- BW Business World
Empowering MSMEs: Role Of Co-Lending In Fostering Financial Inclusion
In recent years, the significance of micro, small and medium enterprises (MSMEs) in driving economic growth and employment opportunities in India has become increasingly apparent. However, despite their potential, MSMEs often face significant challenges when it comes to accessing adequate financial support.
This is where co-lending, a collaborative lending model, has emerged as a game-changer, fostering financial inclusion and empowering MSMEs to realize their full potential.
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.
Thus, co-lending as a solution was born. It involves the partnership between a traditional financial institution, such as a bank, and a non-banking financial company (NBFC) in which they both agree on a common lending policy and tries to solve the funding needs of the underserved and unserved MSMEs by lending to them jointly and sharing the risk rewards in the ratio of participation.