How are Thriving Technologies Equipping NBFCs for the Future?

In India, Non-banking Financial Companies plays an essential role by fulfilling all the financial needs of an individual or a business that have usually remained underserved or un-served by banks. In today's generation, the cost of borrowing has increased, and NBFCs are mainly focused on niche markets, personalized products, and services. Non-Banking Financial Company is also more focused on technologies that seamlessly facilitate the design, implementation, launch, and execution of designed products and services. Investing in new technologies will allow NBFCs to lower their costs to increase the customer base, servicing exciting customers while trying to overcome the increasing formal credit penetration in a growing economy. Scroll down to check more information regarding the importance of technologies in Nbfc for the future.

What is NBFC?

It is also known as Non-Banking Financial Company, a financial institution that provides all the financial services to business entities and individuals. These financial services are similar to other banks, but it does not possess a full-fledge banking license. But they own NBFC License and must follow all the rules and regulations provided by RBI. NBFC License must be issued under RBI section u/s 45-IA of the RBI Act of 1934. The financial institution that wants to get NBFC Registration must be duly registered as per the Companies Act of 2013 or earlier Act of 1956.

There are two types of Non-Banking Financial Companies in India:

1. Based on Liabilities:

• Deposit Accepting Non-Banking Financial Companies.
• Non-Deposit Accepting Non-Banking Financial Companies.

1. Based on Activities:

• Investment and Credit Company.
• Infrastructure Finance Company.
• Systemically Important Core Investment Company.
• Infrastructure Debt Fund.
• Micro Finance Institution.
• Non-Banking Financial Company-Factor.
• Non-Operative Financial Holding Company.
• Mortgage Guarantee Company.
• Account Aggregator.
• Peer To Peer Lending Platform.

Why are NBFCs essential for Economy Growth?

Non-Banking Financial Companies provide all the financial needs to the Micro, Small, and Medium Enterprises or MSMEs. In 2019budget the government of India announced that the growth ambition of achieving a five trillion dollar economy in 2024. But also the Economy Survey (2018-19) tells that the NBFC face crisis, which is a key challenge that could affect the credit growth and delay the achievement of this milestone.

Why technologies help NBFCs to grow?

Following is the list of reasons why technologies help Non-Banking Financial Companies to grow in India:

1. Offering better customer support or service: The best way to serve customers is through email and text messages. With the help of technology, Non-Banking Financial Companies could among other personalized messages and share the reminders of the loan bill payments or sends statements to the customers. The technology makes it easy for Non-Banking Financial Companies to build a strong relationship with the customers and continue the communication. If the customer or client satisfied with all the services, then they also refer to their friends, and this is the best way to bring in more business.
2. Lower the costs: Technologies makes the business operations and expansion much easier for NBFCs as the administration cost becomes low. It allows for the utilization of human resources and available assets within less time and fewer resources, and it also provides good services and business processes.
3. Customer Data Acquisition and Management: One of the main reason to rise the Non-Banking Financial Companies in India is reduced the risk in public sector banks to offer money because they are keeping an eye on their rising debts, bad loans, and NPAs. Most of the time, Non-Banking Financial Companies targets the rejected clients of the commercial banks, along with the average population in rural areas. This is the best way for Non-Banking Financial Companies to expand and understand their targeted customers which helps them to achieve their goals. New technology is the best way that allows Non-Banking Financial Companies to capture, analyze, and leverage data about their customers. Technology helps Non-Banking Financial Companies to understand their customers and make better decisions.
4. Presenting Customized Products: Some Non-Banking Financial Companies have focused on a limited set of products to serve the targeted customer section. Non-Banking Financial Companies have customized product offering to address distinctive features of the customer section and mainly focus on customer needs. Some of the Non-Banking Financial Companies adopting non-standard pricing models for product lines, the inherent risk of lending, and in-line with the profile of the customer.
5. Leveraging Technology: With the help of this technology, Non-Banking Financial Companies can optimize the business process, thereby it enhanced the customer experience, and reduce time to market. These financial companies are investing in data analytics and AI (Artificial Intelligence) to build a good relationship with their targeted customer sector.
6. Expansion of Customer Base: One of the best advantages of technology is to reach the customers widely; otherwise, it is challenging to get customers by giving them digital access. The technology allows them to handle several loan products fluently on the spot in a cost-effective manner. This is the best and easy way to gain new customers by providing them with different services and facility.
7. Co-lending Arrangements: Non-Banking Financial Companies are binding up with several lenders with digital platforms and commercial banks as well, which has been adding to their targeted customer base.

Conclusion

Earlier it was challenging for small Non-Banking Financial Companies to adopt technologies because of the high cost, but after the introduction of Cloud and SaaS (Software as a Service), models made easy for financial companies and the solutions are easily available at affordable prices. And also with cutting edge technologies, NBFCs are becoming future-ready. They have deployed technologies to overcome challenges that they faced earlier and have significantly improved in providing

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