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Understanding the Difference Between a Bank and a Private Lender in India

When you are on the lookout for a personal loan, one thought which must ponder your mind is whether a bank loan is better or a private one? At first glance, the similarities between them are apparent enough to conclude that both are the same; however, upon closer inspection, it becomes evident that there are subtle differences which need to be embraced in order to completely comprehend their value.

Private vs Bank Lenders

Thus, in today’s article, we will take a closer look at both these financial institutions and try to understand which one might be better for your needs.

Without further ado, let’s get started.

Private vs Bank Lenders

One of the first aspects we need to understand is the actual meaning of both these institutions and how they operate. In simple terms, a financial institution, commonly referred to as a bank, is an institution which primarily deals in a variety of financial instruments, right from saving schemes and insurance products all the way to credit instruments.

Most banking institutions in India that are either SCBs (Scheduled Commercial Banks) or SFBs (Small Finance Banks) directly fall under the purview of the RBI and are regulated as per the mandates jointly set by the Ministry of Finance and the Reserve Bank of India. These regulations translate to the fact that the instruments extended by these institutions are government regulated and follow strict guidelines, be it a credit card or a BSBD (Basic Savings Bank Deposit Account).

On the other hand, private lenders across India come in various shapes and sizes. For simplification, they can be classified into three main categories.

  • Fintech Companies
  • NBFCs (Non-Banking Financial Institutions), and
  • Microfinance Institutions

Fintech Companies

As the name suggests, these are technology firms that are registered under the Companies Act of India, 2013. Similar to any other IT enabled or service oriented company, these institutions too primarily display expertise in leveraging modern technology to ease the process of availing financial services. To understand this better, take the example of Money View, which is a fintech company based out of Bengaluru, India.

Established in 2017, MoneyView leverages modern fintech technology such as cloud computing, artificial intelligence and machine learning to reduce the overall cost and increase the efficiency of a lending value chain. Together through its website and mobile application, MoneyView makes it easier than ever to apply and avail the features of a personal loan from the comfort of your home. Its operations are designed as such that you apply for the loan through MoneyView, post which it processes your request, and at the end, the loan is disbursed by a lending partner such as DMI Finance or IDFC First Bank.

Thus simply put, MoneyView partners with these financial institutions to ensure that you have easy and streamlined access to a personal loan at your convenience.


The second type of private lender available in India are NBFCs or Non-Banking Financial Institutions. As the name suggests, these companies primarily deal in financial services other than core banking mechanisms such as saving schemes, deposits etc. Similar to fintech companies, an NBFC too is registered under the Indian Companies Act of 2013, with the only difference being that they are regulated by the RBI and thus they generally bear an RBI registration number on their websites.

Along with this, NBFCs these days across India leverage modern technology better than ever before to extend their financial products to those in need, along with partnering with fintech companies as and when required. A good example of this can be Whizdm Finance which is a Bengaluru based NBFC partner, which ties up with fintech companies like Money View to extend its financial services.


Last but not least are microfinance institutions whose primary purpose is to increase financial inclusion among the weaker sections of the economy. Over the past decade, the Indian microfinance industry has played a huge role in uplifting significant swathes of the economy out of poverty through their various credit instruments.

Most microfinance companies in India are registered under Section 8 of the Indian Companies Act of 2013, and on average, they provide small ticket loans of approximately ₹32,000. One of the best aspects of a microfinance institution in India hinges on the fact that they serve primarily weaker sections of the economy, thus hugely contributing to uplifting the economy of the country.

Which type of lending institution is best for you?

Now that you have a clear understanding of the differences between each type of lending institution, let’s circle back to our original question of which one is best for you.

In order to decide on this fact, you need to consider a number of factors, such as your availability, loan size, interest rate and repayment style.

For example, if you are a millennial who is hustling hard to make their dreams come true and you have a lack of time in your hands, maybe a personal loan from a fintech company such as Money View will be the best option for you. The simple reason behind this being, you can avail a loan from Money View right from your smartphone, get approved in a matter of hours and pay back the loan via a number of online payment methods.

On the other hand, if you belong to the financially weaker section of the economy, maybe a loan from a microfinance institution will be best for you. The reason being, these loans are generally small in size, and the best part is you can physically pay back the loan via cash, and this is especially true if you earn your primary source of income in cash.

Lastly, you can always approach your banking institution for a personal loan, as you have the advantage of easily fostering a relationship with them via physical meetings.

Overall, the loan interest rates across institutions are competitive, and all of them follow a fair pricing policy, thus making it easier for you to arrive at a decision.

In Conclusion

As you can understand by now, the choice of an institution primarily depends on your exact needs and their subsequent fulfilment. Now that you have all the information at your disposal go ahead and choose an institution which suits your needs the best.

He is a Blogger, Tech Geek, SEO Expert, and Designer. Loves to buy books online, read and write about Technology, Gadgets and Gaming. you can connect with him on Facebook | Linkedin | mail:


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