Finezza, a homegrown business to business Lending Lifecycle Management (LLM) solution provider, announced that it would soon offer co-lending solutions to enable banks and non-banking financial institutions (NBFC). 

This will help them efficiently manage assets co-lent to the priority sector according to the Reserve Bank of India (RBI) approved 80:20 format. As per this rule, NBFCs must fund at least 20 per cent of the loan amount, and banks must 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 micro, small and medium enterprises (MSMEs), the RBI introduced the co-lending model (CLM) in 2020. This co-lending process solves the problem of access to funds for the NBFCs, increases reach in the priority sectors for the banks and makes credit available at reasonable terms to borrowers. Notably, India has recently registered many co-lending tie-ups between banks and NBFCs.

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 than 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, etc., once the loan is recovered. The operational complexity increases even further if an NBFC is working with multiple co-lending partners.

Finezza’s loan management system (LMS), which 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. This will significantly solve the operational challenges and operational expenditure that co-lending brings. 

Helping clients manage multiple loan records on one dashboard, Finezza’s LMS allows greater efficiency for co-lending. This includes viewing the entire loan, return on investment and terms to the borrower 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 ranges from $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, chief executive officer of Finezza.

Once launched, Finezza's co-lending-ready LMS will allow its customers to get into co-lending arrangements, set up co-lending partners, and the terms of the engagements in the system. They can also automatically manage the disbursals, collections, and allocations, giving transparent views of the loans to all the parties involved. 

It will also help give accurate reports to the credit bureaus and reduce operational challenges, inefficiencies, and costs drastically. This would allow the credit market to grow faster with co-lending operationalization, helping customers to scale their business quickly when the market opportunity has opened up. 

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.