Can Sellers Offer EMI Without NBFC Approval?

Cyber and Technology Law

EMI facilities allow consumers to buy high-value products by paying in installments, enhancing affordability. However, offering EMI is often considered a form of credit or loan. In India, credit activities are regulated by the Reserve Bank of India (RBI) and related financial laws, which require entities offering credit to have proper licensing, especially NBFC registration.

Regulatory Guidelines on Offering EMI by Sellers

1. RBI and NBFC Licensing Requirements

If a seller directly provides credit or EMI options without involving a bank or NBFC, they may be classified as a financial institution.

Such sellers are required to register as an NBFC with the RBI to legally offer credit facilities.

2. Collaboration with Banks or NBFCs

Most e-commerce platforms and sellers partner with RBI-regulated NBFCs or banks to offer EMI options.

The financial entity assumes responsibility for credit risk and compliance.

3. Prohibition on Unlicensed Credit Activities

Offering EMI or credit without NBFC approval can be deemed illegal and attract penalties under the RBI Act and the Indian Contract Act.

Consumer Protection Act also safeguards buyers from unfair lending practices.

Key Compliance Points for Sellers

Sellers should avoid offering EMI directly without NBFC or bank partnership.
All credit offers must be transparent, with clear terms, interest rates, and repayment schedules.
Sellers must ensure that EMI offers comply with RBI guidelines and disclosures.

Consequences of Non-Compliance

Penalties and legal action by RBI or other financial regulators.
Cancellation of business licenses or suspension of online selling rights.
Consumer complaints and loss of trust.
Possible criminal prosecution in cases of unauthorized lending.

Example

An online electronics seller offers No-cost EMI directly to customers without involving any bank or NBFC. Customers later face difficulties with payment schedules and refunds.