Let us exploit the full potential of collaborative lending

India's financial ecosystem is evolving fast, driven by digitization and the need for inclusive credit.

- VIJAY MANI

Within this landscape, collaborative lending has emerged as a promising way to bridge traditional credit gaps and bring formal finance closer to retail borrowers as well as small and medium businesses, especially the historically underserved.

Among the various collaborative lending models available to banks and non-bank financial companies (NBFCs), two are most popular. One, co-lending arrangements between banks and NBFCs; and two, partnerships involving digital Lending Service Providers (LSPs). Though these models currently represent a small portion of India's total outstanding advances, their growth is far outpacing that of conventional lending.

Synergy is at the heart of collaborative lending. Traditional banks and large NBFCs bring capital strength, regulatory compliance and reach. On the other hand, smaller NBFCs, fintech firms and digital platforms are agile, well connected to niche borrower segments and often excel in technology-driven origination and underwriting.

For example, a rural-focused NBFC that understands the borrowing behaviour of dairy farmers or small kirana shop owners in Tier 3 towns may have high-quality leads and underwriting insights, but may lack capital or the regulatory headroom to scale up. Joining forces with a larger bank or NBFC through co-lending would benefit both entities, while the borrower gets faster credit.