NBFC P2P – A Better Choice for Raising Funds for MSME

Narendra Kumar

05 Jan, 2021

In the present scenario the loans extended by the NBFCs to MSMEs grew rapidly and the experience of the Banks and NBFCs in terms of quality asset explains the difference in the credit growth. As to implement the innovation and the entire process from loan origination to loan disbursement NBFC P2P platforms are providing a better validation for business model and best practices.

NBFC P2P sector is working under the regulations of NBFC and being recognized by the new technologies they are using to maintain the stability and credibility for raising funds for an MSME sector. Now existing NBFC P2P players would have to reevaluate their entire process to ensure that the compliance are being performed as per the guidelines.

What is NBFC?

NBFC stands for Non-Banking Financial Institution, which is registered under the companies Act 2013, with the principal business of dealing in financial activities. When a company’s financial assets constitute

• More than 50 % of the total asset and income
• Income from financial statement constitutes more than 50% of gross income.

What is MSME?

MSME stands for Micro, Small & Medium Enterprises. These enterprises are the backbone of the economy. For government license and certification, the businesses registered under MSME are given higher preferences and various tax rebates has been offered to MSME and they have an easy access to credit. MSME also avails benefit in bank loans as compared to the interest paid on regular loans.

Role of NBFC P2P in India’s Economic Development

NBFC P2P sets a creation of alternative supply of credit in the economic development of the company that helps the youth entrepreneur to join the economy and to have an access of cheaper and faster credit. The new entrant’s entrepreneur with the ability to repay the loan, are provided with the facility of dedicated loan products from various online platforms. For example- Faircent.com.

In the current situation where there is a stiff competition among the man and woman, Encouraging and empowering woman entrepreneurs is of utmost importance as this not only increases the economic development and prosperity, but also a good indicator in the development of the entire household also.

Through P2P platform individual lenders are supported by young minds and innovative ideas. With the use of NBFC P2P and the use of technological based algorithms, the gap is being met by NBFC P2P which also helps in listing the borrower and keeping a track record at each point of time.

NBFC P2P helps in connecting and lenders with the borrowers by using its digital platform. For faster decision making and implementation NBFC P2P has cut through end number of processes which ensures interest of both lender and borrower. 24 hours banking facility for transferring of funds is available to the borrowers.

Why NBFC P2P Sector A Better Choice For Raising Funds For An MSME These Days?

Unlike earlier, NBFC P2P platforms have created an opportunity for income seeking investor to diversify their portfolio which was earlier only available to investors like Banks. Potential and e investor dealing in MSME sector are considering P2P platforms for various reasons –

• Returns are highly competitive when considered against average returns delivered by other market linked investment like MFs and Stock Market.
• In the P2P platforms ,both lender and borrower can choose a set period of time which may vary from 6 months to 36 months.
• P2P platforms provide diversification that can be easily attained by borrowers profile. A investor can easily invest in diversified sectors and instruments like stocks, SIPs.
• NBFC P2P has removed the complex and cumbersome process of loan and has provided the ease of processing the loans. It also safeguards the interest of both borrower and lender and the loan get financed within minutes in case of credit worthy borrowers.
• Compounding of return along with regular and stable income in the form of principal repayment and interest
• Availing more options to small businesses where money is generally required to meet the  temporary shortfall or to meet out the revenue expenses i.e. cash expenses, salary payment. MSME has been given advantage to meet the liquidity crunch. P2P provides a great platform to raise money.
• NBFCs P2P bridges the gap of risk factor involved in funding the small business, as the small business are depended on cash transaction. NBFCs with the use of technology based credit scheme fetches new data and is able to find the borrowers which for any reason are denied by the banks.

Conclusion

NBFC P2P platform become very popular in MSME and small businesses and is the key player in the small business financing. It lends and make investments to small businesses and MSME sector by providing a better choice to avail funds. Keeping in mind the consequences of taking risk in small businesses which often results in risky to lend.

NBFC majorly focuses on young entrepreneur with high potential and innovative ideas. It also empowers women entrepreneurs in business which as result helps in improving the economic development of the country. For Example, Faircent is providing the best platform to the young entrepreneur as well as women entrepreneur that inspires investors to exclusively invest in women borrowers. NBFC P2P Sector is the better choice to raise funds for an MSME to meet out the revenue expenses and working capital requirement.

Suggested Readings:

• Effect of Ban on Unregulated Deposit Scheme on P2P Lending
• Peer To Peer Lending (P2P) and Crowd Funding in India