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Check List for an NBFC Business Model

Varun Hariharan

| Updated: Mar 28, 2020 | Category: NBFC

NBFC Business Model

A business plan is a document that describes the nature of the business, the objective/ goals of the business and marketing strategies which will be followed by the business. Every organisation requires a business plan, whether it is to secure profits or attract investments or even to secure a loan for working capital/ fixed capital, a business plan is required. Without a business plan, the organisation would be aimless without any goals and objectives to achieve. A well-structured business plan will ensure that your organisation focuses on critical priorities. Let’s read about NBFC Business Model in depth.

Is an NBFC Business Model required?

There are many NBFCs in India. These NBFCs contribute to the development of the economy by concentrating their resources in sectors such as Agriculture, Micro and Small Scale Enterprises, Income Generation, Transportation, Housing and to the economically weaker sections of the society. Due to the highly competitive environment of NBFCs in India, it is crucial to devise a proper Business Model for NBFCs.

Importance of Drafting an NBFC Business Model

Drafting an effective Business Model for NBFC is crucial for the business purpose and serves the following objectives:

  • It presents information to stakeholders such as prospective investors, financial institutions, funding institutions for generating loan.
  • Motivates the company to achieve its goal.
  • Keeps the employees of the organisation updated with plans and objectives, and the roadmap to make these. 
  • A good business plan would also have a framework to operate during challenging situations.
  • Because of the above requirements, it is crucial to have a well-drafted NBFC business model.

Steps for creating an NBFC Business Model

Drafting a business model for NBFC plays an important role in the success of an NBFC. Below are the requirements for starting an NBFC Business Model:

  1. Services Offered- First thing to consider in your NBFC Business Model is to find what services your NBFC will be offering to customers. It is essential to know what is required in the market and offer services based on the requirements. Whether the service is providing loans or advances, investment business, chit funds your NBFC business model should clearly state the products offered.
  2. Executive Summary- The executive summary states what are the main aims of the business, and it should help the reader get a clear picture of the business facts. The Executive summary should ensure that the reader gets a clear picture of the business. It must be clear, concise and precise.
  3. Draft the Basic Plan- Consider researching different forms of NBFC business models available in the market. There are various business structure templates available. It is vital to choose a proper template for your NBFC business model.
  4. Goals/ Mission and Vision Statement- Having a mission and vision statement for your business model of NBFC would summarise the goals of your NBFC to stakeholders.
  5. Description of the Company- After preparing the mission/vision statement of your NBFC, it is essential to indicate sectors your NBFC would mainly concentrate. Additionally, it would also be necessary to indicate the geographical areas where your NBFC would be serving. This would enable potential clients/ investors to make an informed decision to use the services of your NBFC.
  6. Business Structure- Every business plan should mention the structure of the business. It is mandatory to provide a brief overview of the business structure. This would include the type of business and legal formalities. However, while forming an NBFC Business Model, the most commonly used structure is a Company as defined under the Companies Act 2013.
  7. Budget- During the phase of start-up, every financial institution should have an estimate of the budgetary requirement for running the day to day activities. These budgetary requirements would also be required for long term financial planning. An NBFC main business is related to financing requirements, such as providing loans and advances. Apart from this, a specific portion of the investment has to be kept aside for registration and other formalities with the Reserve Bank of India. Therefore, an NBFC business plan needs to provide information regarding financing for budgetary requirements.
  8. Promoters Background- In an NBFC business plan, it is crucial to mention the background of promoters. This section will cover all the experience and qualifications of the promoters, shareholders and directors of the NBFC. While investing in the NBFC, investors would want to know the background of the promoters. It provides easy access for recognition in the market.
  9. Sales and Marketing- This section has to have the sales and marketing strategy which is used by your NBFC. The marketing models used by your NBFC to reach out to potential investors and customers should be mentioned in this section. The ways of marketing the products offered by your NBFC also has to be mentioned in this section.
  10. Organisational Structure- This is one of the essential aspects of a business model. An organisational structure would provide the roles of the shareholders and directors. This will also ensure that the top management of the organisation have defined roles in the organisation. Having a proper organisational structure would also help keep in place an appropriate mechanism of governance which is followed by the organisation. Therefore, the business model for NBFC must adopt an organisational structure to define the roles and responsibilities of the management of the NBFC.
  11. Financial Structure- Along with the Budget, there is a requirement of having a proper financial structure. This will help to understand the spending requirements of your NBFC.
  12. Digitisation/Fintech Collaboration- If your NBFC is proposing to offer digitised financial products in the future, then it is essential to mention this in your NBFC Business plan. This would possibly attract more investors to your NBFC. 

The validity of an NBFC Business Model

A well-drafted NBFC business plan would have the above points. However, a business plan is drafted having the current market factors and would be valid for a specified period. A business plan cannot be valid indefinitely. Some factors which affect the business plan are technology changes, digitisation, market forces and changes in the preference of consumers.  Therefore, an NBFC business plan drafted must be put to immediate use.

Advantages of having an NBFC Business Model

Having an NBFC business model will provide you with a road map to a successful NBFC. It also provides you with risk mitigation. If specific requirements have not complied with, you can always refer to your NBFC business plan and make the necessary improvements. Therefore, this model acts as a blueprint to a successful NBFC.  Apart from the above, there are also other advantages which are mentioned below:

  • Strategies of the business- Once the NBFC business plan is drafted, you can get a clear picture of the strategy as per the business plan. This would also serve as a resource for measuring the goals of the NBFC business with the model.
  • Prioritises Work:The NBFC business plan will assist you in prioritising work according to the importance. This will help your NBFC to be productive and achieve its targets within the time limit.
  • Setting Business- On drafting the NBFC business plan, it will provide a straightforward method of starting the NBFC business. You would not forget essential procedures which need to be followed by your NBFC by having an NBFC business plan. This model will also allow you to secure investment from investors. Apart from this, the business plan also acts as a marketing tool in helping you set up an NBFC business.
  • Financial management– Financial institutions such as banks deal with money and deposits daily. Similarly, an NBFC deals with providing loans and advances, acquisition of stock and dealing with the business of chit funds. Therefore financial management is crucial for the business of the NBFC. By using the NBFC business plan, there would not be any difficulties in managing the flow of cash and other receivables in your business.

Conclusion

Starting any business without a business plan is an aimless prospect. It is crucial to have a business plan to ensure the objectives and goals of the business have been achieved. Similarly having an NBFC business model would provide efficiency in business development and meeting all the priorities of the business. Apart from just organisational priorities, the NBFC Business model offers a comparison tool for the actual standards which are required to be achieved by your NBFC business with the standards which are present in the business model.  Therefore, every NBFC must have a business model to succeed in the current market.

See Our Recommendation : New Trend in NBFC Business Model, Challenges and a Scalable Business model.

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Varun Hariharan

Varun Hariharan has completed the Legal Practice Course from BPP Law School, Manchester. He has a Masters in Commercial and Corporate Law from the Queen Mary University of London and LLB Honours from Bangor University, UK. He specialises in law related to corporate, artificial intelligence and technology law.

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