• Feb 12,2024

How Do Non-Banking Financial Companies Raise Funds For Their Operations?

Strategies for Raising Funds: Non-Banking Financial Companies (NBFCs)

1. Borrowings from Banks and Financial Institutions: NBFCs secure funds through borrowings from banks and financial institutions, utilizing credit lines, term loans, and various arrangements to meet funding needs.

2. Debentures and Bonds: NBFCs raise long-term funds by issuing debentures and bonds to the public or institutional investors, utilizing fixed-income securities.

3. Commercial Paper (CP): NBFCs utilize short-term money market instruments, commercial paper, to raise funds from investors and financial institutions.

4. Non-Convertible Debentures (NCDs): NBFCs issue non-convertible debentures (NCDs), debt instruments that don't convert to equity, to raise funds from the capital market.

5. Equity Capital: NBFCs secure funds by issuing equity shares through private placements, rights issues, or IPOs, adapting to their growth stage and regulatory demands.

6. Retained Earnings: NBFCs retain profits to internally fund operations and growth, using retained earnings as a capital source.

7. Foreign Borrowings: Certain NBFCs may consider foreign borrowings through external commercial borrowings (ECBs), subject to regulatory guidelines and approvals.

8. Securitization: NBFCs monetize loan assets by securitizing and selling portfolios as tradable securities, generating liquidity through investor transactions.

9. Venture Capital and Private Equity: NBFCs in high-potential sectors attract investment from venture capital or private equity firms, fueling expansion and operational needs.

10. Mutual Funds and Institutional Investors: NBFCs secure investments from mutual funds and institutional investors, participating in equity issuances or debt offerings.

11. Asset-Backed Financing: NBFCs secure funds through asset-backed financing, leveraging collateral like receivables or inventory to obtain loans.

12. Public Deposits: RBI-registered NBFCs may accept public deposits within limits, providing a funding source, is particularly beneficial for smaller NBFCs.

13. Insurance Premium Financing: NBFCs in insurance premium financing raise funds by providing loans to policyholders for their premium payments.

14. Reverse Mortgage Loans: Housing finance NBFCs utilize reverse mortgage loans to offer funds to senior citizens, leveraging the equity in their homes.

15. Intermediary Borrowings: NBFCs borrow funds from various financial intermediaries or entities based on regulatory permissions and specific arrangements.

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