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What are Non-Banking Financial Institutions NBFIs? Commonly known NBFIs

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Non-Banking Financial Institutions NBFIs

Non-Banking Financial Institutions NBFIs. NBFIs can be defined as the financial institution that does not have a complete banking license from central bank and it is not run under the national or international banking regulatory agency. NBFIs perform easy bank-related financial services investments, contractual savings, risk pooling or market brokering. It can be insurance companies, currency exchanges, payday lending or microloan etc..

There is a list of commonly considered as Non-Banking financial institutions

  1. Development Financial Institutions (DFIs)
  2. Leasing Companies
  3. Insurance Companies
  4. Investment Banks
  5. House Finance Companies  

1) Development Financial Institutions (DFIs)

DFIs are financial institutions providing finance to the private sector for investments that promote development. They provide a range of specialized financial products and services to suit the specific needs of the targeted strategic sectors. DFIs understand that financial and economic development success go hand in hand and therefore growth of the private sector is one of the keys to sustainable development. DFIs can be established with the assistance from International Financial Institutions.

2) Leasing Companies

Leasing companies are those financial companies which are engaged in financing the concrete assets Though leasing company is the legal owner of the goods, the ownership and possession is effectively conveyed to the lessee, who earns all benefits, costs, and risks linked to ownership of the assets.” A NBFC with a license for undertaking leasing is called a leasing company. A Non-Banking Financial Company with leasing license is necessary to invest at least 70% of its assets in the business of leasing.

Non-Banking Financial Institutions NBFIs

3) Insurance Companies

Insurance companies are also Non-banking financial institutions NBFIs that collects insurance premiums from their customers and make pool of money. Then these companies invest this pool of money in different sectors . Insurance is risk transfer mechanism which shifts the responsibility of losses and damages to specialists ( Insurance companies ) who handle the these losses by spreading it over many people who are exposed to these losses. It provides protection against losses.  

4) Investment Banks

Investment Banks are those non-banking financial institution which involve in selling and purchasing of securities and shares. It has two sides , buyer and seller side . The seller side involves trading securities for cash and for other securities. The buyer side involves the buying of investment services like mutual funds ,equity funds and life insurance companies are common buyer side entities. Investment Banks perform four types of functions.

  1. Raise Capital
  2. Portfolio Management
  3. Merges and Acquisition
  4. Research

5) House Finance Companies

House Finance Companies are the companies which provide loan facilities to the low income to help them to build houses. They provide advances and other capital to the people to build houses.

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