Fintech platform U GRO Capital and Government lender Central Bank of India have entered into a co-lending agreement to disburse loans of ₹1000 crore to Micro, Medium And Small Enterprises (MSMEs) over the next 12 months. U GRO Capital will offer loans to the MSME borrowers under its various programmes like Pratham, Sanjeevani, Saathi, GRO MSME and Machinery financing. For lending capital, the Central Bank will make use of U GRO Capital’s digital technology platform driven by a Data Tripod of GST, Banking and Bureau, along with the company’s multi-channel distribution reach.
This arrangement between the two lenders will make sure that the overlooked MSME sector will not face shortage of capital as the aim is to disburse ₹1000 crore under “priority sector” to U GRO’s MSME segments across all product categories at economical rates.
The partnership between the two will leverage GRO X-stream platform, by U GRO Capital which combines banks with other fintech and payment platforms, NBFCs, neobanks, market places and digital platforms through APIs.
As per a statement by Central Bank of India, the partnership between both entities in this co-lending arrangement will result in greater expansion of portfolio by Central Bank of India & Ugro Capital Ltd.
In October, U GRO Capital had announced a co-origination partnership with Kinara Capital to offer collateral-free business loans to MSMEs which was also powered by U GRO’s Gro X-stream platform.
What is Co-Lending and How does it work?
- The Reserve Bank of India introduced co-lending guidelines in 2018 to focus on priority sectors such as MSMEs, rural development and renewable energy.
- Under co-lending or co-origination, banks and non banking institutions come together to form an arrangement to provide credit to unbanked and underserved sectors.
- Banks and NBFCs or fintech platforms share the risk in a ratio of 80:20, which means that 80 percent of the loan amount will be reflected in the bank’s balance sheet and 20 percent in NBFC’s or HFC’s balance sheet.
- RBI amended the guidelines in 2020 to include some changes in the framework and also included Housing Finance Companies (HFC) under the Co-Lending Model (CLM).
- Co-lending addresses the credit gap especially in tier-2 and tier-3 cities, with low cost of funds and a greater focus on unserved sectors.
- To explain simply, banks will provide capital to NBFCs and the latter will pass it on to the required sectors.
- Banks will infuse capital to fund-starved NBFCs and in turn increase their spread in unbanked areas where the latter have a stronger presence.
Speaking about the partnership, the Executive Director, Central Bank of India, Rajeev Puri, said “We believe this initiative will financially empower a large section of MSME borrowers. We believe, Co–lending as a concept is picking up pace and would change the lending landscape of credit dissemination for MSMEs in India. This agreement is in line with the Central Bank of India’s objective to accelerate the credit to MSMEs in India and contribute towards the mission of Atmanirbhar Bharat by making credit available to MSMEs at an affordable cost."
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