How does NBFC raise money?

By Ritesh|Updated : September 3rd, 2022

NBFC raises money by accepting non-chequable deposits and borrowing money from other financial institutions. NBFC stands for Non-Banking Financial Companies. Types of Non-Banking Financial Institutions as Mutual funds, Insurance companies.

Types and Funding Sources of NBFC

Types of Non-Banking Financial Institutions:

Mutual funds

  • intermediaries between investors and the stock market
  • The corpus is the sum of money people obtain by selling their units.
  • UTI is the oldest mutual fund firm in India ( Unit Trust of India)
  • Almost all of the factors are provided by mutual funds.

Insurance companies

  • Obtain funds from the general population by selling insurance policies
  • Life insurance and general insurance are the two categories of insurance.
  • Property, car, house, and other losses are covered by general insurance.
  • Health Insurance is also included.

According to the FDI policy, automatic route foreign investment is allowed in the NBFC sector.

  • The automatic method is one in which the planned investment can be made without first obtaining RBI or the Foreign Investment Promotion Board (FIPB) permission.
  • Without FIPB approval, foreign investment up to 100% is allowed under the automatic.
  • According to the rules established under FEMA, all foreign transactions must be handled exclusively through organizations to which the RBI has granted a license.
  • Only non-banking financial service activities are eligible for foreign investment under the automatic route.
  • Merchant banking, underwriting, portfolio management services, stock broking, asset management, venture capital, custodian services, factoring leasing & finance, housing finance, credit card business, microcredit, rural credit, non-fund-based activities, investment advisory services, financial consulting, forex broking, credit rating agencies, money changers, etc. are just a few examples.

Summary:

How does NBFC raise money?

Non-Banking Financial Companies (NBFCs) borrow money from other financial institutions and take non-chequable deposits as their main funding sources.

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