What is Co-Lending?

The term co-lending or co-origination refers to the coming together of two lending firms to disburse joint loans to the borrowers. Considered to be a major part of the co-financing structure, it is a set-up where the banking and non-banking sector join hands in an arrangement for the joint contribution of credit for priority sector lending.

This alliance authorizes firms to source clients, conduct credit appraisals & disburse a small part of the loan amount. According to this arrangement, both banks and NBFCs share risk in a ratio of 80:20; 80 percent of loan is borne by the bank and a minimum of 20 percent remains with non-banks like NBFCs, HFCs, Fintech, etc.

Although the concept of co lending agreement has existed over the years, it has led to more banks and NBFCs coming together to make funds available to the priority sector after the Reserve Bank of India (RBI) laid out the framework for co-origination of loans.

SBFC (Small Business Finance), an NBFC lending to small businesses, was one of the first NBFCs to co-lend with ICICI Bank in 2019. Recently, more banks and NBFCs have embarked on increasing the Co-Lending tie-ups. Now that co-lending meaning is clear, let’s look at some of its benefits.

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Terms of a Co-Lending Arrangement

As per the Reserve Bank of India’s mandated regulations for a co-lending arrangement, there are numerous typical terms of the agreement between the two respective parties. Here is a detailed look at some of them:

  1. 80-20 split: In the case of a co-lending arrangement, loans are disbursed in an 80:20 capital deployment ratio between the two entities, i.e., the bank and the NBFC, respectively. It benefits both the bank and the NBFC. For instance, it allows most of the capital to come from banks, which have convenient access to a less expensive source. Similarly, it allows NBFCs to perform as the consumer-facing party in the arrangement. The NBFC in question takes care of the sourcing and the corresponding customer experience.
  2. Joint underwriting: Co-lending arrangements between banks and NBFCs allow both parties to underwrite jointly, which provides for two checks. This is possible mainly because both parties are equally involved.
  3. Risk-return split: The 80:20 split for the deployment of capital, as mentioned earlier, minimizes the risk and return quotient that is split between the banks and NBFCs.
  4. Final interest rate charged: In most cases, banks feature a lower cost of capital. In contrast, NBFCs have a comparatively higher price. Thus, the final rate of interest provided to the customers is usually a combination-weighted average capital cost besides their respective commissions. It usually lies somewhere between the rate of interest charged to the customers individually by both entities, i.e., the NBFC and bank.
  5. Defined roles: Whenever two entities enter into a co-lending arrangement, they are provided with an official agreement. The agreement clearly states and defines the roles and responsibilities of both the bank and the NBFC. In most cases, the NBFC is the party that overlooks sourcing, customer experience, and customer management. Besides this, it is also responsible for product innovations, quick documentation, and faster TATs. On the other hand, banks hold the responsibility of getting cheap finds and building credibility to attract and retain customers.

How Does Co-Lending Work?

The RBI had earlier laid out the co-origination framework in 2018, allowing banks and NBFCs to co-originate loans. But, in 2020, RBI Co-Lending guidelines were further amended and renamed as CLM- Co-Lending Models. It included Housing Finance Companies, and some modifications were made in its framework.

CLM aims to improve the credit flow to the unserved and underserved segments of the economy at an affordable cost. The model works on the principle that banks have lower costs of funds, and NBFCs have greater reach beyond tier-2 centers.

As per RBI norms, a minimum of 20% of the credit risk through direct exposure shall be on NBFCs books until maturity, and the balance of 80% will be on the bank’s books. The bank and NBFC share the repayment & recovery of interest in proportion to their shares in credit and interest, respectively, upon maturity.

To simply put how Co-Lending works:

Banks lend to NBFC, and since NBFCs have a greater reach, they pass it on to the priority sectors.

NBFCs serve as the single point of contact for the customers, and a tripartite agreement is signed between the customers, banks, and NBFCs.

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Advantages of Co-Lending 

To banks: 

  1. Greater reach: As opposed to other financial institutions, NBFCs generally have better reach and access to remotely-located areas of a country. Moreover, they also have good reachability to underserved sectors and more digital penetration. Hence, banks benefit from a more extensive pool of businesses and customers they can lend to.
  2. Better customer experience: The primary objective of NBFCs and Fintechs is majorly customer centricity. Thus, the modern partner looks over the process of managing the customer base in any co-lending arrangement. This facilitates conversions as well as multiple repeat lending opportunities.
  3. Skin-in-the-game: As per the regulations, NBFCs are bound to put in at least 20% of the entire capital amount, which puts the other entity (banks) at ease regarding the customers’ quality it receives. As a result, banks do not have to put in excessive underwriting efforts.
  4. Risk management: Since the risk is divided between the banks and NBFCs in co-lending arrangements, banks benefit from an extra sense of security. Moreover, they also benefit from the minimisation of losses if and when things do not work out in their favour.


  1. Less interest rates: As mentioned earlier, banks enjoy the advantage of having access to the economy’s cheapest fund sources. Thus, NBFCs enjoy the benefit of extending loans to customers at lower rates of interest as compared to other entities in the business.
  2. Credibility: With the help of co-lending partnerships made with top-tier banks, newly-established firms and organizations who are on the lookout for entering the business can build their brand credibility in the customers’ eyes.
  3. Risk management: In most co-lending arrangements, the risk is divided equally between both entities involved. Banks employ the majority of the capital, and thus, NBFCs can minimize losses incurred on their loans in case of any bad debts.

To Consumers: 

  1. Better consumer experience: One of the primary objectives of new and advanced partners such as fintechs is to ensure that customers have a smooth and seamless experience throughout the entire process. This helps them in retaining customers for a more extended period and cross-sell their finance-related products in the near future.
  2. Lower interest rates: Consumers are saved from the hassle of paying extremely high-interest rates to go through a seamless lending process. This is mainly because multiple banks are on board, which significantly reduces the interest rate.
  3. Underserved customers: Co-lenders act as the perfect outlets for credit-deprived communities in rural regions. Moreover, individuals who do not have an impressive or high credit score find co-lenders a great fit since the latter provides them uninhibited access to lending products, albeit not directly, from different banks.
  4. Knowledge dissemination: The majority of the NBFCs and fintechs strive to offer an exceptional customer experience. They provide a personal touch to customers by educating them about the co-lending contract’s terms and conditions. As a result, it significantly contributes to the financial literacy of underserved customers.

Benefits of Co-Lending

A co-lending model helps traditional banks to give out higher amounts of funds using the fintech working model for a greater digital reach. While banks have the funds, NBFCs have the reach. A co-lending model thus proves to be symbiotic for both. This model is effective as it uses robust technology to simplify the operational challenges faced by traditional lending models. There are several benefits of a co-lending model, such as:

  1. Improvement in quality and turnaround time: The digitization of financial institutions has led to improved quality of services. Robust technology has improved turnaround time for all the processes, from application to disbursal and delivering the services in real-time.
  2. Lower Interest Rates: Through the co-lending model, a variety of products can be served at lower interest rates to the priority customers. Thanks to the digital lenders, the cost of acquiring customers has reduced substantially, which, coupled with the low cost of capital banks bring, reduces the overall cost. The cost-advantage can be passed on to the borrowers.
  3. Automated & Paperless Processes: The entire process is automated, facilitating the borrowers to access funds from the comfort of their homes – right from application to disbursal. Further, new-age lenders have adopted e-KYC, and Video KYC has simplified the process even more.
  4. Quick Loan Disbursal: Today, loans are available on easy-to-use, customer-friendly smartphone apps with just a click. It benefits the consumers, as the best of both worlds, digital channels, and physical branches are available under a co-lending model.
  5. Large Customer base: Fin-Techs utilize digital platforms to enhance their reach to potential customers, which helps cater to the needs of borrowers across geographical boundaries. Further, a co-lending model also helps fuel the economically weaker strata with the funds they require.

Why Is YubiCo-Lend The Perfect Co-Lending Platform For You?


Co-Lending platforms help connect NBFCs and banks to disburse joint loans to the borrowers, thus opening up a world of Co-Lending for you.

YubiCo-Lend (by Yubi) is one such fully integrated platform – a 1-stop solution – providing opportunities for easy discovery and seamless loan processing between NBFCs and banks. Also, it takes care of all the compliances and splitting requirements to power the complete Co-Lending ecosystem.

This platform helps NBFCs get discovered by banks to meet loan origination requirements. It has a partnership with 500+ lenders, and thus you can associate with the bank at a price that suits you.

Further, using this platform, banks can identify the NBFCs meeting your criteria with a transparent credit rating module and 250+ potential co-lending partners across multiple sectors. Also, Yubi’s all-in-one debt platform enables you to get a term/working capital loan very seamlessly by just switching between the platforms.

Additionally, Yubi provides benefits such as:

  • Seamless Integration
  • Alignment of Originators & Lenders Credit
  • End-to-end Operation
  • A complete portfolio management & monitoring solution

What Took So Long For Co-Lending To Take Off?

There have been many instances when the Ministry of Finance put forth the motion for PSU banks to adopt and implement co-lending models. Some PSU banks tied alliances with large non-banks. However, some of these collaborations did not take off. The main challenge that came forth was the execution at the basic level.

The list of hurdles that presented itself included IT integration of systems, and distinguished underwriting procedures and parameters. All these issues took quite a lot of time to get resolved.

According to Amit Sharma, MD & CEO of Satin Housing Finance Limited, the co-lending business is still in its early stages. However, he also stated that the relationship should sustain soon enough.

Application and Opportunities for Co-Lending

  1. Underserved and priority sector lending : Co-lending facilitates increasing liquidity & credit penetration in numerous underserved sectors. This, in turn, is helping to maximize the number of first-time borrowers in India, thereby filling the credit gap.

  2. Coming together of banks and NBFCs: Both banks and NBFCs play a crucial role in enhancing the system through a regular supply of funds to the right firms and customers. The co-lending system helps two economic pillars to work together and augment their respective capabilities.
  3. Technological Interventions: The CLM presents a unique opportunity to make the orthodox lending industry into a seamless experience for customers through multiple fintech-led technological interventions.


“Co-Lending Model” (CLM) helps improve the credit flow to both the unserved & the underserved sector comprising the economy and makes funds available at an affordable cost. This model combines the benefits of the lower cost of funds from banks and the extensive reach of the NBFCs.

According to the CLM model, banks are granted permission to co-lend in collaboration with all registered NBFCs (which includes the HFCs) on the basis of a prior agreement. The Co-Lending banks, in turn, will take their share of the individual loans back-to-back; however, NBFCs shall have to retain a minimum of 20% share of the individual loans on their books.

“Co-Lending Model” (CLM) helps the borrower get loans at a very affordable and competitive rate.

Yes, banks can provide credit to NBFCs for the purpose of on-lending to certain priority sectors.

There are two ways following which any NBFC can raise funds for lending. Firstly, they can borrow funds from other financial institutions. Secondly, they can raise funds by accepting non-chequable deposits.

Some of the most popular NBFCs in India include Power Finance Corporation Limited, Baja Finance Limited, Tata Capital Financial Services Limited, Mahindra & Mahindra Financial Services Limited, etc.

The guidelines of the co origination framework got amended in 2020 and rechristened as CLM or co lending models. Since co lending models are a distinctive type of financing method, they do not have any types or variants.