Fintech Based NBFC Collaboration: Types & Checklist
Understanding the meaning of Fintech
Fintech refers to the incorporation of technology into financial services. Many financial startups and financial companies make use of the latest technology as it serves various purposes such as reduction in operational and other costs. It also helps in the elimination and reduction of further complexities. Before entering the companies enter into an agreement, it is crucial to understand the purpose behind the collaboration. The major aim of NBFC Collaboration is to capitalize new technologies and partnerships with Fintech companies and financial institutions allows NBFCs to lower their costs and increases their customer base by lowering customer acquisition costs, servicing existing customers.
Elements of Financial Technology (Fintech) Companies
Some elements that are imperative to an organization and that contribute majorly in the Fintech companies will be discussed in this section.
What is the meaning of NBFC Collaboration?
The process in which NBFCs team up with Fintech based companies or startups and have a common objective is called NBFC Collaboration. Both the companies work together and achieve their common goals in this project which is established for a temporary time period.
What are the requirements for NBFC collaboration?
Certain compliance requirements are to be followed by NBFCs before entering into collaboration with the Fintech companies. In this section, we will discuss some important criteria that the NBFCs must follow and adhere to:
- Identity proof of the borrower is mandatory and must be submitted. Proofs such as Aadhar card, ID and PAN card will be accepted.
- A photograph of the borrower
- E-stamp duty on the loan agreements
- Certain CKYC norms must be followed by the companies
- All the other acts such as RBI act, GST and Companies act must be followed
- NPA provisions must also be followed
Technology requirements for Fintech companies
Fintech companies too need to follow certain requirements before entering into an agreement. NBFC Collaboration consist of various conditions that are to be followed by every NBFC and Fintech company:
- Every Fintech company must have a mobile application
- They must have a loan management system, collection system and loan origination system
- The Fintech companies must own credit and underwriting software
- All the Fintech companies must own IT security
- The borrower must have a borrowers profile verification
- Scrutinization of bank statement analysis and income statement
- Employment verification
Process of collaboration of NBFC and Fintech Companies
It is important to understand the process of NBFC and Fintech Company before starting the collaboration. In this section, we will discuss the process in detail:
- Selection of the right Fintech Partner
- Legal advisory with regards to affiliate
- Creation of loan application
- Management of compliances
- Designing of the FLDG structure
- Designing of revenue model
- Signing of Memorandum of Association and platform sharing agreement
- Creation of an ESCROW account
- Reconciliation and performance analysis
Read Also: Effects of COVID-19 on NBFC Sector in India
Types of Non-Banking Financial Companies (NBFCs)
The first step in the creation of NBFC and acquiring an NBFC license is to understand different type of NBFC and for that it is necessary to understand various categories NBFCs are categorized into. All of the below mentioned types require NBFC license before they start their business activities.
- Investment and credit company (NBFC ICC): The Reserve Bank of India decided to merge three categories of companies -Asset Finance Company, Investment Company and Loan Company were merged into one type of company which is known as Investment and Credit Company. An asset finance company refers to a company that lends burrowers a particular asset for a temporary duration. They are engaged in the business of financing physical assets with regards to economic activities such as machinery, equipment etc. An Investment Company is a company that is concerned and involves the business of acquisition of securities. A loan company is a company that has the primary business of providing finance in the form of loans and advances.
- Infrastructure Finance Company: An infrastructure finance company refers to a company that contains net owned funds of a minimum of 300 crores out of which a minimum of 75% of its total assets is used in infrastructure loans.
- Housing Finance Company: A company which involves activities such as providing finance for housing is called a housing finance company.
- Micro Finance Company: A micro finance company is also known as small finance bank, these institutions are established with the aim to provide banking services to the less privileged sections of society. Read also: Microfinace Company Registration.
- Mortgage Guarantee Companies: A company in which a minimum of 90% of the revenue is received from the mortgage guarantee company and the net owned fund are kept at Rs.100 crores is called a mortgage guarantee company.
If you want to know about NBFC so visit at: NBFC Registration.
Conclusion
Understanding the methodology, basic requirements in the NBFC Collaboration process is imperative and both the companies must recognize and follow all the steps so that the collaboration is completed in an effective manner.
