The finance sector in India is revolutionizing. Industry experts believe that the overall lending market is as big as $500 million and is further growing at a compound growth rate of 18% to 20%. Besides, not only banks but also alternative lenders provide finance to those in need of capital.
Alternative lending market
Alternative lending firms, popularly known as Non-Banking Financial Companies (NBFCs), have contributed greatly to the success of numerous businesses. The Reserve Bank of India (RBI) has recognized the role of NBFCs in providing credit to rural segments. NBFCS offer finance to small-scale industries thereby resulting in growth of rural areas and the development of the economy as a whole.
As of 2017, NBFCs have grown tremendously both in terms of volumes and the number of service offerings. Such financial institutions provide credit to infrastructure projects, which helps a developing country like India to a great extent. As of March 2013, NBFCs have lent over one-third or 35.8% of their total assets to the infrastructure sector, as compared to banks which lent a mere 7.6%. Non-Banking Financial Companies also provide loans for those seeking finance for a home purchase. Besides home loans, such financial institutions offer business loans, education loans, and personal loans, among many others. The number of individuals opting for such loans through NBFCs has increased. Moreover, the amount of money being lent to customers grew an average of 24.3% per year for NBFCs as compared to 21.4% for banks. This statistics shows that NBFCs are indeed a popular option for the masses.
Reasons for growth of NBFCs
Alternative lenders are growing mainly due to their ability to innovate and customize their products based on the needs of their clients. NBFCs have a comprehensive understanding of their customers’ profiles and offer the best product as per the individual requirements. Besides, NBFCs are known to offer competitive interest rates, thereby making them a preferred choice. Such lowered rates reduce the cost of borrowing and help individuals obtain finance without any financial constraints. Other benefit offerings of NBFCs are their flexible repayment schemes, extended loan tenure, and lower fees and charges. Besides, NBFCs require loan seekers to submit minimal documentation as compared to the extensive paperwork required by banks. Applicants also have flexible eligibility criteria against banks that require loan seekers to fulfill stringent eligibility criteria.
NBFCs have therefore carved a niche in the finance sector. These alternative lenders also offer quick and efficient services to Micro, Small and Medium Enterprises (MSMEs), the backbone of Indian economy. As NBFCs have continuously played a critical role in encouraging the development of the Indian economy, this sector is expected to grow in the years to come.