NBFC and MFI

NBFC is Non-Banking Financial Company, a company registered under the Companies Act, 1956 of India.

What it does?

Engaged in the business of loans and advances, acquisition of shares, stock, bonds, debentures and securities issued by government or local authority, or other securities of a marketable nature, leasing, hire-purchase, insurance business, or chit business:

What it does not?

Does not include any institution whose principal business is that includes agriculture or industrial activity; or the sale, purchase or construction of immovable property

Banks Vs NBFC

1. Cannot accept demand deposits

2. Not a part of the payment and settlement system

3. cannot issue cheques drawn on itself

MFI

Microfinance institutions, also known as MFIs^[3], offer financial services to undeserved and impoverished communities.

MFIs of India

Forbes magazine named seven microfinance institutes in India in the list of the world's top 50 microfinance institutions.

Bandhan, as well as two other Indian MFIs—Microcredit Foundation of India (ranked 13th) and Saadhana Microfin Society (15th) – have been placed above Bangladesh-based Grameen Bank (which along with its founder Mohammed Yunus, was awarded the Nobel Prize). Besides Bandhan, the Microcredit Foundation of India and Saadhana Microfin Society, other Indian entries include Grameen Koota (19th), Sharada's Women's Association for Weaker Section (23rd), SKS Microfinance Private Ltd (44th) and Asmitha Microfin Ltd (29th).^[9][10]

Criticisms

Recently, microfinance has come under fire in the state of Andhra Pradesh due to allegations of MFIs using coercive recollection practices and charging usurious interest rates. ^[11] These charges resulted in the state government's passing of the Andhra Pradesh Microfinance Ordinance on October 15, 2010. The Ordinance requires MFIs to register with the state government and gives the state government the power, suo moto, to shut down MFI activity.^[12] A number of NBFCs have been affected by the ordinance, including sector heavyweight SKS Microfinance. ^[13]