Non Banking Finance Institutions is a constituent of the institutional structure of the organized financial system in India
The term ―Finance‖ is often understood as being equivalent to ―money‖. However, finance exactly is not money; it is the source of providing funds for a particular activity. Providing or securing finance by itself is a distinct activity or function, which results in Financial Management, Financial Services and Financial Institutions. Finance therefore represents the resources by way funds are needed for a particular activity. We thus speak of ‘finance’ only in relation to a proposed activity. Finance goes with commerce, business, banking etc. Finance is also referred to as “Funds” or “Capital”, when referring to the financial needs of a corporate body.
The Financial System of any country consists of financial markets, financial intermediation and financial instruments or financial products. All these items facilitate transfer of funds and are not always mutually exclusive. Interrelationships between these are a part of the system e.g. Financial Institutions operate in financial markets and are, therefore, a part of such markets.
The word system, in the term financial system, implies a set of complex and closely connected or inter-linked Institutions, agents, practices, markets, transactions, claims, and liabilities in the economy.
The Financial Intermediaries in the Financial System can broadly be said to comprise of:
And NBFCs can be further classified into different types depending on their nature of business. Further, total Finance sector in India may be classified into Formal and Informal Finance. The informal sector of finance may be said to refer to all economic activities that fall outside the formal sector that is regulated by economic and legal institutions e.g money lenders, some channels of micro finance and the other not necessarily regulated sectors. Landlords, local shopkeepers, traders, suppliers and professional money lenders, and relatives are the informal sources of microfinance for the poor, both in rural and urban areas.
The Formal sector can be said to comprise of the Formal and necessarily regulated channels of financing like, finance provided by Banks, Financial Institutions, Non-Banking Financial Institutions, and Micro finance institutions.
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15. Working Group on the Issues and Concerns in the NBFC Sector
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