Co-lending as a model (originally known as co-origination of loans by banks and NBFCs) for lending to priority sectors involves joint contribution of credit by both the lenders and also sharing of risks and rewards, according to the Reserve Bank of India.
Mahindra Group’s non-banking financial company (NBFC) Mahindra & Mahindra Financial Services (Mahindra Finance) has partnered with digital MSME lender Lendingkart under a co-lending arrangement to offer business loans to SMEs. The deal highlights a boost to Mahindra Finance’s product diversification strategy and entry into the co-lending market for the SME sector.
Co-lending as a model (originally known as co-origination of loans by banks and NBFCs) for lending to priority sectors involves joint contribution of credit by both the lenders and also sharing of risks and rewards, according to the
The primary focus of the model is to enhance the flow of credit to the unserved and underserved sectors of the economy and make available funds at an affordable cost. The risk is shared in a ratio of 80:20, with 80 per cent loan with the bank and at least 20 per cent with NBFC.
“Through this co-lending initiative, our collective objective is to transform credit decisioning, boost assesibility and create financial agility in the SME space,” said Raul Rebello, MD&CEO – Designate, Mahindra Finance in a statement.
Under the 80:20 structure, Lendingkart will leverage its tech platform Lendingkart 2gthr – a co-lending SaaS platform for origination, underwriting, disbursals, and collections. The collaboration between Mahindra Finance and Lendingkart is envisioned as a long-term commitment, with the initial agreement spanning three years.
“Together with Mahindra Finance, we will leverage our knowledge and expertise to simplify finance for an emerging India,” said Harshvardhan Lunia, Founder & CEO, Lendingkart Group.
NBFC loans to MSMEs were over 3x that of banks during FY23 and FY24 till December, as per RBI’s report on the performance of the banking sector in December 2023, leveraging on the low cost of funds of banks and the greater reach of NBFCs.
In comparison to the 12.7 per cent and 12.4 per cent year-on-year (YoY) growth in MSME credit by banks as of March 2022 and March 2023, the credit growth by NBFCs to MSMEs stood at 21.2 per cent and 42.4 per cent respectively. As of March 2023, services MSMEs accounted for 66.6 per cent share of NBFC credit to the MSME sector vis-a-vis 33.4 per cent of MSMEs in industries.
