Money Lending Business in India: How to Get Started

By | January 24, 2024

When someone permits another person to borrow something, this is known as lending (sometimes known as “financing”).

The lender lends the borrower cash, real estate, or any other asset with the understanding that the borrower gets to either return the asset or pay back the lender. Basically, the lender creates a loan, and the borrower is then responsible for repaying the loan. 

Review instances of various lending scenarios, how lenders regard businesses differently from people, and what one should think about when applying for business loans. 

Simply, lending is simply the act of allowing someone to borrow. Lending frequently takes place in the context of obtaining a loan in terms of finance and business.

An entity receives a loan from a lender, and that entity is responsible for paying back the loan. Property or any other item that is afterwards returned or fully paid for may also be involved in lending. 

At least in ancient Mesopotamia, societies that engaged in agriculture would borrow seeds and animals with the understanding that they would pay them back after the crops were harvested or the animals gave birth. 

In today’s world, lending happens whenever someone uses a credit card to make a purchase like a cup of coffee, gets a mortgage to buy a house, or takes out student loans to pay for college. 

How Does Money Lending Really Work?

Anytime a lender extends credit to a borrower, lending has taken place. It’s a general phrase that covers a range of transactional types. 

Financial organizations with a focus on lending cash, such credit unions and banks, are examples of common lenders. The cost of the loan, in the form of interest, is borne by the borrower.

Money Lending Business in India

A borrower will be charged a higher interest rate if the lender adequately believes there is a greater danger that they won’t receive repayment from them, as may be the case with a fresh beginning business. Borrowers who are quite less risky pay a lot lower interest rates. 

Lenders don’t have equal stake in your company that owners, partners, or shareholders do. Basically, a lender doesn’t own any of your company. 

They’re exposed to a different kind of risk than shareholders and business owners. If the business declares bankruptcy, they also have various rights. Before owners of a liquidated company receive any money, lenders must be paid back. 

Analyzing the Different Money Lending Categories Available in India

Personal (or “consumer”) lending and commercial lending are basically the two main categories into which lending can be generally divided.

Although they are handled differently, several loan kinds are accessible for both commercial and personal financing. 

For instance, a person can simply obtain a credit card to pay for necessities like groceries and other kinds of necessities, and a company can simply obtain a commercial credit card with the sole aim of paying for things like equipment and sorting out business expenses. 

Consumer Lending and Business Lending Have Different Characteristics 

Personal loan borrowers have several legal safeguards that aren’t available to them with business loan borrowers. 

The the Equal Credit Opportunity Act in India shield Indian borrowers against discrimination. Whether it is a personal loan or a commercial loan, all types of credit are covered by the broad prohibitions against discrimination. 

The Equal Credit Opportunity Act’s specific rules, however, are less stringent for business loans; the bigger the corporate entity, the less limits there are on its loans. 

Less discrimination is allowed, and more rules are relaxed on the notifications that must be sent to borrowers and the length of time that lenders must keep certain records about borrowers. 

Starting a Money Lending Business in India

Since obtaining credit is one of the biggest obstacles to starting a business, the money lending industry in India has endured for years.

As a startup with limited or no resources, growing your company is your first priority.

Then, when you apply for a loan at the bank, you are met with a barrage of unreasonable demands. You alter your plan of action and request an overdraft, but the delays caused by them grind you to a halt. 

Money Lending Business in India

Money might not be as great as it seems, but who doesn’t desire a little additional cash in their pocket?

There is not enough money in the world for everyone! Everybody has experienced being financially strapped at some point in their lives.

Similar to a credit card, a payday loan company allows customers to borrow small amounts of money when they are short on cash. 

Payday loans in India are popular because they are offered by non-bank businesses and are simple to obtain. These loans give the borrower access to enough money to cover the cost of crossing the street the day the loan and interest are due. 

People who struggle to make ends meet each month are heavily targeted by payday loan advertisements, and once you start taking out payday loans, lying about them becomes much simpler.

With so many clients present, this market is thriving. 

A typical payday lending company in India provides money to clients quickly so they can clear their paychecks.

Each loan has collateral, which is each paycheck. These loans tend to be of the short duration and rather risky kind. And for this reason, payday loans in India are highly profitable for financial institutions.

If you shake hands with the correct company, starting a payday loan business in India is much simpler than it first appears to be. 

Creating an Enterprise Plan in India

The first thing you must do is create a solid business plan that details your assets and potential customers for payday loans.

It has a thorough marketing strategy that uses vibrating signs, direct mail, telephone book ads, and networking with other financial institutions to draw in customers.

Use a business plan template or speak with an accountant to help you craft these plans carefully. 

The second action you must take is create a corporation. Additionally, it is a good idea to create an NBFC so that it can safeguard your private assets and maintain their segregation from those owned by the company. 

Here are the requirements for establishing an NBFC (Non-Banking Financial Company) in India. A company that focuses on NBFC Registration can be friendly.

Depending on the type of corporation you establish, you could need to dig deeper into your pocket for a filing cost. In order to start your payday lending business, it is wise to incorporate an NBFC first. 

What Does Money Lending Business in India Entail?

One must submit an NBFC License application to the RBI in order to establish any form of loan company in India.

Our team of professionals will submit the required paperwork to the regional office of the Reserve Bank of India together with the specified application for NBFC registration via the website of the RBI (Reserve Bank of India).

Money Lending Business in India

A certificate of registration will then be issued after an application has been verified by RBI. Normally, this process takes 90 days. 

A business must be incorporated with the Registrar of Companies before submitting an application for an NBFC license. The following are the prerequisites for NBFC license: 

Either a Private Limited Corporation or a Public Limited Company must be registered for a company. A minimum net owned amount of Rs. 2 crore is necessary. 

Key Actions You Must take

  • Choose a lending method

If you’re considering renting an office space, go for a premium location near a popular shopping district.

The best option is a storefront, but if you wish to sell online, a small office with two or three rooms would do. Don’t be a miser; work with a real estate agent skilled in locating properties for retail establishments. 

  • Establish a Credit Line 

Call a commercial loan and go over the business plans, licensing, and finances with your representative.

If you meet the requirements, your lender will grant you a line of credit that you can use as operational capital to make loans from.

Offer the lowest possible interest rate. Remember that the amount of credit and interest rate you qualify for will depend on your assets and credit score. 

  • Determine the loan’s price

Keep a watch on your rival and find out what finance charges and interest rates they levies. Be aggressive. It’s possible that some of your interest rates will be based on the amount you give the bank. Don’t extend unsecured loans.

Following a Stepwise Procedure

  • Register the Business 

Getting your financing bank registered as a company is the first step. The first step is to register your finance company in India as either a private limited company or a public limited company. 

  • Obtaining Finance 

Since an NBFC Registration requires a minimum approved and paid-up capital of Rs. 5 Cr. Once your company has been registered, you must make arrangements to raise the NOF at least to this level. 

  • Statement of No Lien 

Deposit Rs. 5 Cr. as a fixed deposit to receive a bank Certificate of No Lien. 

  • Sign up with RBI 

In order to establish your NBFC as a Small Finance Company in India, submit an online application to the RBI.

This Application must be filed with any additional paperwork that may be necessary. A Company Application Reference Number will be provided to Your Company once the application has been filed successfully (CAR number).

The RBI must be contacted using this CAR number in all future correspondence. 

  • Submitting to the RBI 

After the application has been submitted, a physical copy of the application and any required supporting documentation must be forwarded to the Reserve Bank of India’s regional office. 

The Micro-Credit Sector’s growth rate has accelerated with the advent of automated technologies. Efficiency has increased thanks to automation.

The sector that offers microfinance needs to concentrate on comprehending the demands of the underprivileged.

They must proactively come up with improved ways to provide services in accordance with the needs.

In order to launch a small finance company in India, a process for providing credit to the underprivileged must be developed. 

Is Money Lending Legal in India?

Yes! However there are rules that one must abide by, particularly when it comes to peer-to-peer lending. Let’s examine some of the fundamental rules: 

  • At any given time, a lender’s total exposure to all borrowers on all P2P platforms is restricted to Rs. 10 lakh. 
  • Over all P2P platforms, a lender’s exposure to a single borrower cannot exceed Rs. 50,000. 
  • The maximum loan maturity period is 36 months. 
  • Any type of cash transaction is strictly forbidden, and all money transfers between the lender and the borrower and vice versa must be made through bank accounts. 

Therefore, before lending or borrowing money via P2P, one must follow all of the rules for lawful investing and borrowing as indicated above.

Is Money Lending in India Profitable?

It’s simple to understand. Interest on your loan offer is how banks, credit unions, and mortgage brokers make their money.

The cost of a loan is what we refer to as this. These lenders offer interest rates based on the risk involved because lending money can be a dangerous business.

Interest rates rise in direct proportion to the likelihood of nonpayment. 

Consider the fact that, despite their reputation as villains, lenders are essential to the growth of the economy.

For instance, if you go to a bank to ask for a rent loan, the bank will take money from your depositors’ savings and money market accounts and then extend you credit at a higher interest rate. 

You can pay your rent thanks to the loan. Now that he has more cash, the landlord can pay his crew.

The landlord’s employees now have money to spend at several establishments. In turn, other companies expand the economy. 

There are dangers, just as with any investment, and it is possible to lose money. However, if done correctly, private lending can be a terrific method to increase your portfolio’s passive monthly income

These are some of the primary motivations, in my view, for entering the private money lending industry: 

  • Being able to afford to spend a lot of money thanks to your job or business (or both) 
  • Developing your retirement account actively 
  • Having already established a sizable retirement fund in an IRA or 401(k) with self-direction (k) 
  • To add variety to your portfolio of investments (out of stocks and shares, mostly) 
  • Needing additional passive income, such as a retiree 
  • To make investments in real estate, but you don’t want to purchase, manage, repair, or sell homes 
  • Concern over the upcoming recession and the turbulence in the financial markets 
  • lump-sum inheritance 
  • Require a specific amount of monthly revenue from your investments to pay for living expenses 

You may wish to think about making an investment in private lending if any of these situations apply to you.

Particularly if you want to create a portfolio that is well-diversified and not overly exposed to the stock market or if you require a steady, passive monthly income. 


Every business owner who intends to enter the money lending sector must obtain the necessary license in order to legalize their enterprise and ensure that they have access to an unrestricted legal recourse.

Furthermore, due to its lucrative business strategy and inherent risk, the money lending industry may be both thrilling and irritating at the same time.

However, money lending might be extremely successful with the right mix of thorough business knowledge, a rigorous feasibility study, other early results, and the required risk management techniques. 

Additionally, be aware that FINTECH, a type of technology, is the best thing to happen to the money lending sector ever.

Never undervalue the power of technology, particularly when trying to develop something big.

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