In late 2018, the default by a major nonbanking financial company (NBFC) in India led to a creditcrunch in the Indian economy. The crisis raises questions about the business model of NBFCs inIndia, and the role they play alongside banks in the economy. This paper analyzes the evolution ofthe NBFC sector in India over time and its importance in extending credit, and it discusses the factorsthat may have contributed to the 2018 crisis. The paper attempts to understand the advantages anddisadvantages of the business model of NBFCs, and the drivers of their rapid rise and subsequentchallenges. The paper also briefly discusses the potential impact of the coronavirus pandemic on theNBFC sector. Drawing on lessons from the past, NBFCs need to be strengthened to play an importantrole in India’s financial landscape.