In what will be the first-ever platform of its kind, Finezza, a homegrown B2B Lending Lifecycle Management (LLM) solution provider, announced that its LLM platform will soon be co-lending ready. The platform will enable Banks and non-banking financial institutions to easily manage their assets co-lent to the priority sector in the RBI-approved 80:20 format, where NBFCs have to fund at least 20% of the loan amount and Banks have to fund the rest.
Finezza will go to the market with the updated platform in November 2022.
In a push to lending in priority sectors, including rural areas, renewable energy, students, low-cost housing customers and MSMEs, the Reserve Bank of India (RBI) introduced the co-lending model (CLM) in 2020. The process of co-lending solves the problem of access to funds for the NBFCs, increases reach in the priority sectors for the banks and makes credit available at affordable terms to borrowers. Notably, India has registered many co-lending tie-ups between banks and NBFCs, of late.
In a co-lending arrangement, most of the capital to fund the loan comes from the banking partner who offers the money at a lesser rate compared to the NBFC. However, the onus of originating the loan, servicing the customer, and recovering the loan amount lies with the NBFC.
While operationalizing the co-lending concept at scale, challenges arise when bifurcating the principal, rate of interest (ROI) and other components like the processing fee, penal interest, and so on, once the loan is recovered. The operational complexity increases even further if an NBFC is working with multiple co-lending partners.
Finezza’s revolutionary loan management system (LMS that is part of the LLM site) will help clients — including banks and NBFCs — manage the co-lending partnerships, set up and maintain the co-lending terms, and manage the three different views of the co-lent loan — thereby, greatly solving the operational challenges and operational expenditure that co-lending brings along with it.
Helping clients manage multiple loan records on one dashboard, Finezza’s LMS will allow greater efficiency for co-lending at three levels: The entire loan, ROI, and terms to the borrower; The 80% loan that reflects the bank’s share of principal, ROI, and other terms; and the 20% loan that reflects the NBFC’s share of principal, ROI, and other terms.
“With this in place, all the parties, at all times, will have accurate views of the loan, the Bank will know accurately about the health of its assets, the NBFC will know accurately about the health of its assets, and how much it owes to each of the co-lending partners. The market opportunity for co-lending models is in the range of $350 Billion to $500 Billion. We are thrilled to launch the first-of-its-kind co-lending management system in India to bring better structure and system to the larger digital credit ecosystem in India,” says Krishnan Iyer, CEO, Finezza.
Once launched, Finezza’s co-lending ready LMS will be a game changer in the market as it will allow its customers to get into co-lending arrangements, set up co-lending partners and the terms of the engagements in the system, create the customer, the bank, and the NBFC views of the loan, manage the disbursals, collections, and allocations automatically, give transparent views of the loans to all the parties involved. It will also help give accurate reports to the credit bureaus, reduce operational challenges, inefficiencies, and costs drastically, help the credit market grow fast with the operationalization of co-lending, and help its customers scale their business fast when the market opportunity has opened up.
Additionally, Finezza has recently announced its tech-driven lending solution for NBFCs with loan books below Rs 500 crores, for a fixed fee for three years.