INBFCs are offering a big contribution to reinforcing the expansion of the
economy. At an equivalent time, FinTechs are improving the experience of banking by making it
more personalized and intuitive. A growing number of NBFC license holders are collaborating.
That collaboration is with all the FinTechs to strengthen the workflow of their Company and
expand the customer base.
About 8900 companies are holding a legitimate certificate of NBFC registration out of which only around 950 are running their business activities and features a capital size of quite 40 crores. The remainder of the NBFCs are mere license holders and are only ready to meet the regulatory cap of two crore rupees. All the NBFC license holders are actively working with FinTechs through the use of cutting-edge technology to develop creative loan products, deliver quick loan disbursement, and many other user-friendly benefits.
As taking all the requirements to give credit into account, along with assuring the
economic assistance and growth of the economy into account, the request for collaborations between an
NBFC and a bank is something that needs everyone’s attention.
The key reasons behind this teamwork are:
NBFCs and banks continue to strive to meet the financial needs of individuals and
businesses. But with rising financial costs, NBFCs are more focused on providing customized products to
meet specific needs. Unlike banks, which are also under the authority of the RBI, there are differences
that set the
NBFC apart from the banks and are listed below:
Fintech Company is a sponsor of the FLDG & Fund. The fund is collected by the Fund Manager and deposited with the NBFC. Sales Loans are made by NBFC and the budget is determined by Fintech Company.
The online and offline marketing campaign is still being promoted by Fintech Company with leads. The Fund Manager is provided with a sufficient number of deposits and is empowered by Fintech Company. These funds are funded by the Fund Manager at NBFC which forms Inter Corporate Deposits.
The Fund is managed by a competent person with good legal and financial knowledge and who is a CA or a lawyer; basically, the instructions received from Fintech Company. Fees are paid by Fintech Company for assistance from CA or Attorney.
Tasks such as loan repayments and transcripts are performed by the RB-controlled NBFC. A list of lenders for various loan products was provided by Fintech Company and the risk assessment base, the price is released by the NBFC. The rest of the revenue is retained by the NBFC because the risk assessment services and loan control services are made by it and the remaining profits go to Fintech Company which is decided upon.
The advantages that NBFCs gains by the partnership with Fintech Companies are as follows :
Fintech has streamlined the NBFC’s internal and external roles. It also helps to ensure the smooth running of non-banking financial companies. It also encourages NBFCs to revise their back-office-related practices, resulting in productivity growth.
The Non-Banking Financial Companies are making revolutionary improvements to their new products through the assistance of Fintech’s latest technology-based instruments. The partnership between NBFCs and Fintech Players helps to launch special and on-trend products such as Payday Loans, POS Financing, Durable Consumer Loans, Invoice Financing, etc.
NBFCs become acquainted with the exceptional techniques after coming together on board along with a Fintech Company. Instead of the conventional, obsolete manual method, it dragoons NBFC into selecting the paper-less digital modes. Several importantly, digital onboarding and confirmation save the costs incurred on operations.
NBFCs look with an eye of fire at Fintech companies, and it is a reality that Fintech companies are the next big thing, and therefore it will offer surprising and exceptional results to partner with them. To increase their lending capacities, NBFC’s are walking out of the jungle. Not only would NBFCs benefit from this alliance, but after joining hands with NBFCs, Fintech companies will also be dominating newcomers in the industry. In short, for both of them, we can assume it’s going to be a win-win scenario.
Sign the co-origination agreement between the two parties (NBFC and Fintech Company). An Indian Entity affiliated with the FinTech business model must be registered to begin the process of partnership between FinTech and NBFC. Signing the co-origination scheme agreement is mandatory for both the NBFC Business and the Fintech Company.
Until entering into the Partnership Agreement, both the FinTech Business and the NBFC will undergo consultations and negotiations. Fintech Company would enable the Fund Manager to sign (inter-corporate deposit agreements)
The NBFC incorporated in the collaboration is needed to sign a platform service agreement. That too for the repayment of technology services provided by the FinTech Company. NBFC is to open a separate Bank Account for lending purposes.
The NBFC steps forward and maintains an Escrow Account (a separate disbursement Escrow Account coupled with the intent of repayment). Open an ESCROW account for refund and repayment purposes.
After opening an Escrow Bank Account, a very experienced expert shall be selected for the management of funds and operations of Bank Account. Appoint a highly trained and professional Chartered Accountant for the management and handling of Escrow Bank Account funds and services.
After the start of business, the Fintech Companies must completely see and make sure on regular compliance (CKYC, TDS, GST, Credit Reporting, and others).
Monthly reconciliation and the monitoring of the CIC Reporting. A mandatory point to remember for NBFCs meeting NPA provisioning requirements of 45-90 days.
You can contact us if you have any questions or concerns relating to the NBFC Partnership Model or if you are waiting for the right opportunity to collaborate with the NBFC. We would feel happy to extend help to you if you need some clarification from our end. Also, at the earliest, we will give you sufficient materials. We, at Legalraasta, will do whatever we can to please you all the way.
NBFC should search for the background of Fintech companies also its financial strength and its promoters profile, especially just in the case of a Foreign Fintech company, Necessary due diligence must be held before signature on NBFC collaboration Agreements. Necessary compliance must be followed by fin-tech companies.
In this Model, Fintech company source leads and supply advanced tech-driven underwriting and risk assessment software. NBFC usually pays a commission to Fintech within the range of 1% to three of the Loan Amount.
in this model, Fintech company provides the required information and decision-making tools for quick loan processing by the NBFC. Fintech Companies are performing on the FLDG model Via a fanatical Escrow Account. FLDG Maybe Up to 70% and therefore the Remaining 30% Loan book financed by the NBFC from it’s fund. Fintech company shares about 24- 36% ROI with NBFC. Also, Fintech company covers 100% NPA & Expense.
The First Loan Default Guarantee (FLDG) is that the means to guard the lender’s interest in NBFC. Lenders invite collaterals so as to safeguard their advances made through Fintech Company.
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