How a Non-Banking Financial Institution Can Raise Funds Effectively

A Non-Banking Financial Institution (NBFI) plays a vital role in India's financial system by catering to sectors often underserved by traditional banks—such as MSMEs, affordable housing, and rural development. Whether you’re launching a new NBFC or expanding an existing one, raising capital is essential for scalability, regulatory compliance, and operational sustainability. In this blog, we’ll explore the most effective ways to raise funds and how to become investor-ready in today’s regulatory and market landscape.

Key Funding Sources for a Non-Banking Financial Institution

There’s no one-size-fits-all approach when it comes to financing a Non-Banking Financial Institution. From traditional bank loans to modern fintech solutions, your options are broad—and selecting the right mix is key.

1. Bank Borrowings

Banks remain a foundational source of funding through term loans, Commercial Papers (CPs), and Non-Convertible Debentures (NCDs). However, stricter RBI guidelines have made borrowing more selective and rating-dependent.

Pros: Reliable and flexible terms for well-rated NBFCs Cons: Regulatory hurdles and higher risk weights

2. Debt Instruments

• NCDs: Ideal for long-term capital if the NBFC has a strong credit rating.

• CPs: Great for short-term liquidity but only for top-rated institutions.

Pros: Lower cost of capital Cons: Market volatility and dependency on credit rating

3. Securitization

Sell or pool loan assets to release liquidity and transfer credit risk to investors. Particularly useful for NBFCs with limited credit profiles.

Pros: Enhances liquidity and offloads risk Cons: Structuring complexity and market dependency

4. Foreign Currency Borrowings (FCBs/ECBs)

High-rated NBFCs often raise funds overseas at lower interest rates. These come with hedging norms and RBI compliance requirements.

Pros: Access to global capital Cons: Currency risk and compliance costs

5. Equity Financing

Raising funds through equity shares is suitable for startups or growth-stage NBFCs that need capital without repayment obligations.

Pros: No interest burden, improves net worth Cons: Ownership dilution and investor scrutiny

6. Alternative Funding Sources

• Government Schemes: Targeted subsidies and grants for priority sectors like MSMEs and rural finance.

• Co-lending with Banks: Combines bank capital with NBFC agility.

• Peer-to-Peer (P2P) Lending: Online lending platforms for direct funding from retail investors.

• Foreign Direct Investment (FDI): Large capital inflows from international investors under RBI rules.

🔍 Comparison of Popular Funding Options

Funding Source	Pros	Cons
Bank Borrowings	Stable, familiar, lower interest rates	Regulatory limits, dependency on credit rating
NCDs / CPs	Quick liquidity, flexible terms	Requires strong rating, market-driven
Equity Financing	No repayment burden, boosts financial base	Ownership dilution, investor pressure
Securitization	Offloads credit risk, improves liquidity	Structuring complexity, investor appetite
Foreign Borrowings	Access to cheaper global funds	Forex risk, RBI compliance
Govt. Schemes/Grants	Subsidized capital, encourages priority sectors	Limited scope, bureaucratic delays
Co-lending with Banks	Shared risk, wider borrower reach	Needs strong partnerships
P2P Lending	Easy access, retail investor funding	Not scalable, higher risk of default

Challenges Faced by Non-Banking Financial Institutions in Fundraising

• Poor credit ratings lead to high borrowing costs

• Compliance delays and heavy documentation

• Foreign borrowings involve currency risks

• Market fluctuations affect instruments like CPs/NCDs

• Diminishing bank exposure to NBFCs adds pressure

To overcome these hurdles, NBFIs must focus on strengthening internal governance, diversifying their funding sources, and improving creditworthiness.

Final Thoughts

In today’s competitive financial ecosystem, a Non-Banking Financial Institution must think beyond traditional funding. Whether it’s tapping into equity, leveraging securitization, or forming co-lending partnerships, the right capital strategy fuels growth and ensures regulatory resilience.

At Xurance, we empower NBFCs with tailor-made fundraising strategies, pitch support, regulatory compliance, and access to a wide investor network. From early-stage to expansion mode—we help you raise smart, not just fast.

🚀 Partner with Xurance to unlock your NBFC’s growth potential. Connect to 7210499455 to get started today.