How does NBFC Raise Money?

By BYJU'S Exam Prep

Updated on: November 9th, 2023

NBFC raises money by accepting non-chequable deposits and borrowing money from other financial institutions. Non-Banking Financial Companies are known as NBFCs. Mutual funds and insurance companies are two examples of non-banking financial institutions. Other examples of NBFCs include investment banks, mortgage lenders, money market funds, insurance firms, hedge funds, private equity funds, and peer-to-peer lenders.

Types and Funding Sources of NBFC

Following are the types of Non-Banking Financial Institutions in India.

Mutual funds

  • Intermediaries between investors and the stock market.
  • The corpus is the sum of money people obtain by selling their units.
  • UTI is India’s oldest mutual fund firm (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.

NBFC Raising Money

According to the Foreign Direct Investment (FDI) policy, automatic route foreign investment is allowed in the NBFC sector.

  • The planned investment can be made using the automatic method without approval from the RBI or the Foreign Investment Promotion Board (FIPB).
  • Under the automatic, foreign investment of up to 100% is permitted without FIPB approval.
  • All foreign transactions must be carried out solely through entities to which the RBI has granted a license, as per the regulations established by FEMA.
  • Under the automatic route, only non-banking financial service activities are admissible for foreign investment.
  • 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.


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. Because NBFCs lend money and make investments, their operations resemble those of banks.

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