Non-banking financial companies (NBFCs) are institutions that lend money and make investments, just like a bank. These entities differ from banks in the sense that they cannot issue cheques or accept demand deposits. NBFCs form a crucial part of the country’s financial landscape. These companies offer a number of money-related services to consumers at favourable terms of interest and provide an alternative to bank loans. Like the banks, NBFCs also come under the purview of the Reserve Bank of India.

How do NBFCs function?

NBFCs raise money through a variety of investment activities. They connect borrowers with potential lenders. The institutions also work on a wide array of investment and risk management activities. The main aim of an NBFC is to generate funds while managing risks. They are an alternative for investment, especially where Micro, Small, and Medium Enterprises (MSMEs) are concerned.

How do NBFCs help women entrepreneurs?

While MSMEs form a big part of India’s economy, women entrepreneurs in the sector have a long way to go. As per data by the Central government’s annual report 2021-22, the MSME sector is dominated by males. For proprietary MSMEs, males owned 79.63 per cent of enterprises, and females controlled 20.37 per cent of businesses.

With Tier 2 and Tier 3 cities making up around a big component of the MSME sector, it is crucial that women entrepreneurs in these cities receive a boost so that the sector itself can flourish.

Some of the factors that can help women entrepreneurs expand their businesses are tailored financial solutions, faster loan processing and minimal documentation. In this context, NBFCs can be a great opportunity. These institutions can provide loans to women entrepreneurs with less documentation and less hurdles. The government has launched certain schemes for MSMEs like the Pradhan Mantri Mudra Yojana, which can help businesses in getting funds.

NBFCs and Tier 2 and 3 cities

Tier 2 and Tier 3 cities also face shortage of infrastructure, lack of capital and connectivity issues. People living in these towns may often lack proper collateral to get loans from banks. This can make it tough for people to start their own enterprise in these towns. Here, NBFCs promise crucial support to budding entrepreneurs.

NBFCs can help bridge gaps in investment and risk management. They will provide flexible financing options on the basis of infrastructure, trade and local conditions and personalised guidance. These institutions are an alternative to the banks and can strengthen the ecosystem for entrepreneurship in Tier 2 and 3 cities. For women entrepreneurs, they can provide a good foundation for establishing a business.