{"id":2968,"date":"2021-03-04T07:25:23","date_gmt":"2021-03-04T07:25:23","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=2968"},"modified":"2021-03-04T07:30:07","modified_gmt":"2021-03-04T07:30:07","slug":"differences-between-microfinance-companies-and-nbfcs","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/differences-between-microfinance-companies-and-nbfcs\/","title":{"rendered":"Differences between Microfinance Companies and NBFCs"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The term NBFC\nrefers to Non- Banking Financial Company that is registered under the <strong><em>Companies\nAct, 2013<\/em><\/strong> and is regulated by the Reserve Bank of India. On the other\nhand, MFI is the term used for <strong><a href=\"https:\/\/swaritadvisors.com\/microfinance-company-registration\" class=\"text-primary\">Micro\nFinance Company<\/a><\/strong> which is at a smaller level in comparison to the NBFC.\nIn India, NBFCs and MFIs operate in the rural parts of the country so as to\nmeet the banking requirements of the people. Both the Microfinance Companies\nand <strong><a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\" class=\"text-primary\">NBFCs<\/a><\/strong> serve and\nprovide banking facilities. However, there are differences between both the\nentities. This article will discuss about the differences between Microfinance\nCompanies and NBFCs in India.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a54fe4615fba\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a54fe4615fba\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/differences-between-microfinance-companies-and-nbfcs\/#Understanding_NBFCs\" title=\"Understanding\nNBFCs \">Understanding\nNBFCs <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/differences-between-microfinance-companies-and-nbfcs\/#Understanding_Micro_Finance_Companies\" title=\"Understanding\nMicro Finance Companies\">Understanding\nMicro Finance Companies<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/differences-between-microfinance-companies-and-nbfcs\/#Understanding_the_differences_between_Microfinance_Companies_and_NBFCs\" title=\"Understanding\nthe differences between Microfinance Companies and NBFCs\">Understanding\nthe differences between Microfinance Companies and NBFCs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/differences-between-microfinance-companies-and-nbfcs\/#Conclusion\" title=\"Conclusion \">Conclusion <\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Understanding_NBFCs\"><\/span>Understanding\nNBFCs <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The NON-Banking Financial Company (NBFC) registered under the companies act is regulated and monitored by the Reserve Bank of India. The activities of the NBFC is related to providing loans and advances, lending, credit facility, trading at money market, savings and investment products, transfer of money, managing portfolios of stocks and etc. All the Non- Banking Financial Companies are engaged in leasing, hire purchase, venture capital finance, housing finance, infrastructure finance and etc. NBFCs can accept deposits but only which are term deposits and not deposits which are repayable on demand. <\/p>\n\n\n\n<p>There are 3\ntypes of companies under the NBFCs which are as follows: &#8211; <\/p>\n\n\n\n<ul><li>Asset Companies.<\/li><li>Investment Companies.<\/li><li>Loan Companies.<\/li><\/ul>\n\n\n\n<p>There is a\ndifference between the NBFCs and Banks since, NBFCs cannot issue cheques drawn\non itself and cannot accept saving deposits in the similar way that the banks\ncan do. Further, an NBFC is not a part of the payment and settlement system and\nit is also not required to maintain Reserve Rations (CRR, SLR and etc). <\/p>\n\n\n\n<p>However, money deposited in an NBFC does not have any guarantee unlike banks. NBFCs performs and functions at a smaller scale as compared to the banks. Also, an NBFC cannot get indulged in the industrial or agricultural activities or sale- purchase or construction of immovable property.<\/p>\n\n\n\n<p><strong>Also, Read:<\/strong> <mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/major-risks-faced-by-micro-finance-company-in-india\/\">What are the Major Risks Faced by Micro Finance Company in India?<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Understanding_Micro_Finance_Companies\"><\/span>Understanding\nMicro Finance Companies<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Micro Financer\nCompanies are smaller as compared to the NBFCs. The purpose and motive of Micro\nfinance Companies are similar to the NBFC that is to serve to the\nunderprivileged and impoverished sections of the society that do not have\naccess to the banking facilities. The funds provided by the Micro Finance\ncompanies are small that may vary from Rs 1,000 to 20, 000 to the backward\nsection of the people to help them to start a business. However, MFIs charge a\nvery high rate of interest from the people. Beside, Micro Finance Company is\nmainly indulged in providing\/ disbursement of loans in contravention to the\ndirectives issued to the MFI. Also, it issues credits to the newly formed\ngroups within the 15 days of the formation. In certain situations, it has also\nbeen noticed that there is no review of the functioning of Micro Finance\nCompanies from the time the credit facility is sanctioned. Therefore, the State\nGovernment has taken some important steps to convert the Micro Finance Company\ninto NBFC which are comparatively better regulated by the Reserve Bank of India\n(<a href=\"https:\/\/www.rbi.org.in\/\">RBI<\/a>). Further, the Micro Finance\nCompanies shall get the NBFC status and get the access to the wide scale\nfunding from the banking institutions. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Understanding_the_differences_between_Microfinance_Companies_and_NBFCs\"><\/span>Understanding\nthe differences between Microfinance Companies and NBFCs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Both the Microfinance\nCompanies and NBFCs play a very important role of providing finances in the\nrural areas. NBFCs are required to work in accordance to the rules and\nregulations imposed by the authorities in terms of the acceptance of deposit\nand issuance of cheque or providing loans. On the other hand, the Micro Finance\nCompanies offer small loans or credits to the backward section of the society\nas compared to the NBFCs. The key differences between Microfinance Companies\nand NBFCs are as follow:<\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td>\n  Micro Finance Companies\n  <\/td><td>\n  NBFCs\n  <\/td><\/tr><tr><td>\n  The Micro Finance Companies works towards providing\n  loans to the backward section of the society that resided in the rural areas.\n  \n  <\/td><td>\n  NBFCs works towards providing loans in urban as\n  well as in rural areas as they are available PAN India. \n  <\/td><\/tr><tr><td>\n  The Micro Finance companies imposes higher rate of\n  interests on the borrowers. \n  <\/td><td>\n  The majority of NBFCs imposes rate of interest not\n  higher than the ceiling rate directed or recommended by the Reserve Bank of\n  India. \n  <\/td><\/tr><tr><td>\n  The Micro Finance Companies fail to maintain\n  transparency in the long run. \n  <\/td><td>\n  The NBFCs maintain the transparency within the\n  system and therefore they are more reliable. \n  <\/td><\/tr><tr><td>\n  The Micro Finance Companies work under many\n  government restrictions and therefore they do not have potential to act like\n  traditional banks. \n  <\/td><td>\n  NBFCs may be considered as the relevant alternative\n  to the traditional banks when it comes to the disbursement of credit,\n  specifically in the event of urgency. \n  <\/td><\/tr><tr><td>\n  The Micro Finance Companies often do not follow the\n  RBI compliances when it comes to the procedure of recovery of credit. They\n  are often found violating the fair practice code issued by the governing\n  authorities. \n  <\/td><td>\n  NBFCs follow the code of conduct issued by the RBI.\n  They follow and abide the rules and the regulations and certainly offer\n  services to the needy ones without any hindrance. \n  <\/td><\/tr><tr><td>\n  Low financial credits are offered by Micro Finance\n  Companies due to the imposition of the restrictions and lack of adequate\n  funding.\n  <\/td><td>\n  Disbursal of certainly big amount of loans to the\n  individuals as well as corporate can be made under NBFCs, depending upon the\n  necessities. \n  <\/td><\/tr><tr><td>\n  Micro Finance Companies have little access to\n  audience at large.\n  <\/td><td>\n  NBFCs operate at a wider scope as compared to Micro\n  Finance Companies. \n  <\/td><\/tr><\/tbody><\/table>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The function of Microfinance Companies and NBFCs is to provide financial credits to the backward sections of the society. The Micro Finance Companies are the smaller version of the NBFCS. The NBFCs serves to a wider audience where as the Micro Finance Companies do not operates at a much wider scope. Even though the purpose of both the entities is similar, yet there are differences between Microfinance Companies and NBFCs that are quite clearly discussed above in the article.<\/p>\n\n\n\n<p><strong>Also, Read:<\/strong> <mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/nbfc-funding-in-india\/\">A Complete Guide on NBFC Funding In India<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The term NBFC refers to Non- Banking Financial Company that is registered under the Companies Act, 2013 and is regulated by the Reserve Bank of India. On the other hand, MFI is the term used for Micro Finance Company which is at a smaller level in comparison to the NBFC. In India, NBFCs and MFIs [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":2969,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[59,58,56],"tags":[459],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/2968"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=2968"}],"version-history":[{"count":4,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/2968\/revisions"}],"predecessor-version":[{"id":2974,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/2968\/revisions\/2974"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/2969"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=2968"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=2968"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=2968"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}