Overview

NBFC Cooperation is a type of consortium in which NBFC license holders intend to raise funds and collaborate with fintech companies and banks to increase financial inclusion in the country. In simple terms, cooperation means joining hands for a common set of objectives. In India, there are more than 9000 active licensed NBFCs. Talking about the book size of more than 40 crores, only 954 NBFCs fall in this category. The remaining NBFCs are entitled to meet the regulatory cap of INR 20 million. These remaining NBFCs are holding only one certificate.

The term NBFC is a new concept to spur economic development. Fintech companies, along with NBFC license holders, will fund NBFCs for an acceptable fee amount, as an idea, they will use NBFC licenses. Both parties decide ideas and share revenue with each other. The success of the NBFC collaboration depends on a combination of innovative loan products and the most advanced technology, making the lending process easier and faster.

In the year 2019, due to the stringent governance norms of the Reserve Bank of India, NBFCs are operating on a large scale, which are prone to economic crisis. However, medium-level and small-scale NBFCs have faced difficult times, are making progress, and they are easily raising a handsome amount of FDI for retail lending. It is not wrong to say that they are becoming commercially successful. NBFC's large-scale collaboration with fintech institutions and banks is bringing back days for companies involved in all these processes. In addition, NBFC collaboration will help customers find new ways to fulfill the primary objective and raise funds. / />

Benefit

NBFCs are looking at fintech companies with fire and it is a fact that fintech companies are the next big thing, and thus, collaborating with them will yield unexpected and extraordinary results. NBFCs are venturing out of the jungle to enhance their lending capabilities. This collaboration will not only benefit NBFCs, but fintech companies are also becoming novices in the industry after joining hands with NBFCs. In short, we can say that it is going to be a win-win situation for both of them. The benefits to NBFCs from partnerships with fintech companies are as follows

• Increase productivity

  Fintech has simplified the internal as well as external functions of NBFCs. Also, it helps in the smooth functioning of non-banking financial companies. Furthermore, it promotes NBFCs to revise their activities related to back-office, resulting in increased productivity.

• Launching exclusive and latest product offers

  With the help of fintech's latest technology-based tools, non-banking financial companies are making new changes to their new products. The collaboration of NBFCs with fintech players helps in launching unique and in-trend product offerings like pay-loans, POS financing, consumer durable loans, invoice financing etc.

• Embrace paper-less and modernize digital mode

  After coming on board with the fintech company, NBFCs became familiar with exceptional technologies. It announces NBFCs to choose a paper-less digital mode over the traditional, outdated manual process. Most important, digital onboarding and verification saves costs on operations.

Important requirements to monitor FLDG (First Loss Default Guarantee or Fintech Balance Sheet)

Before giving any indication for any cooperation, the NBFC company should investigate the background of the financial companies. The NBFC company should conduct proper research on the fintech company and collect information about the financial capacity of the fintech company. Apart from this, they should know about the promoters and also be aware of their profile. The importance of this information increases when working with foreign fintech corporations. Before signing any agreement related to NBFC cooperation, it is an essential practice to conduct due diligence. In addition, fintech companies must perform the necessary compliance to ensure this.

• Lead-based model

  In this model, the FinTech company provides cutting edge underwriting and risk mitigation with state-of-the-art and unique technology by providing risk assessment software and tools. Fintech companies typically receive commissions in the range of 1% to 3% from NBFC.

• Co-lending model

  Here, The Fintech Company provides much needed information and tools to help the decision making by non-banking company for timely loan processing. Fintech companies are using their dedicated escrow account to work on the First Loss Default Guarantee model. Fintech companies are likely to share their 24% to 36% ROI with NBFC. When it comes to covering 100% NPAs and expenses, fintech companies do their job.

• Fintech-LED Model

  First Loss Default Guarantee is a way through which a lender's interest in NBFCs is secured. Lenders demand collateral, keeping in mind the goals of preserving their advances made through a fintech company.It’s a Fintech-Led Model.

Business Model

• Company (1) Online and offline marketing campaigns will help a lot to provide leads to fintech companies. The fund manager requires a fintech company to deposit a substantial amount in the form of FDDG. The fund manager absorbs the fund in the form of inter-corporate deposits in a non-banking financial company.

   

• Company (2) Fintech will manage a consulting company, lawyer, or CA fund

  as instructed by the company. For their respective services, they are charging significantly higher service fees from the fintech company.

• Company (3) The responsibility of loan disbursement and underwriting rests with the Reserve Bank-regulated NBFCs. The fintech company will list those, including those interested in various loan products, and after the risk assessment process, NBFCs will proliferate. Considering debt management services and debt management related services, NBFC will keep some percentage of revenue. And with the fintech company, the remaining profit will be shared.

   

Cooperation between bank and NBFC

Keeping in mind the overall need to provide loans to the account, ensuring economic growth and the growth of the economy in the account, the call for cooperation between an NBFC and a bank is something that needs someone's attention.

The main reason behind this collaboration

• Ensuring adequate liquidity in the market
• Lending to borrowers
• Meet credit targets in priority sector
• Promoting priority and other areas
• Increase banking outreach
• Dodge liquidity crisis (also known as credit crunch)
• Expand and enhance financial inclusion

Required compliance

• ID verification process, borrowers' Aadhaar, and PAN card verification completed online
• Maintain and store records of borrowers’ data for five years
• Getting live snaps of borrowers
• After the loan contract is executed, pay the e-stamp fee
• In case of credit check, delay, disbursement or default, credit information companies are required to report
• Conforming to CKYC norms as per RBI
• Compliance of TDS, GST, RBI Act as well as Companies Act
• Hire a CA to manage the risks associated with the business, and this can help fintech companies exit blue checks and inspections
• Based on 45-day or 90-day loan book performance criteria, bring out the provisions of NPA

Desired Technology

• It is mandatory to have a mobile app to suit the Indian market
• Must be equipped with systems like debt management system, loan origination and collection system
• FinTech company should have credit and underwriting software
• The FinTech company should ensure that there is no backwardness in terms of IT security as it will protect the personal information of the borrower.
• Loan app should be able to integrate various APIs including but not limited to PAN, Aadhaar and Driver License
• It must have the verification of live borrowers’ profile
• Analysis of bank statement becomes a requirement for checking income process
• The face of the borrowers and the IDs submitted by them online should be similar to each other
• Verification of employment profile online
• As directed by Indian law, adherence to privacy norms is a requisite in the case of using social scoring technology
• The server must be in India and not outside Indian borders.

FDI Policy

• As per RBI notification, the new norms detail 100% FDI for fintech companies under the automatic route.
• In the present scenario, no such regulation exists which provides minimum capital requirements to run fintech business in India.

Fintech Business Requirement Compliance

• The FinTech company has the power and authority to make loans or guarantees through board resolution up to 60% of its paid-up capital and 100% of its free reserves as well as security premiums, whichever is higher.
• Once members have given their approval under a specific exception, it can be allowed up to 100% of the paid up capital.
• FinTech company should pay Goods and Services Tax on loan processing fees. Still and all, processing fees are inclusive of GST in regular practice.
• Fintech company will follow the ECB guidelines if the foreign funds are raised as loans / loans.

If you have any questions or concerns related to the NBFC collaboration model or if you are waiting for the right opportunity to work closely with the NBFC, you can contact us. If you need any clarification from our end, we would be happy to support you. In addition, we will send you the appropriate materials as soon as possible. We, at Servzone, will do everything possible to satisfy you in every way.

Collaboration between NBFC and Fintech Company

The NBFC Collaboration with Fintech Firms is Following this Process

• It is mandatory for both the NBFC Company and Fintech Company to sign the co-origination scheme agreement
• Fintech company should agree to sign inter-corporate deposit agreements with the fund manager
• The NBFC which is a part of the collaboration should sign a Platform Services Agreement that supports payment for technology services provided by the FinTech organization
• To fulfill the lending objective, NBFC will have to open a separate bank account
• NBFC leaped ahead and opened an escrow account (a separate escrow account for disbursement linked with repayment purpose)
• Appoint a highly skilled and well experienced Chartered Accountant to manage and operate escrow bank account funds and services
• After starting a business, fintech companies should conduct a thorough inspection and monitor regular compliance (CKYC, TDS, GST, credit reporting and others)
• Reimbursement and Credit Information Company (CIC) Reporting on a monthly basis
• The NPA has to comply with the 45/90-day norm, a mandatory point for NBFCs