Iyer, who is also the cofounder of Finezza, said co-lending is aimed at solving the liquidity and access to credit issues in the priority sectors and presents a significant share of the nearly $1-trillion digital lending opportunity in India by 2025.
He said Finezza is already working with some of the leading NBFCs and fintechs in the country and, specific to co-lending, a few large fintech NBFCs have approached it and expressed keen interest in implementing its platform.
“This keenness and agreement to engage precipitated our efforts to develop this functionality on our Loan Management System. The fintech NBFCs we are speaking with are in the domains of SME lending, education loans, loan against property,” Iyer said.
The startup will enable banks and non-banking finance companies (NBFCs) to easily manage their funds co-lent to the priority sectors in the RBI-approved 80:20 format, where NBFCs have to fund at least 20 per cent of the loan amount and banks have to provide the rest.
To push lending in priority sectors, including rural areas, renewable energy, education, low-cost housing and MSMEs, the Reserve Bank of India (RBI) had introduced the co-lending model in 2020. The process solves the problem of access to funds for the NBFCs, increases reach in the priority sectors for the banks and makes credit available at affordable terms to borrowers.
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Iyer said Finezza’s platform will not only facilitate disbursing loans under the co-lending model, it will also remove various operational inefficiencies.
Asked about the market size Finezza is targeting, Iyer said co-lending is purported to solve the liquidity issues in the priority sectors. For large business loans, loan syndication by banks has always existed, the real challenge is in the SMEs, small ticket home loans, agri loans, and other segments.
“This market represents a significant share of the nearly USD 1 trillion of digital lending opportunity in India (by 2025). A conservative estimate will put this at USD 300 to 400 billion. As a platform provider, even if 1 per cent of this volume flows through our platform, we are looking at a very significant market,” he added.
In a co-lending arrangement, most of the capital to fund the loan comes from the banking partner who offers the money at a lesser rate compared to the NBFC. However, the onus of originating the loan, servicing the customer, and recovering the loan amount lies with the NBFC.
While operationalising the co-lending concept at scale, challenges arise when bifurcating the principal, rate of interest and other components like the processing fee, penal interest, and so on, after the loan is recovered. The operational complexity increases further if an NBFC is working with multiple co-lending partners.
Finezza’s loan management system will help clients – banks and NBFCs – manage the co-lending partnerships, set up and maintain the co-lending terms, thereby solving their operational challenges and expenditure issues.
