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What are non-banking financial companies- microfinance institutions (NBFC-MFIs)?

Topics Covered: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

What are non-banking financial companies- microfinance institutions (NBFC-MFIs)?


Context:

The share of NBFC-MFIs (microfinance institutions) in the overall microfinance sector has come down to a little more than 30% as several large MFIs had converted into Small Finance Banks.

What are NBFC- MFIs?

NBFC MFI is a non-deposit taking NBFC (other than a company licensed u/s 25 of the Indian Companies Act, 1956) that meets the following conditions:

  1. Minimum Net Owned Funds (NOF) of Rs.5 crore. (For those registered in the North Eastern Region of the country, Rs. 2 crore is required as minimum NOF).
  2. At least 85% of its Total Net Assets are in the nature of “Qualifying Assets.”

What are Qualifying Assets?

“Net assets” are total assets excluding cash, bank balances, and money market instruments.

“Qualifying assets” are those assets which have a substantial period of time to be ready for its intended use or sale.

NBFCs

InstaLinks:

Prelims Link:

  1. NBFCs- meaning.
  2. Types.
  3. NBFCs under RBI.
  4. NBFC-MFI- eligibility, functions.
  5. What is Net Owned Funds?
  6. What are Qualifying Assets?
  7. What are small finance banks.
  8. Differences between NBFCs, SFBs and Payment Banks.

Mains Link:

Discuss the significance of NBFC-MFIs (microfinance institutions).

Sources: the Hindu.