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NBFC Collaboration Service

Assistance in creation forming of Platform Aggregation Agreement and MoU with NBFC.
Designing of revenue model and co-lending partnership between collaborators.
Connecting NBFCs with the FinTech players.
Support for the opening of escrow Account of the FinTech.
NPA, FLDG reporting, Business Performance Analysis, monthly reconciliations of the collaborators.
Compliance support and management for the FinTech company and NBFC.
Legal advisory and generation of the Business plan for the FinTech company.

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    Overview of NBFC Collaboration Model

    India has over 9000 NBFC but only 954 companies have a book size in excess of 40 crores. Most of the NBFCs only have the minimum required book size of 2 crores. This makes NBFC collaboration necessary as it will accentuate growth for both NBFC and the partner firm. In the NBFC collaboration model, NBFC license holder companies collaborate with FinTechs or banks to source leads and additional funds for lending. Both parties can get into an agreement to share their revenues or sometimes even the NPAs.

    The large NBFCs in India are going through a crisis since 2019 and facing stiff competition from small and medium-size NBFCs who are doing well. Therefore many large NBFCs are looking to partner with FinTech firms and banks to raise funds/acquire more leads.

    Process of NBFC Collaboration between NBFCs and FinTech’s

    A co-origination scheme agreement needs to be signed by between NBFCF and the FinTech Firm.
    The FinTech’s must sign an Intercorporate deposit agreement with Fund Manager.
    A separate escrow account must be opened for repayment and disbursement of funds.
    A C.A. should be appointed for the management of escrow account and associated funds.
    Manage all the compliance requirements like TDS, GST, Credit Reporting, CKYC, etc.
    The NBFC must follow the provision norm for NPAs i.e. 45/90 days.
    Both collaborators should have CIC Reporting with monthly reconciliation.

    Background Check of FinTechs by NBFCs

    Background Check of Fin Techs by NBFCs 1 768x384

    NBFCs should verify the background of the financial strength of the collaborating FinTech with a promoter’s profile check. This is essential especially when collaborating with a foreign FinTech Company. The NBFCs can follow the following models for collaboration.

    Investors must be in a particular number: For registration as an Alternative Investment Fund, there must be a certain minimum no. of investors with the applicant company. However, the maximum number of investors cannot exceed 1000 in the applicant company.

    Co-lending model

    In this model, the FinTech company supplies the necessary decision-making tools and data to the NBFC for quick processing of loans. The FinTechs in this type of collaboration work with an escrow account and FLDG (First Loss Default Guarantee) Model. The FLDG of FinTech is generally set at 70% with the remaining part-financed by NBFC, the shares on ROI for Futech is generally between 24 to 36% and they cover 100% expense and NPA.

    Lead-Based Model

    Here, the FinTechs are responsible for sharing advance risk assessment Softwares with NBFCs and sourcing them leads. In turn, the NBFCs pay commission to the FinTech in the range of 1 to 3%.

    FLDG model

    In this model, the interest of the NBFCs for protection from NPAs is guaranteed by asking collaterals. This model safeguards the NBFC making its advancement through the FinTech company.

    How the NBFC Collaboration Model Works?

    How the NBFC Collaboration Model Works?

    Workflow of FinTech

    The FinTech company provides advance technical support and funds to the NBFC, the FinTechs also source leads in some collaboration models and provide FLDG for the same. They are responsible for running marketing campaigns for NBFC to increase their business.  The funds transferred by FinTech are deposited with the fund managers as FLDG, this fund is later deposited by the fund manager in NBFC as the Inter Corporate deposits. FinTech also offers collection services to the NBFC.

    Intermediary Legal Firm

    A consulting legal and financial assistant provider company with CA or a lawyer should manage the funds associated with FinTech and NBFC as per the collaboration agreement. This financial/legal firm will charge a service fee from the collaborator.

    Workflow of NBFC

    The NBFC will be responsible for lending money to the leads generated by FinTech and processing the loans. They will also work with the risk assessment data provided by the FinTech to reduce their risks in lending. In turn, they will share their profit with the collaborating FinTech. A certain percentage of the profit is kept by the NBFC as part of the risk assessment service.

    Document Required

    Compliance Requirement For NBFCs

    Online verification services for the documents of the borrowers.
    Borrowers profile storage capacity for at least 5 years.
    Providing all the essential loan processing services like, capturing the photo, paying E-stamp duty n loan execution, etc.
    Reporting loan inquiry, delay in loan disbursements or processing to the Credit Information Companies.
    Following all the compliance norms of the regulatory body.
    Appointment of CA for the audit of the collaborating FinTech for risk assessment.
    Following the NPA norm of 45/90 Days.

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      Compliance Requirement For FinTech

      A FinTech firm can give a loan or guarantee up to 100% of its free reserves or 60% of its paid-up capital depending which is more.
      The FinTech have to pay the GST on loan processing payment.
      The ECB guidelines must be followed by Foreign FinTechs while raising funds in collaboration.

      Technological Requirement For FinTechs

      The FinTech should provide Loan originating system, collection system, loan management system preferably on its mobile app for borrowers.
      Underwriting and credit software for loans must be owned by the FinTech company.
      The company must have the necessary IT infrastructure to ensure security in the transfer of user data and loan processing data.
      The loan app should be able to integrate various ID documents of the end-user.
      The software should be able to run income verification by analysis of bank statement of the borrower.
      Verification system for employment and ID data of the borrower.
      The server for their application must be located in India and the necessary steps for data protection must be taken according to Indian law.

      Muds Management assists collaborators in devising an MoU and collaboration agreement. We provide end to end services and sort all queries of our partners.  We also offer business collaboration plans for FinTechs and NBFCs to enhance growth and revenue.

       

      Alternately Call our Legal Expert Now For Free Consultation at 09599653306

      Frequently Asked Questions on NBFC Collaboration Service

      The main purpose of NBFC collaboration is to boost funding and get access to new technologies like AI, Machine learning, and Big Data by collaborates with fintech companies.

      NBFC collaboration is mentioned as a process where NBFCs tie-ups with big banks or Fintech companies to boost funding or getting technologically advanced.

      The various ways for Fintech-NBFC Collaboration are:

      • Co-Lending Model;
      • Lead-Based Model; and
      • Fintech-Led Model.

      NBFC must open a separate account to meet the aim of providing loans. Besides, a separate account is mandatory to meet the standards of the Companies Act 2013.

      The Fintech-Led Model specifies that it is a setup where Fintech Company and NBFC join hands through First Loss Default Guarantee cover.

       

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