Non-banking companies in Micro-finance
These non-bank enterprises are usually classified as non-banking financial companies, and most of them are not allowed to take deposits from the public. This is the big difference between non-banking financial companies and banks. Moreover, these kinds of financial companies have different names in different jurisdictions. For example, NBFC in India, NBMFC in Pakistan, OJK license in Indonesia, Money lending license in Nigeria, Pico Finance in Thailand, and Sodom in Mexico, etc.
What is the business model for Non-banking financial companies?
The traditional model of a non-banking financial company is to provide small loans in a short period, and this business is normally operating in physical places. However, the business is becoming a modern model, since the technology is developing rapidly in recent centuries.
These companies will be releasing loans through an online platform, and most of them designed their own phone apps as well. Borrowers can easily get loans by uploading the required documents and information by using these apps. And borrowers need to repay loans with interest in a short period.
Moreover, there could be multiple parties involved under this modern model. For example, a technology company could provide such an online platform for a financial company; a payment company could set up a gateway for a financial company to release and collect money.
Benefits and risks for modern model
The new modern model for micro-finance is allowing financial entities to attract more consumers and operate a business efficiently. These entities are growing rapidly by using this model.
However, this modern model is usually in gray areas in many counties. There is no existing proper law or regulation for this kind of business. For example, the Indian government stopped fintech companies(one type of modern model) several months ago. It is hard to say what will be the future for a modern model of microfinance.
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