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such as commercial banking, consumer labourers, small and marginal farmers,
finance, broking, venture capital finance, artisans, small traders etc. usually borrow
infrastructural financing, e-commerce etc. money from the money lenders. At present,
Thus, development financial institutions are the activities of the money lenders have been
in the process of converting themselves into restricted by RBI due to their exploitative
universal banks. RBI has issued guidelines tendencies.
for development financial institutions iii) Unregulated Non-Bank Financial
to become commercial banks. For e.g. Intermediaries : They include Chit funds,
ICICI (Industrial Credit and Investment Nidhi, loan companies etc. Under Chit
Corporation of India) has become a funds, members make regular contribution
universal bank by a reverse merger with its to the fund. Bids or draws are made on the
subsidiary ICICI Bank. basis of a criteria mutually agreed upon by
e) Discount and Finance House of India the members. Accordingly, the collected
(DFHI) : The Discount and Finance House fund is given to the chosen member. Chit
of India (DFHI) was set up in 1988 as a funds mostly operate in Kerala and Tamil
money market institution based on the Nadu. Nidhi is also a type of mutual
recommendations of the Vaghul Committee. benefit fund thriving on the contribution
It is jointly owned by the RBI, public sector of its members. Loans are provided to
banks and financial institutions to impart members at reasonable rates of interest.
liquidity to the money market instruments. Loan companies are finance companies.
2) Unorganized Sector : The unorganized They provide loans to traders, small-scale
money market in India comprises of industries and self-employed persons.
indigenous bankers, money lenders Being unregulated, they charge a high rate
and unregulated non-bank financial of interest on loans.
intermediaries. The activities of the UNREGULATED NIDHI
unorganized money market are largely NON-BANK CHIT FUNDS
confined to the rural areas. FINANCIAL
INTERMEDIARIES LOAN COMPANIES
i) Indigenous bankers : They are financial
intermediaries that function similar to
banks. They mostly deal in indigenous Do you know?
short-term credit instruments such as Money market instruments :
hundi. The rate of interest differs from one The following instruments are traded in
market to another. Indigenous bankers are the money market :
mostly confined to certain social strata. • Call / Notice Money Market : When
They are an important source of funds in money is borrowed or lent for a day, it is
unbanked areas and provide loans directly known as call (overnight) money. When
to agriculture, trade and industry.
money is borrowed or lent for more than
ii) Money lenders : They mostly operate in a day up to 14 days, it is known as notice
the villages. Money lenders usually charge money.
a high rate of interest. The loans provided • Treasury Bills (TBs) : They are short
by money lenders are for both productive term instruments issued by the RBI on
and unproductive purpose. Agricultural
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