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NBFI Functions – Leasing, Hire Purchase, Housing Finance

Introduction

NBFIs complement banks by providing specialized financial services which traditional banks might find too risky or administratively heavy.

1. Leasing Services

Leasing is a contract where the owner of an asset (Lessor) allows another party (Lessee) to use the asset for a period in return for rent (Lease Rentals).

  • Players: NBFCs like Bajaj Finance, Tata Capital.
  • Benefit: Lessee gets to use machinery without large capital outflow.

2. Hire Purchase

Hire Purchase (HP) is a system of buying goods on installments.

  • Difference from Lease: In Lease, ownership usually stays with Lessor (Operating Lease). In HP, ownership transfers to Hirer after the last installment is paid.
  • Example: Buying a Truck on EMI via Shriram Transport Finance.

3. Housing Finance

Specialized Housing Finance Companies (HFCs) focus on home loans.

  • Examples: HDFC Ltd (merged), LIC Housing Finance, PNB Housing.
  • Function: Provide long-term mortgage loans for buying/constructing houses.
  • Refinance: They get refinance from National Housing Bank (NHB).

4. Other Functions

  • Gold Loans: (Muthoot, Manappuram). Quick loans against gold jewelry.
  • Microfinance: Small loans to women self-help groups (SHGs) for income generation.

Summary

  • Lease: Renting asset (Ownership remains).
  • Hire Purchase: Buying on EMI (Ownership transfers at end).
  • Housing: Specialized Mortgage lending.

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