Non-bank credit institutions: overview and features

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Opening financial reports, very often you can stumble upon news related to license revocation. Regardless of reputation, rating and financial merit, the Russian regulator mercilessly cuts heads left and right. At the same time, he revokes licenses not only from banks, but also from certain NGOs. In this case, we are talking about non-bank credit institutions. What are these companies? What are they doing? And what activities do they conduct?

General characteristics of organizations

So, an NPO or a non-bank credit organization is a company that is one of the links in the huge banking system of the Russian Federation. As a rule, it carries out certain types of banking operations, strictly regulated by the Central Bank of Russia.

These organizations operate within the law and operate on the basis of a valid license. Like banks, these companies are also subject to regular inspections by regulatory authorities. However, unlike government institutions, non-banking financial institutions are subject to less stringent requirements.

Banks and NPOs: what's the difference?

The difference between NCOs (non-bank credit institutions) and banks lies in their powers and capabilities. For example, a financial institution can not only attract deposits, but also provide settlement and cash services, as well as issue loans.

However, many of the housing loans involve impressive amounts and terms. And non-banking companies can perform only one type of these services, for example, only issue loans or attract deposits. It is noteworthy that NPOs carry out their activities on the basis of the established procedure for credit institutions from the non-banking sector.

A few words about the procedure for regulating the activities of NGOs

All credit organizations existing in the Russian Federation carry out their activities on the basis of the Federal Law "On Banks and Banking Activity", dated February 3, 1996. Later, certain changes were made to this law. In particular, they touched upon the varieties of credit firms. According to the established norms, such companies can be of only three types:

• Bank credit organizations (commercial and government institutions).
• Non-bank institutions.
• Foreign banks.

If you believe the officially established concept, then credit institutions are any legal entities thatcarrying out banking financial transactions on the basis of a license received from the Bank of Russia. The ultimate goal of the activities of such organizations, as a rule, is to obtain personal profit.

Legal status of credit institutions

Such companies operate on the basis of Article 1 and the Banking Law. According to the established rules, such organizations carry out various banking and financial operations within the framework of the law.

Banks are credit institutions that have the right to attract deposits of legal entities and individuals. The funds received from the population, they place on their own behalf and on their own accounts, subject to their return, urgency and payment. In addition, banks are required by law to maintain these bank accounts.

Non-banking companies have the right to carry out only a small list of banking operations.

What types of NPOs are there?

Non-bank credit organizations can be conditionally divided into three groups:

• Companies providing settlement and cash services to the population (CBS).
• Firms that offer transfer services and make various payments (PNPOs).
• Non-banking organizations that attract deposits and issue microcredits to the population (NDKO).

At the same time, firms specializing in settlement services offer the following types of services:

1. Opening and maintaining financial accounts for legal entities.
2. Performing various settlements on the basis of instructions from legal entities (transfers tobank accounts, payment of invoices of respondent banks and suppliers).
3. Implementation of collection services (maintenance of settlement accounts, work with bills of exchange and other payment documents).
4. Performing cash services for legal entities.
5. Purchase and sale of foreign currency, its exchange by bank transfer.
6. Performing financial transactions without opening an account (on behalf of individuals).
7. Trading in the securities market.

In a word, these companies can only perform settlement and cash services. But they do not have access to services for lending to the population and attracting deposits. But the execution of credit and deposit operations is available for financial institutions.

Which organizations are RNKO?

Among the obvious representatives of non-banking financial companies specializing in settlements, there are:

• Clearing firms and houses.
• Dealing centers.
• Clearing houses with access to stock market trading.
• Representatives of national and international payment systems.
• Clearing houses for various monetary transactions with foreign currency.
• UIFs (mutual funds).
• Settlement centers servicing payment systems.
• Depositories.
• Settlement centers with service of transfer systems (work without the need to open a bank account).

General characteristics and features of NPOs

NPO - most often it is a legal entity that has the right to exercisehighly specialized banking operations. Unlike state structures, such organizations have a simpler financial policy, and an individual approach to each person who applies to them is also common. Such firms do not provide for investing in securities and attracting deposits.

Non-bank credit and financial institutions do not carry out operations for the exchange, purchase or sale of foreign currency (including cashless payments). They do not accept payments and are unable to open bank accounts for individuals.

Peculiarities of payment credit institutions (PNCOs)

Non-bank payment companies usually send and pay out money without having to open an account for customers. As a rule, the activities of credit institutions with a payment orientation are directly related to a narrow range of financial transactions. So, most of the services that are provided in such firms are tied to ensuring secure payment transactions. For example, it can be sending or receiving a money transfer, making various kinds of electronic payments.

Among such organizations are representatives of electronic payment systems, mobile operators and money transfer systems.

Deposit credit companies: what kind of organizations are they

Non-bank deposit and credit organizations of the Russian Federation are companies actively involved in attracting deposits, issuing loans, but without performing settlement operations. However, the capabilities of such firms may be limited by the regulator. Whereina certain limit can be set not only for the amount and terms of deposits, but also for loans.

What are the operations of credit deposit companies?

Financial operations of credit institutions engaged in deposit lending activities are usually limited to the following services:

• Issuance of loans to legal entities and individuals.
• Receiving investments and deposits from individuals and legal entities.

Some organizations prefer to work exclusively with individuals. Others lend to legal entities. And there are those who provide financial services to both. Quite often, such firms are quite active in the stock market and carry out a number of operations related to the provision of loans and the acceptance of deposits. However, they do not open accounts. Credit institutions of the non-banking sector can only work with already opened bank accounts.

What kind of credit deposit companies can be?

The following organizations can be classified as credit deposit companies:

• Credit unions and cooperatives.
• Various Mutual Aid Funds.
• MFIs, or microfinance institutions.
• Leasing and insurance companies.
• All types of pawnshops.

As for credit unions, these are not just organizations, but a kind of association of people into groups. These companies are created mainly for the purpose of lending and attracting deposits from their own members of the union (shareholders). Usually,representatives of this association monthly or annually contribute a certain amount of money (it is called a share or contribution) to the general cash desk of the organization. When registering for the first time in such an association, a one-time entry fee is also made.

Over time, the money in the group's account accumulates. And if necessary, each of its members can expect to receive a loan, as in a bank. The credit organization and the members of the group themselves have the right to dispose of the accumulated savings. They can take out a loan themselves, or the organization can issue a loan to individual interested parties (but within the framework of the current rules of the association).

However, rates on such peculiar loans and deposits are usually much higher than in banks.

Shareholders' opinions about credit cooperatives

Many people who have become members of a credit cooperative like the possibility of obtaining a loan for shareholders. Some are not satisfied with the existing restrictions on the terms of the loan and high interest rates. Therefore, most borrowers are trying to return the loan issued to them as soon as possible.

As for deposits in such organizations, although they attract a higher percentage, it is unlikely that you will be able to earn a large amount on them.

What were the mutual funds for?

Such organizations are public. They are based on the unification of people with the possibility of making their own voluntary monetary contributions. As in mutual funds and credit cooperatives, mutual funds have their own accumulated (with the help of members of the organization) capital. At the same time, members of suchfund could take out loans without any interest.

If history is to be believed, these organizations were once popular under the USSR. However, due to widespread financial fraud and pyramid schemes, mutual aid funds were decided to be banned. Therefore, their activities are currently prohibited by law.

Features of microfinance companies

Microfinance organizations occupy a special place among financial institutions of the non-banking sector. Usually these are small companies that issue small amounts of loans and for a short period.

According to borrowers, it is much easier to apply to MFIs than to banks. First, they are more loyal to potential borrowers. So, you can take a loan without official employment, if you have a bad credit history, an overdue loan, and even without providing collateral. The minimum age limit for potential borrowers in MFIs starts from 18 years old. In banks, it is equal to 21-23 years.

Secondly, getting a loan without income certificates and only with a passport is very convenient if you need a small amount and urgently. Another thing is that due to too high credit risks, the interest on such loans is very high.

Features of insurance and leasing companies

Leasing companies are companies that perfectly combine rental services (equipment, vehicles, machinery) and bank lending. Turning to such organizations, you can get any property on a leasehold basis, but with a subsequent right to purchase. According to reviews, such lending to legal entities is most interesting.

Insurance companies are also non-banking financial institutions, since they can provide loans using the existing accumulated contributions of insured persons. According to the stories of insurers, representatives of business and industrialists act as borrowers most often.

And finally, about pawnshops

Pawnshops are also representatives of non-banking organizations. They issue loans, but with collateral. For example, you can get a loan if you have not only gold jewelry, but also a car. From the point of view of borrowers, it is convenient to take such a loan. Another thing is that interest on it is charged for every day. As a result, when accumulating a decent amount of interest, the borrower may not be able to redeem his original item or collateral.