NBFC BUSINESS MODEL
- The New NBFC regulatory rules has a goal to build a well-informed cadre population, that has abilities and is able to attain credit and a rating which better elucidates the repayment capabilities.
- The Economy calls for the NBFC’s to grasp the importance of alternate data and make better use of Technology so that it can entrench advance credit scoring model incorporating the social graph, personal network, employment history and educational background of the borrower into their credit scoring rules.
- The true potential of shadow Banking sector became apparent during the great crisis of 2008. Even though there are certain regulatory supervision, NBFCs are still seen as shadow banks. A great deal of attention regarding the financial stability and strengthening regulation and supervision of the shadow banking sector was brought forward during the G-20 summit in 2010. The refinement of NBFC regulatory framework to rein shadow banking activities that make the financial stability vulnerable is under progress by RBI ,along with various other regulators.
Checkpoint for an NBFC Business Model
- A business plan is a document that defines the nature of the company, its objectives/goals, and the marketing techniques that will be implemented.
- A business plan is necessary for every corporation, whether it is to ensure earnings, attract investments, or even acquire a loan for working capital/fixed capital.
- The organisation would be aimless without a business strategy since there would be no goals or objectives to attain. A well-structured business plan will guarantee that your company concentrates on its most important goals.
- Let's take a closer look at the NBFC Business Model.
Does an NBFC even need a Business Model?
- All the NBFCs in India are continually working together by pooling their resources in various sectors including Agriculture , Micro and small scale Enterprise, income creation , transportation and to the Economically weaker sections of the society.
- A business plan is mainly needed when there is high competition in the Market. As far as NBFCs are considered, the competition is extremely tough and accordingly creation of business model for NBFCs is imperial.
Why is it Important to outline the business Model of an NBFC?
Following are some rationale regarding why BUSINESSS MODEL FOR NBFC is imperial apart from giving the business a goal and an objective.
- It works as a useful tool to various stakeholders including prospective investors, financial institutions, funding institutions before granting loan.
- It also lets an NBFC set a benchmark.
- It results in long term profitability.
- Helps the employees stay up to date with the goals of the companies.
- An efficient business plan would always come handy in arduous situations.
- Its apparent from the above requirements that it is very important to have a well-outlined business model.
Steps for creating an NBFC Business Model
Creating a business model for NBFC is a priority 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 the consumers. It is essential to know what the requirements of the market are and offer services based on the requirements. There are some services and they are: loans or advances, investment business.
2. Executive Summary- The executive summary describes what are the main aims of the business are, and it should also help the reader understand the picture of the business facts. The Executive summary should make sure that the reader gets a clear understanding of the business. It must be concise, precise and must get straight to the point.
3. Draft the Basic Plan- Consider researching different forms of NBFC business models available in the market. There are various business structure templates obtainable. Choosing a proper template for your NBFC business is a vital component.
4. Goals/ Mission and Vision Statement- Having a vision and mission statement for your business model of NBFC to summarise the goals of your NBFC to stakeholders and shareholders.
5. Description of the Company- After preparing the mission/vision statement of your NBFC,indicating which sectors your NBFC would be heavily concentrated on. As well as, it’s necessary to highlight what geographical locations would be serving. This allows potential buyers, clients and investors in having all of the necessary information in order to make an informed conclusion of the services of your NBF
6. Business structure : The structure of business should also be included in the business plan for eg the business types , the legal formalities it has to go through. Usually , the widely adopted structure is companies under Companies Act 2013.
7. Budget: the working capital of the NBFC shall be shall be Estimated in the starting phase of NBFC company. Not only working capital , long term financial planning too needs to be done. Moreover, the certain sum of amount shall be put aside with the RBI for registration and other legal formalities. A separate clause must be present regarding the financing and budget of NBFC.
8. Background of Promoters: the NBFC business plan shall also include background of the promoters including the qualification , interest in other entities. It brings a realibility for NBFC as it becomes more transparent and trustworthy.
9. Revenue from operation and marketing: this clause must include the tools of marketing that would be use by NBFC to gain investors and customers.Also, how the NBFC is planning to market the product it offers shall also be included in this section.
10. Structure of Organisation: organization structure would help understand how the information passes through in the organization. The red-tapsim involved. The organizational structure should clearly define the roles and responsibilities of the top management, middle level management and lower level management.
11. Financial structure: a well defined financial structure shall also be included in the business plan that would clarify the expenses of the NBFC.
12. Merging with financial technology Co.: if in the future , the NBFC is planning to digital, the NBFC must mention this in business plan. This would attract a number of new investors.
Checking of The validity of NBFC business Model
A properly drafted NBFC business model plan points ought to be included in an NBFC business model. Although , the present day market factors have to kept in mind and it shall be rational for a particular period. It is essential to review the business plan every now and then. There would always be some external elements influencing the business plan that includes dynamically changing technology , digitalization, customer preference variance. So, an NBFC business Model/plan drafted must be put to immediate use.
Benefits derived from an NBFC business Model
Drafting a good business model will not only bestow the NBFC with a road map but will also prove to be helpful in curbing the risk. If the actions of the NBFC deviates from the requirements, the business plan will help in making improvements.
- Strategies of the business: NBFC is a solid business model give the NBFC a goal. It will assist the bridge the gap between what had to be done and what is actually done.
- Prioritises Work: To be Productive is to make sure that the most important task are being done first. A business plan comprises of all the tasks that are most important, so that the NBFC does not stay behind in those key areas. An NBFC business plan also includes the procedure that the NBFC has to go through.
- Setting Business- A business plan is a document that defines the nature of the company, its objectives/goals, and the marketing techniques that will be implemented. A business plan is necessary for every corporation, whether it is to ensure earnings, attract investments, or even acquire a loan for working capital/fixed capital. The organisation would be aimless without a business strategy since there would be no goals or objectives to attain. A well-structured business plan will guarantee that your company concentrates on its most important goals. Let's take a closer look at the NBFC Business Model.
- Financial management– An NBFC is not much different from a financial institution like a bank. An NBFC too give loan and advances ,acquire stocks , and deal with business of chit funds. By crafting a business plan an NBFC secure a safe position in terms of financial management. The business plan can be shown to investors to ask for investment. Also, its not a very unconventional idea that a business plan can also help in marketing for an NBFC.