Brief on different categories of non-banking financial companies

Micro Finance Companies:
MBFC is any non-banking financial company licensed under section 25 of the Companies Act, 1956. These companies are engaged in micro-financing activities. With effect from November 08, 2019 the eligibility criteria for classification under ‘Qualifying Assets’ for NBFC-MFIs are revised. The Reserve Bank of India (RBI) in it’s circular dated November 08, 2019 increased the household income limits for borrowers of NBFC-MFIs from the current level of ₹1, 00,000 for rural areas and ₹1, 60,000 for urban/semi-urban areas to ₹1,25,000 and ₹2,00,000 respectively. With the revision of the limit on total indebtedness of borrowers, disbursal of loans by all Non-Banking Financial Companies-Micro Finance Institutions (NBFC-MFIs) to a borrower have been raised from Rs.60,000 for the first cycle and Rs.1,00,000 for the subsequent cycles to Rs.75,000 and Rs.1,25,000 respectively. MFCs do not accept public deposits as defined in subparagraph (xv) of paragraph 3 of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016.
Housing Finance companies:
Housing Finance Institutions are defined under Clause (d) of Section 2 of the National Housing Bank Act, 1987. One of the principal objects of these institutions is, the transacting of the business of providing finance for housing, whether directly or indirectly. For carrying on the activities they require a Certificate of registration from NHB.
Securitization and Reconstruction Companies:
Securitisation companies or reconstruction companies means a company formed under the Recovery of Debts due to Banks and financial institutions act, 1993 and registered under the Companies Act for the purpose of asset reconstruction. These companies shall register with RBI to commence or carry on the business of securitisation or asset reconstruction having Net Owned Fund (NOF) as specified by Reserve Bank from time to time.
Nidhi Companies:
A Nidhi company is a non-banking financial company notified under section 620A of the Companies Act, 1956 (Act 1 of 1956), as Nidhi Company. Their core business is borrowing and lending money between its members. These companies typically operate in the southern part of India. A Nidhi Company isn’t required to receive the license from Reserve Bank of India (RBI), hence it is easy to form. Nidhi companies shall be registered as a public company and should have “Nidhi Limited” as the last words of its name.
Mutual Benefit Companies
Mutual Benefit Companies are registered as a mutual benefit company as defined in subparagraph (xii) of paragraph 3 of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016.
Chit Companies:
These companies doing the business of chits, as defined in clause (b) of section 2 of the Chit Funds Act, 1982 (Act 40 of 1982). A chit fund is a type of rotating savings and credit association system practiced in India.
Mortgage Guarantee Companies:
Mortgage Guarantee Companies are notified as a non-banking financial company in terms of section 45 I (f)(iii) of the RBI Act, 1934 with the prior approval of the Central Government, and a company registered with the Bank under the scheme for registration of Mortgage Guarantee Companies. A mortgage guarantee is a financial product that compensates lending institutions or housing finance companies for losses that may arise when a homeowner defaults on a mortgage loan.
Merchant Banking Companies:
Merchant Bank is a company carrying on the business of merchant bankers in accordance with the Securities and Exchange Board of India Merchant Banking (Rules) 1992 and Securities and Exchange Board of India Merchant Banking (Regulations) 1992. The merchant banker provides services like fundraising activities like IPOs, FPOs, loans, underwriting, and financial advising to the firms. Unlike retail or commercial banks, merchant banks do not provide services to the general public. Merchant Banking companies registered with the Securities and Exchange Board of India as a Merchant Banker under section 12 of the Securities and Exchange Board of India Act, 1992.