Role of NBFCs (Non Banking Financial Companies) | NBFCs are better placed than Banks to serve Small Business:
NBFCs focused on serving low income families and Micro, Small and Medium Enterprises (MSMEs) have been playing a very important role in promoting financial inclusion by providing loan products to these credit starved sectors. These NBFCs have the expertise to reach out to non corporate enterprises even when banks are unable to. NBFCs have the ability and skill sets to assess the risk appetite of these customers and build relationships with them.
However, the aspirations of the financially excluded low income families and MSMEs sectors have increased and they want to improve their economic situation by accessing credit and deposit products. These needs have been addressed largely by the NBFCs who are best suited to end the Financial Exclusion of these low income families and enable them to enter financial mainstream.
NBFCs act in a complementary and supplementary manner to Banks in serving low income families and MSMEs.
NBFCs are simpler organizations focused on serving low income families and MSME sector with deep domain expertise in the limited financial products they offer.
NBFCs employs people from the same socio-economic sector that their customers are i.e. low income families & MSMEs. Their employee compensation level is less than the compensation of Bank employees. NBFCs employees can not only relate to and serve these customers well, they are also able to better judge the credit risk of the customer.

NBFCs employees deal with their customers directly and often at customers place of work or home. Their credit assessment and quality of service therefore is significantly better, and the operations are corruption free.

Because of their deep domain knowledge, close relationship with MSME customers the NBFCs are more flexible and innovative than Banks.

The risk profile of NBFCs is better and loan loss experience much lower than the bank’s exposure to low income families & MSMEs.