A Step-by-Step Guide to Choosing Your Difference Between NBFC and MFI

NBFC and MFI: India is home to an enormous population. While banks may be present, they often cannot open branches at remote or inaccessible locations. To meet the banking needs of this population, many NBFCs and MFIs operate predominantly in rural areas across India – offering financial services but differing in terms of mission. We will examine those differences here.

What is an NBFC?

NCBFC stands for a non-banking financial company and performs various banking activities such as lending to farmers and businesses, investing in government securities such as bonds or shares, and leasing, hiring, or insurance policies. In contrast to its banking counterparts, however, NBFC is prohibited from engaging in agricultural and industrial activities and cannot sell, purchase or build real property; they have registered with the Indian government under the Companies Act 1956 for such activity.

An NBFC operates similarly to traditional banks in that it provides some banking functions; however, it differs by being unable to issue checks directly and accept savings deposits like its counterparts in India. Furthermore, any money deposited with any NBFC may not be guaranteed like traditional Indian banks are.

What is MFI?

MFI stands for Micro Finance Institution and performs similar services as banks by lending small amounts of money, typically between Rupees 1,000 to Rupees 20000, to low-income communities who do not have banking access.

Recently, there have been reports of irregularities in MFI operations. For instance, they allegedly charged higher interest rates to poor borrowers and disbursed loans within 15 days after formation in violation of directives issued to these MFIs. It has also been revealed that many MFIs do not review their own functioning after receiving credit facilities.

Understanding the Difference between NBFCs and MFIs?

• Rechtliche Compliance: Different financial institutions such as NBFCs and MFIs are subject to different regulatory frameworks. Acknowledging these differences enables investors, policymakers, and individuals to ensure compliance with relevant regulating frameworks while mitigating legal and financial risks.
• Market Focus: MFIs and NBFCs serve distinct client bases; while NBFCs focus on serving individuals, businesses, and other organizations looking for financial services outside traditional banking, MFIs serve mostly low-income people or marginalized groups requiring microfinance or financial inclusion services – helping customers identify which institution best matches their financial needs and segments.
• Financial Services Offered Both NBFCs and MFIs provide different forms of services: While NBFCs typically specialize in asset financing, loans, investment management and insurance; MFIs generally focus on microcredit, savings, and other products designed specifically to meet the needs of low-income individuals or small businesses. Understanding their respective services helps businesses and individuals select an institution best suited to meet their requirements.
• Funding and Capital Structure: NBFCs differ significantly from MFIs when it comes to funding sources and capital structure. While NBFCs can raise money through commercial paper, debentures, or other means, MFIs typically rely on grants, concessional loans, and social investors funds as sources for income. Investors or any stakeholders looking to support or partner up with these institutions must understand these distinctions when looking at supporting or partnering up with these institutions.
• Profit Orientation and Social Impact: While MFIs aim for financial sustainability and social impact simultaneously, NBFCs tend to prioritize profit. MFIs seek to alleviate poverty while simultaneously empowering marginalized communities and expanding financial inclusion; understanding these institutions’ motivations and objectives will allow investors to better align their goals and values with them.
• Policy Formulation: Policymakers must have an in-depth knowledge of MFIs and NBFCs in order to create policies and regulations that promote financial stability, consumer protection, and inclusive economic growth. They can tailor policies according to each sector’s specific challenges and characteristics for effective policymaking.

Non-Bank Financial Companies (NBFCs)

Non-Banking Financial Companies, or NBFCs, are financial institutions that offer various financial products and services without performing traditional bank functions such as accepting deposits or issuing checks. While banks remain key components of the financial landscape, NBFCs play an increasingly vital role in meeting diverse financial needs for individuals, businesses, and organizations – these key characteristics and features of an NBFC are listed here.

• Scope of Operation: NBFCs engage in various financial activities, such as lending, investing, asset financing, and wealth management. They may also invest in infrastructure financing projects, provide housing loans or provide insurance policies – offering services beyond what traditional banks may provide.
• Regulated: Non-bank financial companies (NBFCs) operate under the supervision of their country’s financial regulatory body, such as India’s Reserve Bank of India or America’s Securities and Exchange Commission or Britain’s Financial Conduct Authority. Their regulatory framework ensures they adhere to specific rules regarding capital adequacy, governance practices, risk management strategies and customer protection, and customer disclosure requirements.
• Customer Base: NBFCs offer their services to individuals, corporates, small and midsized businesses (SMEs), nonbanking entities, and others in an array of niche markets or segments to distinguish themselves from their competitors and meet customers’ financial needs.
• Financial Inclusion: NBFCs play an essential role in financial inclusion by offering credit and services to unbanked or underserved groups. By reaching those without access to traditional banking, NBFCs help foster financial inclusion among their communities.
• Risk Analysis and Mitigation Non-Bank Financial Companies (NBFCs) employ various risk assessment methodologies to evaluate borrowers and determine their creditworthiness, such as income, collateral and credit history assessments. Risk management practices employed by these NBFCs help them balance profitability against credit risk exposure.
• Capital Structure and Funding: Nonbank Financial Companies can raise money through various sources, including borrowing from banks, issuing bonds, raising equity capital or securitization or raising money from investors. A key aspect of expanding operations, managing liquidity needs, and meeting regulatory requirements for nonbank Financial Companies is capital structure.
• Profit-Orientation: In contrast with banks, which prioritize interest and deposit incomes as primary revenue generators, non-bank financial companies (NBFCs) tend to focus on profit maximization by offering services such as fees and commissions that generate income while simultaneously upholding stability. Their main goal should be maximizing profitability while simultaneously upholding stability.
• Technological Advancements: NBFCs have taken great strides forward with technology and digital innovations in order to increase operational efficiencies, streamline business processes, and provide convenient financial services. Their digital platforms, mobile lending programs, online banking accounts, and other digital offerings help reach more customers while improving the customer experience.

NBFCs play an integral part in the financial ecosystem, offering a range of financial services as well as supporting entrepreneurship and fostering financial inclusion. Gaining insight into NBFC characteristics and operations can assist individuals, businesses, and policymakers navigate an ever-evolving financial environment and make informed decisions with confidence.

Microfinance Institutions (MFIs)

Microfinance Institutions (MFIs), are financial organizations specialized in offering microcredit to low-income individuals and populations that have been underserved. MFIs possess certain key features and characteristics.

• Target Clientele: MFIs specialize in serving individuals and households who lack access to formal banking services, including low-income entrepreneurs and small-scale farmers as well as women and those in rural or remote locations. MFIs tend to focus their assistance on those excluded from traditional banks due to factors like low income, lack of collateral or limited credit histories – groups such as low-income entrepreneurs and farmers are particularly targeted by MFIs.
• Microcredit: Microlending is at the core of MFI services. Microlending provides small loans to microenterprises and individuals without collateral; loans may be used for income-generating activities, small businesses, and consumption. MFIs use flexible lending methods like individual or group lending arrangements in order to reduce risks while helping borrowers with low creditworthiness.
• Savings and Insurance: MFIs also provide savings and insurance products as part of their microcredit services, giving clients a safe and straightforward means of saving. MFIs also provide life, health, crop, and other forms of risk mitigation products to help protect clients against unexpected events that could otherwise arise.
• Social Mission: MFIs operate under a social mission that seeks to reduce poverty, strengthen the economy and encourage social development. Their goal goes beyond financial sustainability in improving the lives and conditions of those underserved; MFIs seek to make an impactful statement to society by providing financial services such as women empowerment, supporting education development programs, or access to financing services for community projects.
• Non-Financial Service: Microfinance institutions often provide additional non-financial products in addition to financial services, such as financial literacy programs, entrepreneurship training, vocational training, and capacity-building initiatives. These are all designed to increase client financial skills and knowledge while supporting sustainable livelihoods.
• Regulatory Framework: MFIs must abide by a regulatory framework, though details vary by country. Microfinance may be subject to specific laws or regulatory bodies in certain nations; otherwise, MFIs can operate freely elsewhere.

Difference Between NBFC and MFI

There are a few key distinctions between Microfinance Institutions and Non-Banking Financial Companies. The differences can be seen in many aspects such as their scope of operation, target clients, financial services provided, regulatory requirements, and funding sources.

1. Definition and Scope of Operations:

1. NBFCs (nonbank financial companies): Non-bank financial companies provide services beyond what is typically available from traditional banking, including lending, investing, asset financing, and insurance products.
2. MFIs (Microfinance Institutions): Microfinance institutions specialize in providing financial services to low-income individuals and populations who have been underserved, typically those living in low-income regions of the world.

2. Target Clientele:

1. NBFCs serve a diverse clientele that includes individuals, small businesses, and non-banking organizations.
2. MFIs provide credit to low-income individuals and microenterprises with limited access to formal banking services, as well as serve marginalized communities with no bank account.

3. Services Provided for Financial Needs:

1. NBFCs are an array of financial service companies that provide loans, asset finance, investment management, and wealth management.
2. Financial institutions that specialize in microcredit are known as Microfinance Institutions (MFIs). They offer small loans to people with low incomes for activities that generate income; in addition to this service, they may also provide insurance or other financial products tailored specifically to their clientele’s needs.

4. Compliance Requirements and Oversight:

1. NBFCs fall under the supervision of a financial regulatory authority, which establishes specific guidelines and rules pertaining to their operation and adheres to prudential standards for them.
2. Microfinance Institutions must abide by a specific regulatory framework governing microfinance. MFIs may also have dedicated regulatory bodies or regulations tailored specifically for them that ensure consumer protection, fair practices, and transparency in operations.

5. Funding sources and capital structure:

1. NBFCs: Nonbank financial companies (NBFCs) can raise capital through various methods, including borrowing from banks, issuing bonds, or securitization. Their capital structure typically contains both equity and debt investments.
2. MFIs: Microfinance Institutions rely on a range of resources including grants, concessional loan repayments, social investor funds, and sometimes client deposits for funding purposes. Their funding structures tend to prioritize capital dedicated to social impact over other forms of finance.

6. Profit-Orientation and Social Impact Analysis:

1. NBFCs are profit-focused entities and seek to maximize returns for their shareholders and investors.
2. MFIs (microfinance institutions) are microfinance institutions that strive to achieve both financial sustainability and social impact. While their primary goal may be covering operating costs, MFIs also place a strong emphasis on social causes such as poverty reduction or financial inclusion as their higher priorities.

Investors, policymakers, and anyone seeking financial services must fully comprehend the distinctions between MFIs and NBFCs to choose an institution best suited to their needs, objectives and target clients.

Functions and Services Provided by NBFC and MFI

NBFC Functions and Services:

• Lending: NBFCs offer various loans, from personal to business loans as well as home, vehicle, and education loans. Their financial services reach beyond traditional bank offerings to individuals, businesses, and organizations alike.
• Investment and Asset Financing: NBFCs NBFCs specialize in investment activities like providing capital for investments, project funding, and supporting infrastructure developments. In addition, these financial services providers also provide asset finance services like leasing, hire purchase, and equipment financing.
• Wealth Management: NBFCs specialize in wealth management for both individuals and corporations, such as portfolio management, investment advice, mutual funds, and other investment products to help clients meet their financial goals while optimizing their investment portfolios.
• Insurance Products: Many NBFCs provide a range of insurance services, from life, vehicle, and property to health policies as well as intermediary solutions that offer coverage and risk management to both businesses and individuals.
• Housing Finance: Non-bank financial companies that specialize in housing finance offer home loans and related services to help individuals and families purchase or build residential properties. Their products offer attractive interest rates tailored specifically for this segment of financing.
• Microfinance & Small Business Finance: Certain non-bank financial companies specialize in microfinance and small business finance, providing loans to microenterprises and small businesses as well as self-employed people to foster economic development, foster entrepreneurship and meet the credit needs of underserved groups.
• Non-Financial Services: Non-bank financial companies (NBFCs) also provide non-financial services like credit counseling, loan syndication and rating to help clients make more informed financial decisions.

Functions and Services Provided by MFIs

1. Microcredit: Microcredit loans from MFIs to individuals with low income and microenterprises primarily assist those starting or expanding income-generating businesses, increasing livelihoods, reducing poverty, and enhancing the quality of life.
2. Savings Products: MFIs offer various savings products to encourage their clients to save. Their safe and accessible savings solutions help their clients build financial resilience while saving for future needs.
3. Microinsurance: MFIs often provide microinsurance coverage to their clients against natural disasters, crop failures, and health emergencies. Microinsurance policies are tailored to fit the needs of low-income people while being affordable.
4. Financial Education and Building Capacity: Microfinance institutions (MFIs) provide financial education programs, entrepreneurship initiatives, and initiatives for capacity building to help clients increase their knowledge, skills, business acumen, and financial understanding. These initiatives empower clients to better manage their finances.
5. Social Development Services: Some MFIs offer social development services in addition to financial ones. These may include healthcare programs, education assistance, vocational training, and community development as a means of improving clients’ social and living conditions.
6. Group Lending and Peer Support: MFIs frequently employ group lending models, in which borrowers form small groups to lend together and benefit from mutual support, and peer monitoring, and encourage responsible repayment behaviors among borrowers.
7. Business Development Services: MFIs’ business development services, including technical assistance, market links, and advice to boost their productivity, gain access to markets and expand income-generating activities. These services aim at improving productivity while opening doors to additional income-generating activities.

MFIs (microfinance institutions) are nonbank financial firms (NBFCs) that offer nontraditional financial services outside traditional banking, specializing in microfinance. MFIs strive to meet the needs of individuals with lower incomes and microenterprises by providing microfinance. Their primary goal is financial inclusion and poverty reduction.

Business Models and Operations of NBFCs

Nonbank financial companies (NBFCs) operate under various business models that depend on their country of origin and regulatory environment, as well as their focus and operations. Each NBFC may utilize different business models.

Lending and Financing Retail Lending:

• Retail Lending: Some non-bank financial companies (NBFCs) specialize in retail lending for individuals. They provide loans for education, housing, cars and consumer durables among other uses.
• SME and Business Financing: NBFCs specialize in offering loans to small and mid-sized enterprises (SMEs). This can take the form of working capital loans, term loans or trade finance facilities.
• Microfinance: NBFCs that adopt the microfinance model offer small loans to individuals with lower incomes or microenterprises to bolster their income-generating activities and boost income generation.
• Asset Financing: NBFCs specialize in asset financing services such as equipment leasing, commercial vehicle finance and other asset-backed lending options.

Investment and Wealth Management

• Investment Management: Some NBFCs offer investment advisory services and act as investment managers for both individuals and institutional customers, overseeing their portfolios.
• Mutual Funds and Asset Management: NBFCs specialize in setting up and overseeing mutual funds, offering investments for retail as well as institutional investors.
• Private Wealth Management: Certain non-bank financial companies (NBFCs) specialize in wealth management for high-net-worth individuals, offering portfolio management, estate planning services, and tax advice tailored specifically to them.

Home Loans:

• Housing Loans: Nonbank Financial Companies that specialize in housing finance provide loans for purchasing a home, construction, renovation, and extension as well as specific loan products for affordable housing solutions.
• Mortgage Finance: Some NBFCs specialize in offering mortgage-secured loans as a specialty service.

Infrastructure and Project Financing:

• Infrastructure Financing: NBFCs specialize in financing infrastructure projects related to energy, transportation, telecoms, and urban development.
• Project Financing: NBFCs can finance large-scale infrastructure, real estate, and industrial ventures.

Insurance:

• Insurance Brokering: Certain non-bank financial companies (NBFCs) serve as insurance brokers. They facilitate policy purchases for both individuals and businesses while also offering guidance regarding policy selection, claim management, and claim settlements.
• Insurance Distribution: Working closely with insurance providers, NBFCs can distribute insurance policies directly to their clients.

Other Services:

• Bill Discounting and Factoring: Non-Bank Financial Companies (NBFCs) provide working capital financing by purchasing invoices or accounts receivable from businesses as working capital financing solutions.
• Leasing: Some NBFCs specialize in leasing machinery, equipment, vehicles, and other assets to both businesses and individuals alike.
• Credit Rating: Non-bank financial companies (NBFCs) often offer credit ratings, which assess the creditworthiness of individuals, businesses, and financial instruments.

NBFCs’ business models and operations vary based on their strategic focus, regulatory approvals, expertise, and customer base. NBFCs serve as a valuable supplement to traditional banking by meeting the financial needs of businesses, individuals, and other organizations.

Business Models and Operations of MFIs

Microfinance institutions (MFIs), which offer financial services to low-income individuals and populations underserved, employ various business models. MFI business practices may depend on regulatory considerations as well as client needs.

Here are the most prevalent MFI operating models:

Group-Based Lending:

• MFIs that follow this model typically pool borrowers together into small groups made up of women from the same locale, who collectively take on repayment responsibility as one unit. Each group also provides mutual support and peer supervision while upholding repayment discipline.
• MFIs that utilize this model create borrower groups consisting of individuals involved in similar activities or who belong to a single group, who share responsibility for loan repayments – helping foster peer accountability while decreasing default risk.

Individual Lending:

• Some MFIs offer individual loans tailored specifically to meet customers’ individual needs; this may require extra collateral or credit history checks as necessary.

Savings and deposits:

• MFIs offer savings accounts that are accessible and secure, encouraging clients to save. Clients can deposit and withdraw funds as needed – building savings over time while earning interest on those savings!
• MFIs may also provide their clients with recurring deposit schemes to save a small amount over time.

Microinsurance:

• Microinsurance Services: Many MFIs provide microinsurance products to their clients to protect them against risks such as accidents, crop failures, natural disasters and health emergencies. Microinsurance helps clients lessen financial strain due to unexpected events by helping reduce financial vulnerability associated with sudden incidents.
• Financial Education and Capacity-Building: MFIs offer clients financial education programs designed to expand their financial skills and knowledge, including topics like budgeting, saving, credit management, and basic business skills. MFIs empower clients by helping them make smarter financial decisions.

Social Development Initiatives:

• Non-Financial Services: MFIs offer their clients entrepreneurship programs, business advice services, and vocational training to start and run small businesses successfully. These initiatives aim to maximize clients’ ability to generate income while improving both their lives and the lives of others.
• Non-Financial Services: Many MFIs also provide non-financial development services alongside their financial offerings, including women empowerment initiatives, sanitation projects for women, healthcare programs, and healthcare initiatives. Their aim is to produce positive social impacts while meeting holistic development requirements.
• Digital Solutions: To offer efficient and cost-effective services, some MFIs utilize digital solutions such as mobile banking, digital payment systems, and biometric identification to enhance accessibility, streamline operations, and lower transaction costs.
• MFIs’ business models and operations are determined by their social mission and target clients as well as by local regulations and environmental factors. MFIs offer tailored financial services tailored specifically to underserved populations to promote financial inclusion and combat poverty.

Examples of MFIs and NBFCs, and Their Impact

Examples of NBFCs:

• Bajaj Finance Limited: As one of India’s premier non-bank financial companies (NBFC), Bajaj Finance Limited offers an array of financial services including rural lending, consumer lending, SME loans, and wealth management. Their contribution has made an immense impact on India’s financial landscape by creating greater access to credit particularly among rural and semi-urban businesses and individuals.
• Mahindra & Mahindra Financial Services Limited: Mahindra & Mahindra Financial Services Limited is an Indian non-bank finance company (NBFC) specializing in rural and agriculture finance, offering vehicle financing, equipment finance, and agribusiness loans for improving rural infrastructure and agricultural productivity.
• Capital One Financial Corporation (Capital One): Capital One Financial Corporation is an award-winning non-bank financial corporation (NBFC) in America. Their extensive product offering includes credit cards, auto loans, banking accounts, and savings accounts – creating credit options for consumers while helping build credit histories and promote financial stability. Capital One has made an immense impactful statement about their commitment to consumer credit options as a key part of building their legacy and encouraging financial security for themselves and society as a whole.

Examples of MFIs:

• Grameen Bank: Grameen Bank was established by Nobel laureate Muhammad Yunus in Bangladesh and has become one of the world’s best-known MFIs. Grameen Bank pioneered microcredit by offering small loans for impoverished people looking to break out of poverty by starting businesses; particularly women. Their work empowered millions and promoted economic and social development in rural areas across Bangladesh.
• BancoSol: BancoSol, Bolivia’s premier MFI, specializes in microfinance for individuals and small business owners with low incomes and small capital needs. Offering microcredits, savings accounts, and insurance products among other services. BancoSol plays an essential role in supporting economic empowerment, financial inclusion, and poverty reduction across Bolivia.
• BRAC: BRAC is an organization with multiple facets, including microfinance. BRAC provides microfinance services as part of livelihood support, education, and health programs in multiple Asian and African countries – touching millions with financial services that allow them to escape poverty.

Impact of NBFCs & MFIs

• Financial Inclusion: Non-bank Financial Institutions have played an instrumental role in furthering the financial inclusion of underserved or unbanked groups by offering financial services such as loans, insurance policies, and savings accounts to businesses and individuals who had no other means of accessing formal banking systems previously. This may include providing credit services, savings accounts, or even insurance options that they weren’t otherwise able to gain access to previously.
• Poverty Alleviation: MFIs have played an essential role in combatting poverty by offering microcredits and other financial services to low-income people. MFIs allowed these individuals to increase their livelihoods by expanding or starting businesses that generate income-generating ventures.
• Economic Growth and Job Creation: NBFCs, MFIs, and other financial institutions have contributed significantly to economic development by providing small businesses with much-needed funding. By creating credit facilities they have also stimulated economic activity and provided job opportunities.
• Empowerment of Women & Marginalized Communities: Both MFIs and NBFCs have played an instrumental role in empowering marginalized women by offering tailored financial services that address their unique needs. MFIs and NBFCs have provided them access to savings accounts, credit facilities, loans, insurance products, and other forms of assistance that have enabled them to build businesses, gain financial independence and take control over their lives.

NBFC Industry Trends and Challenges

Whilst the non-bank financial companies and microfinance institutions (MFIs) sector faces numerous obstacles, Microfinance Institutions (MFIs) face even greater obstacles.

• Compliance: NBFCs, MFIs, and other financial institutions operate within an elaborate regulatory framework that governs their activities. With complex reporting systems, ever-evolving regulations, and maintaining adequate capital ratios requiring compliance with regulations often become challenging to maintain.
• Access to Funding: NBFCs, MFIs, and other financial institutions often rely on banks, capital markets, and financial institutions for funding their operations and loaning out money to clients. Fluctuations in funding costs or availability can present a serious obstacle during times of economic instability.
• Credit Risk Management: Financial institutions such as NBFCs, MFIs, and other NBFCs may face credit risks when lending to businesses and individuals with little to no history of creditworthiness or loan delinquency. Credit risk management is essential in evaluating borrower creditworthiness and managing loan delinquencies.
• Market Competition: With more and more players entering the NBFC/MFI sector and traditional banks diversifying into nonbanking activities, market competition has intensified significantly, impacting customer acquisition, loan pricing, and profitability of NBFCs.
• Adopting New Technologies: With rapid advancements in financial technology, NBFCs, MFIs, and other institutions must adopt digital solutions to enhance operational efficiency, customer satisfaction, and risk management. Technological innovations often require substantial investments and expertise; this may present difficulties to smaller or less tech-advanced institutions.

Future Trends for NBFC and MFI Sector

Digital Transformation: MFIs and NBFCs will continue their digital transformation journey by using technology to enhance customer service, streamline operations, increase their reach, and enhance risk management as well as customer service. They’ll use digital platforms, mobile banking, and data analytics as part of this transformation and improve credit assessment and risk management as well as improve their reach and customer service offerings.

• Financial Inclusion Through Partnerships: NBFCs, MFIs, and traditional banks may increase collaborations with fintech companies and other stakeholders to advance financial inclusion efforts. Partnerships offer an ideal way to leverage technology innovations, shared resources, and expertise that allow them to better reach underserved communities and offer comprehensive financial services.
• Focus on Responsible Finance: Financial institutions such as NBFCs, MFIs, and other lending firms will focus more on responsible lending practices such as enhanced transparency, fair rates of interest, and responsible collection methods. Furthermore, programs for financial education and borrower protection will be prioritized to ensure positive and long-lasting impacts both for borrowers and the wider community.
• NBFCs/MFIs can expand their market segments by diversifying product offerings: for instance, affordable housing finance, MSME lending, and green finance are among the many potential growth markets NBFCs/MFIs can enter to stay ahead of climate change and sustainability trends. By diversifying product offerings in accordance with customer demands and the changing economic trends, such as climate change and sustainability they can meet changing customer demands while staying aligned with new socio-economic trends such as climate change.
• Regulatory Developments: The regulatory environment surrounding NBFCs, MFIs, and other financial institutions will likely continue to develop as regulators emphasize consumer protection and risk management. To maintain stability and sustainability for these institutions, regulators could implement changes such as new capital adequacy standards, risk management guidelines, or tightened compliance standards that may impact them.

NBFCs and MFIs will continue to play an essential role in providing financial access for underserved populations while supporting economic development and meeting their financial needs. In order to maintain sustainable growth with positive social impacts for this industry sector, it is necessary to address challenges, embrace technological advancements, and adapt to regulatory changes as quickly as possible.

Conclusion

NBFC (Non-Banking Financial Corporations) as well as MFI (Microfinance institutions) are financial institutions however they serve different functions. Non-bank financial institutions provide various financial services such as loans or investments as well as insurance that target a broad spectrum of customers, including businesses and individuals. However, MFIs are specialized institutions that offer financial services, specifically small savings, and loans for people with low incomes, especially those living in rural or poorer areas. Both play a vital role in the financial system MFIs concentrate on financial inclusion and helping disadvantaged communities, which differentiates them from the larger nature of NBFCs.