When the Reserve Bank of India (RBI) first gave out guidelines on the co-origination of loans between banks and Non-Banking Finance Companies (NBFCs) in September 2018, the aim was to improve access to affordable credit to the priority sector, which includes those under agriculture, education and Micro, Small and Medium Enterprise (MSME) sectors, among others.
Co-lending is an arrangement between banks and non-deposit holding Financial Institutions (FIs) such as NBFCs and Housing Finance Companies (HFCs), wherein both parties share the risks and rewards throughout the lifecycle of the loan in a pre-decided ratio.
On paper, co-lending was supposed to provide a boost to credit disbursal, acting as a bridge between banks, which did not have the last mile reach, and NBFCs and HFCs, while at times cannot secure funds in a cost-affordable manner, leading to high interest rates.
However, two years since the rollout of these guidelines, co-lending is yet to take off in a significant manner.
Challenges to scale and the way forward
While co-lending offered an appropriate mechanism to improve credit disbursal, there were many obstacles towards appropriately scaling the system for the reasons listed below:
- Integration: The Application Programming Interfaces (APIs) of a bank or lender and the Originator Partner (NBFCs) are often different. Integrating them is a time consuming process, and takes a minimum of at least five to six months
- The lack of uniformity in the credit parameters between different partners
- The persistence of operations issues in real time, multi-directional data flow, underwriting, reconciliation, reporting, Management Information Systems (MIS), and compliance
- Data security
The manual, offline modes of credit disbursal restricts the scale up of co-lending. However, such issues are rarely solved by regular loan origination system (LOS) and loan management system (LMS) providers, who typically address the operational aspect alone.This requires a more comprehensive offering that integrates the discovery, partner selection, integration, credit operational, reporting and reconciliation aspects.
To that end, CredAvenue is Vivriti Capital’s home-grown, proprietary platform, the first of its kind catering to multiple asset classes and partnerships ranging from co-lending to Business Correspondent (BC).
“CredAvenue’s co-origination/BC platform clubs our sectoral and lending operations expertise with technology solutions. What we are solving for is not just the operational issue from a technology service provider's view, but also providing a comprehensive offering that combines credit, operations, reconciliation, reporting and risk management in one plug and play tool. This, coupled with a many-many integration feature through a one time onboarding process, makes it far more scalable than any model tested so far,” says Gaurav Kumar, Founder and CEO, CredAvenue.
The platform has helped to disburse more than Rs 750 crore to over 5.1 lakh individual and SME clients. Aside from the co-origination module, CredAvenue has an institutional credit platform that offers a range of debt and structured finance products. It has partnered with 20+ FIs, including Esskay Finance, Kinara Capital, EarlySalary, Krazybee among others. It has also onboarded banks, Small Finance Banks (SFBs) and NBFCs as lenders.
A finance platform developed by practitioners
CredAvenue is able to solve the unique challenges that stakeholders in co-lending face as it is a robust platform designed from a practitioner’s perspective and enables co-lending at scale, given Vivriti Capital’s experience of working with 250+ FIs and having facilitated debt deals of over Rs 30,000 crore.
“If you take the lender’s perspective- all you have to do is integrate with the platform, choose multiple partners, set your credit and product parameters, and get going as the platform gets configured to match your requirements. From an originators perspective- it entails access to multiple lenders through a one time integration. It also allows for an operationally lean and flexible environment which we believe is critical for co-lending to take off,” says Gaurav.
The platform takes a holistic approach to solving multiple challenges both lenders and originators face by structuring the features across key modules.
Through the integration module, lenders and originators can easily integrate their APIs in a one-time exercise to enable a complete end-to-end operations flow, leading to more operational efficiency. The module also allows for lenders to connect with NBFCs across multiple sectors, including fintech, gold, commercial vehicles, two-wheelers, small and medium enterprises (SMEs), loans against property (LAP), agriculture, microfinance, consumer finance, affordable housing finance and more. It draws synergies from CredAvenue’s institutional platform that has over 250 NBFCs on board and offers exhaustive entity level diligence and risk management solutions.
Through the co-lending credit module, lenders can easily choose the product parameters based on which the system can be configured to replicate its credit filters, underwriting and product policy. The module also provides a 360-degree customer view with multiple features. One of the important ones is a configurable credit toolbox that provides detailed customer level information, auto approvals and exception management and audit trails. The module also allows for the integration of databases with credit bureaus and KYC agencies such as Idify, NSDL, CIBIL check. As a result, lenders can also set up additional credit validation checks.
The platform’s operations module encompasses the complete lending lifecycle. One of its key features is the ability to automate the repayment schedule split between partners, disbursement and collections tracking. A complex aspect in co-lending is the different commercial arrangement which each partnership entails and its ensuing reconciliation.
The platform has in-built modules for the settlement of overdue loans, first loan default guarantee (FLDG), processing fee,servicer fee split and other built-in adjustments that can be configured as per arrangement between lenders and originators. A reporting module enables not just ease of compliance and operations related reporting, but also ensures that both parties are in sync across the entire lending lifecycle.
The platform also comes with risk management solutions, including portfolio monitoring tools, early warning signals, and loss estimation models for real time and dynamic risk assessment. The core idea being to provide a plug and play platform that is scalable, highly configurable and yet seamless for both the lenders and originators.
To know more about how CredAvenue can improve co-lending operations, click here.
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