NBFC vs MFI vs Fintech: What Actually Separates Them, and Why It Decides Your Software
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An NBFC is a company registered with the RBI to carry on lending as its principal business. An NBFC-MFI is one specific type of NBFC, defined by the kind of loans it makes and the share of its balance sheet those loans occupy. A fintech is not a regulatory category at all.
That third point is the one worth sitting with, because it causes more confusion in this market than anything else. There is no fintech licence in India. A company describing itself as a lending fintech is either a regulated entity holding a licence, or a technology provider working alongside one. Which of those it is changes everything about who is accountable and what the software has to do.
What is an NBFC?
A Non-Banking Financial Company is a company registered under the Companies Act and with the RBI, whose principal business is lending, investment or acquisition of financial assets. The test applied is commonly called the fifty-fifty test: more than half of total assets must be financial assets, and more than half of gross income must come from those assets.
NBFCs cannot accept demand deposits the way a bank does, and they are not part of the payment and settlement system. What they can do is lend, and the absence of a deposit base is why the loan book is the entire business rather than one product line among several.
Under Scale Based Regulation, every NBFC sits in one of four layers. The Base Layer holds smaller non-deposit-taking companies along with certain specialised categories. The Middle Layer holds all deposit-taking NBFCs regardless of size, non-deposit-taking companies above the asset threshold, housing finance companies and a few other types. The Upper Layer holds companies the RBI identifies as systemically significant. The Top Layer exists in the framework and is currently empty.
Beyond the layers there are registration categories defined by activity: investment and credit companies, infrastructure finance companies, housing finance companies, account aggregators, peer-to-peer lending platforms, and microfinance institutions. The last of those is the one most often confused with being a separate species of lender.
What is an NBFC-MFI, and how is it different?
An NBFC-MFI is an NBFC whose business is built around microfinance loans, and it is defined by two things: what counts as a microfinance loan, and how much of the balance sheet those loans must represent.
What counts as a microfinance loan
Under the RBI’s microfinance framework, a microfinance loan is a collateral-free loan to a household with annual household income up to three lakh rupees. Household here means the family unit, husband, wife and unmarried children. The end use does not matter, which was a change from the earlier rules that required a share of lending to be for income generation.
Two further conditions apply. The household’s total monthly loan repayment obligations, across microfinance and non-microfinance borrowing together, cannot exceed fifty per cent of monthly household income. And every regulated entity making these loans must have a board-approved policy for assessing household income, because the income figure that drives eligibility is largely self-declared and has to be corroborated.
How much of the balance sheet
To be an NBFC-MFI, microfinance loans must make up at least sixty per cent of total assets net of intangible assets, measured on an ongoing basis. That threshold was reduced from seventy-five per cent in June 2025, which gave existing NBFC-MFIs meaningful room to diversify into other products without losing their registration.
A great deal of published material still quotes seventy-five per cent, which is worth knowing if you are reading around this topic.
The rule works in the other direction too. An NBFC that is not registered as an NBFC-MFI can still make microfinance loans, up to twenty-five per cent of its total assets. Above that, the registration question arises. This matters commercially, because it is the provision that lets a mainstream NBFC run a microfinance line without restructuring itself.
What this means operationally
Microfinance lending is a different business from secured retail lending, and the differences show up in the system rather than in the loan agreement.
- Lending is often to groups with joint liability, so the system has to model a centre, a group and an individual borrower at the same time, and apply repayment and default logic across all three
- Household income assessment is a recorded, auditable step with a policy behind it, not a field someone types a number into
- The fifty per cent repayment obligation check has to run against the household’s total borrowing, which means bureau data at household level, not just applicant level
- Collections happen in cash, in person, often weekly or fortnightly rather than monthly, which multiplies transaction volume by an order of magnitude
- Field staff work in places with poor connectivity, so the collection app has to function offline and reconcile later
The group structure is the part most often underestimated. In joint liability lending, a repayment is collected at a centre meeting, allocated across the members of a group, and recorded against individual loan accounts, all in one transaction. If one member does not pay, the group may cover the shortfall, and the system has to record who actually paid what while keeping each member’s individual credit history accurate, because that history is what gets reported to the bureau. Modelling this as a set of unrelated individual loans produces a ledger that is right in total and wrong in every line.
An NBFC platform built for monthly EMI collection through bank mandates will technically run a microfinance book. It will also generate a reconciliation problem every week.
So what is a fintech?
In regulatory terms, nothing. There is no fintech registration with the RBI. A company using the label is doing one of three things.
It holds a licence of its own
Many well-known lending fintechs acquired or applied for an NBFC licence, which makes them an NBFC that happens to have a good app. Everything in the NBFC section above applies to them in full. The technology is a differentiator in the market, not in the rulebook.
It operates as a Lending Service Provider
Under the Digital Lending Directions, 2025, a Lending Service Provider is an agent of a regulated entity that performs one or more parts of the lending process: customer acquisition, underwriting support, pricing support, servicing, or recovery. A Digital Lending App is the interface through which that happens.
An LSP is not a lender. It cannot lend on its own book, and the loan sits with the regulated entity behind it. What has changed since 2025 is that the regulated entity is now unambiguously accountable for what its LSP does, including consent handling, fee disclosure and recovery conduct. Regulated entities must publish details of their LSPs and report their digital lending apps to the RBI.
The practical consequence is that outsourcing the customer journey does not outsource the obligation. An NBFC working with three fintech partners needs visibility into all three, inside its own systems, in a form it can show a supervisor.
It provides technology without touching the loan
Core lending software, bureau integrations, KYC providers, bank statement analysers and collection tools are supplied by companies that never participate in the loan itself. These are vendors, not LSPs, and the distinction turns on whether the company performs a part of the lending process on behalf of the lender or simply supplies the tooling the lender uses.
Getting that classification wrong in either direction is a compliance problem. A vendor treated as an LSP triggers obligations that do not apply. An LSP treated as a vendor leaves obligations unmet.
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