Co-Lending

If you're in the lending space and haven't yet explored co-lending, you're probably missing out on a significant opportunity to expand your reach, reduce risks, and offer more flexible loans. This innovative model is reshaping the lending ecosystem, offering immense potential to both traditional financial institutions and NBFCs (Non-Banking Financial Companies). While this has been around for a while, it truly took off in 2018 when the Reserve Bank of India (RBI) introduced a framework for the co-origination of loans by banks and NBFCs to serve priority sectors. But why and how co-lending is an emerging way, and why is it gaining so much traction - let’s get all the answers here. What is Co-Lending? Co-lending or co-origination is a collaborative approach where two or more lenders – typically a bank and a non-bank such as Fintech, NBFCs, and more - come together to provide a joint loan to a borrower. This innovative model capitalizes on the strengths of both parties—the agility of NBFCs and the lower cost of capital from banks. This synergy results in more flexible and accessible credit solutions for businesses and individuals. In India, co-lending has gained immense traction, especially after the Reserve Bank of India (RBI) introduced the Co-origination of Loans model in 2018. This framework was later revamped in 2020 under the name Co-Lending Model (CLM), which emphasized better collaboration, risk-sharing, and operational flexibility between banks and NBFCs. But what has caused this sudden shift toward co-lending? Let’s break it down. The first NBFC to support this arrangement was Small Business Finance (SBFC) which co-lend in 2019 with ICICI Bank. Emerging Trends in Co-Lending The co-lending space has witnessed tremendous growth due to several factors. First, the need to boost credit to priority sectors, such as agriculture, small and medium-sized enterprises (SMEs), and affordable housing, has driven financial institutions to innovate. Second, the pandemic accelerated the shift toward digital lending, and digital co-lending platforms are now a major force behind this change. Consider these eye-opening stats: As of 2021-22, the co-lending market in India saw a 36% growth, particularly in the rural and semi-urban sectors - Source By 2025, the digital lending market is expected to be valued at $350 billion, and co-lending models are a key contributor to this expansion - PwC These trends reveal that co-lending partnerships are not just a passing phase—they are a revolutionary model set to reshape the future of credit in India. The Mechanics of Co-Lending: How Does It Work? 80:20 Risk Split: The RBI mandates that NBFCs hold at least 20% of the loan risk, with the remaining 80% covered by banks. Shared interest rates: The loan is offered at a blended interest rate, calculated based on the respective interest rates of both entities, thus lowering the borrower’s cost. Risk and reward sharing: Both institutions split the risks and rewards in proportion to their loan contribution, leading to a fair and transparent process. As a result, co-lending in India has opened up massive opportunities for reaching underserved customers, particularly in the priority sectors of agriculture, MSMEs, and low-income housing. Note: The borrowers, however, interact with only one entity, which makes the lending process seamless for them. What’s even more exciting is the digital co-lending ecosystem. Many NBFCs and banks now use co-lending platforms to streamline this entire process—making loan origination, documentation, and disbursement digital and fast. This means faster loan processing, improved customer experience, and enhanced credit accessibility for underserved sectors. Check this: Digital Transformation of Your Lending Business with Lendmantra The Benefits of Co-Lending Banks and NBFCs may seem like competitors, but co-lending partnerships show that collaboration can deliver mutual benefits. Here’s how: 1. Shared Risk, Higher Rewards In traditional lending, a bank or NBFC carries the entire risk of a loan default. With co-lending, this burden is distributed between both institutions, which mitigates individual exposure. Banks benefit from NBFCs’ agility in underwriting and disbursing loans, while NBFCs gain access to low-cost capital from banks. 2. Increased Credit Flow to Underserved Segments Many small businesses and individuals in India find it difficult to secure credit from traditional banks. Co-lending allows both banks and NBFCs to tap into these high-potential segments. This aligns with the RBI’s priority sector lending initiative, helping banks enter new markets, while NBFCs retain their quick assessment capabilities. 3. Competitive Loan Pricing One of the standout features of co-lending is the ability to offer borrowers a single blended interest rate. NBFCs and banks contribute at their respective rates, and borrowers enjoy a lower overall cost of credit, fostering financial inclusion. With this model, both banks and NBFCs pass on cost savings to the borrower, making credit more affordable. 4. Improved Loan Origination and Disbursement Banks traditionally take longer to disburse loans due to extensive checks. On the other hand, NBFCs are quicker but may not have access to the same pool of low-cost funds. Co-lending platforms bring the best of both worlds—quick origination by NBFCs and competitive pricing through banks—ensuring timely loan disbursal and enhanced borrower satisfaction. 5. Leverage Technology for Faster Processes With digital co-lending, technology enables faster loan disbursement and a more streamlined approach. By using co-lending platforms, both banks and NBFCs can automate much of the loan process—making it more efficient for financial institutions and more convenient for borrowers. Digital Co-Lending: The Future is Here For both banks and NBFCs, the future of co-lending is tied to digital transformation. Fintech-powered platforms can use advanced algorithms, data analytics, and AI-driven solutions to assess creditworthiness more accurately, ensure real-time KYC compliance, and speed up loan approvals. “lendmantra’s dynamic rules engine enables lenders to define customizable loan policies, ensuring that both the bank’s and NBFC’s risk appetites are met while offering personalized credit solutions to borrowers.” So don’t wait, Book Your Free Demo Today ! This means If you’re an NBFC – Then you can enhance credit availability, minimize risk, and unlock access to a broader borrower base – all with co-lending. If you’re a bank – co-lending provides an opportunity to enter markets where they traditionally lack reach and agility, particularly in rural areas. For borrowers - co-lending offers quicker access to loans, lower interest rates, and more flexible terms, thanks to the synergy between banks and NBFCs. Co-Lending: The Way Forward With the rise of digital platforms, AI, and regulatory support, co-lending is well on its way to becoming a mainstay of the Indian financial ecosystem. For NBFCs, this model represents a golden opportunity to expand their reach, offer competitive loans, and manage risk more effectively. As more NBFCs and banks embrace co-lending partnerships, the landscape of credit in India is set for a revolutionary shift. If you are an NBFC looking to explore co-lending opportunities, now is the time to act. Make the most of this model and bring more value to your customers with seamless, transparent, and cost-effective lending solutions. Are you ready to explore the co-lending advantage with lendmantra? Reach out to us today to learn more about how we can transform your lending process! Read more: News & Blog - lendmantra Frequently Asked Questions :

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Co-Lending

Co-Lending – An emerging way