CO-LENDING AND ITS BENEFITS TO THE ENTIRE LENDING ECOSYSTEM

-by Shachindra Nath, Vice Chairman & Managing Director, U GRO Capital

Co-lending is an arrangement in which banks and non-banks agree on a common lending policy and try to solve the funding needs of the underserved and unserved by lending to them jointly and sharing the risk rewards in the ratio of participation.

While banks have large networks, their ability to underwrite the underlying customers and recover when the need arises become limiting when dealing with the MSME segments. NBFCs, on the other hand, have the willingness, ability, agility, and technological readiness to reach out to that segment, assess the end customer's creditworthiness, and manage the loan's life cycle.

However, the capacity of NBFCs is becoming constrained because of high and growing demand, the availability of capital to them, and the availability of large debt at affordable cost. This is being addressed by the co-lending model, in which NBFCs deploy a small portion of their capital, arrange funding through a co-lending partner, and earn a spread. The customer receives the desired credit.

The main beneficiaries of this scheme are the MSMEs. Since banks make up a bigger portion of the overall amount of credit supplied, interest rates are lower than they would be through a typical NBFC lending program, allowing borrowers to obtain the necessary credit faster and at a more affordable rate.

Modern fintech and data-tech NBFCs are using a digital strategy to better understand the underlying client. The co-lending ecosystem is strengthened by technology. In contrast to traditional lending methods, data-tech NBFCs use digital platforms. Technology-driven algorithms are used reduce the cost of acquiring customers, and newer models based on diverse parameters such as cashflows, banking behaviours, GST returns are deployed, which can significantly improve underwriting standards. The ability of NBFCs to recover delinquent customers in a timely and efficient manner also benefits the entire MSME lending ecosystem.

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