If a phenomenon grows, there must be good reasons for this. The boom of non-bank financial companies (or NBFCs for short) began about 15 years ago in the wake of the Great Recession. This was facilitated both by the development of technology and the inexorability of traditional banks regarding the provision of loans to certain groups of the population. By creating a strict system of selecting those who are worthy of a loan and who are not, banks contributed to the rapid development of nonbank financial companies.
Which Financial Service Providers Are Classified as NBFCs?
The NBFC is a new type of financial institution with deep roots, which is not licensed as a bank but can provide a range of financial services to the public, including:
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Loans
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Mortgages
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Currency exchange
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Check cashing
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Insurance, etc.
They are prohibited from taking demand deposits from the public, as they are not supervised by national regulatory agencies, but many other financial operations are available to them.
Who Are the Clients of NBFCs?
Not only those more than 20% of applicants who were denied loans by traditional banks address non-bank financial companies. Clients loyal to banks also often use the services of NBFCs since these financial institutions are more flexible, technologically advanced, and ready for transformation. Not being in the zone of strict regulation by state bodies, they can afford to experiment and offer original solutions to the challenges of the time.
Origins of the Non-Banking Financial Company
The emergence of NBFC is associated with the processes of urbanization, which were actively unfolding in the late 19th and early 20th centuries. A large number of residents moving to the city needed financial assistance for settling in a new place. New structures for providing loans and microloans, more informal and ready to meet the needs of clients, grew up in parallel with the banks. The invention of automobiles and the need for large sums of money to purchase them fueled the demand for their services.
In the 21st century, due to the advent of technologies that make it easy to conduct financial transactions online, their importance has become even greater. Being more flexible than banks, they are the first to offer new services and ensure their implementation with the latest technology.
NBFCs’ Activity Examples
If you need a payday loan, the Payday Depot platform offers you to join a huge network of lenders, including both traditional banks and NBFCs. By comparing their conditions for a loan, you can choose the best option for yourself. NBFCs tend to be more customer-focused because:
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They offer softer loan repayment terms.
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They prefer not to perform hard credit checks on their clients, and sometimes, they don’t do it at all.
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They often do not require collateral.
Each person on their own decides whether they should use the services of the still fairly young NBFCs or resort to the services of more slow but trusted banks. But given the fact that this choice is not about deposits, which they cannot offer to the public, but about loans, the risks are minimal. Because as soon as you receive a loan, lenders run the risk that the money may not be returned to them.
