups needs capital investment to grow their business which is provided by Commercial Banks, RRBs, Small Finance Banks, Cooperative Banks, MFIs and NBFCs like www.prestloans.com. The new age digital lenders like www.prestloans.com provides business loans, SME loans, Agricultural loans and Bill Financing etc. with the added advantage of varying time periods- Short-term Loans and Long-term Loans. 

Concluding Remarks

Government and many other new age companies like Prest Loans are contributing in building up of a model for MSME sector, which targets to help small business owners to get loans even if they have a negative CIBIL score, do not have the means to provide a collateral or need loan to be issued on a diminuitive time period.  The focus is on a new wave of emerging opportunities and India’s policies which aim at covering the entire lifeycle of MSMEs for a growing, healthier and fruitful MSME sector. Thus, MSMEs are paving a new path for small business owners.

SOURCES

https://bit.ly/2kxfbRW

https://bit.ly/2JdPfbV 

https://bit.ly/2kK53by