written by | October 14, 2021

MSME Lenders Kinara Capital and U GRO Capital announce co-origination partnership

Lending platform U GRO Capital and fintech firm Kinara Capital have entered into a strategic co-origination partnership to offer collateral-free business loans to small business entrepreneurs in India. The two companies are looking to disburse nearly ₹100 Crores by the end of FY2022 to MSMEs in the manufacturing, trading, and services sector.

The financing available for MSMEs will range from ₹1 lakh to ₹30 lakh with tenure ranging from 12–60 months.

The co-origination arrangement will take advantage of analytical data driven decisioning by U GRO Capital and integration through APIs with the smart technology platform of Kinara Capital. The two companies together have set their sights on easing access to formal credit for the hundreds of small business entrepreneurs of India who need financing for business growth.

What is Co-origination Lending or Co-Lending?

When a fintech firm comes together with a traditional lender to disburse loans, it is known as co-lending. Traditional lenders like banks do not have reach in all sections of the economy and this arrangement allows NBFCs (Non Banking Financial Companies) to bridge the gap between banks and these unreached sections. The association enables traditional firms to take the leverage of the digital reach of these NBFCs which follow an alternative credit scoring model, thus making lending easier.

Through co-lending, fintech firms can source clients, perform credit appraisals and disburse a small part of the loan amount while banks provide the substantial portion of funds. These fintech firms also provide services like risk assessment to banks.

In 2018, the Reserve Bank of India had issued guidelines on co-origination of loans by banks and NBFCs to help the banks in Priority Sector Lending (which includes MSMEs) enabled by the  wide reach of NBFCs.

How will Co-Lending be done?

Financing can be availed for working capital and asset purchase directly from Kinara Capital, and women-led businesses receive an automatic, upfront discount with the HerVikas program.

  • The co-origination partnership between U GRO Capital and Kinara Capital focuses on keeping the process seamless for the merchants and businessmen. 
  • The MSMEs will need to apply only once, directly with Kinara Capital. The process can be carried out online, by phone, or in-person with a representative from Kinara Capital. 
  • Once the loan is approved, the loan sanction documents will include the names of both U GRO Capital and Kinara Capital.
  • Kinara Capital seeks to process loan applications of MSME entrepreneurs fast enough to disburse them in 24 hours.

Through the tie-up, the companies are aiming to lend about 3000-4000 loans in the coming 8-12 months. The targeted sectors are :

  • Machine and auto components manufacturing
  • Food Production
  • Textiles 
  • Wholesalers, Retailers
  • Construction Material Suppliers etc.
  • Other first generation entrepreneurs with 5-6 lakh monthly turnover.

Under the collaboration,

  • Kinara Capital will underwrite the loans and share the applications with U GRO.
  • U GRO will underwrite in their own way and inform Kinara Capital whether they will participate or not.
  • If U GRO does not participate, Kinara Capital would still go ahead and lend on their balance sheet.

The association is being made possible by U GRO Capital’s Gro X-stream platform, which is API-driven and a customizable technology platform for fintechs, payment platforms, NBFCs, neoBanks, and other digital platforms. Through this platform, U GRO coordinates MSME loans and also does co-lending with banks and financial institutions

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