What is Co Lending?

Co lending is an arrangement where multiple lenders partner to provide loans to borrowers. This helps increase lending capacity and reduces risk for individual lenders. Each lender sets their own terms and conditions. Co lending is used in various industries like real estate, small business loans, and personal loans.

Key Players in Co Lending

banks and nbfcs graphic

Banks and Non-Banking Financial Companies (NBFCs) form partnerships to provide loans, with banks offering a part of the loan amount and NBFCs contributing the rest. This collaboration allows both parties to share the risk and profit generated from the loan, resulting in a smoother and more streamlined customer experience.

Co lending benefits banks by helping them reach untapped markets and customers, while NBFCs gain access to lower-cost funds, enhancing the overall customer experience – thanks to improved personal touch and better interface.

One notable co lending partnership is between SBFC (Small Business Finance) and ICICI Bank. This partnership allows the two entities to join forces and provide funding to borrowers who may not have been able to secure loans otherwise.

Co Lending Models

co lending models

Co Lending Regulations

rbi header for co lending guidelines

Co lending, as a rapidly emerging trend in finance, needs to be regulated by the Reserve Bank of India (RBI) and the Ministry of Finance. To serve this purpose, regulators have issued regulations and guidelines to ensure the safety of borrowers and lenders alike. One such regulation issued by the RBI in November 2020 requires banks to maintain a minimum 20% share of the individual loans co-originated by them with NBFCs to avoid direct exposure to potential concentration risk.

This move was made to mitigate the potential concentration risk that may arise due to the involvement of a large number of NBFCs in co lending arrangements. Additionally, the RBI has mandated that banks must ensure that the NBFC partner complies with all relevant norms and regulations to further minimize direct exposure to risks.

These regulations aim to create a single point of interface between banks and NBFCs, promoting transparency and reducing risks for both parties involved.

Terms & Conditions of Co Lending Arrangement

Co-lending arrangements operate under mutually agreed terms and conditions, including the sharing of credit risk and interest income. The Reserve Bank of India and the Ministry of Finance have issued guidelines to regulate these arrangements, ensuring compliance with regulatory requirements and establishing a framework for seamless collaboration.

The agreement outlines the roles, responsibilities, and liabilities of both the bank and the NBFC, creating a clear understanding of their respective contributions. This tripartite agreement is crucial in facilitating co-lending, allowing banks and NBFCs to jointly contribute credit and provide financial services to underserved customers at an affordable cost.

Co Lending Infrastructure

Co lending in India is supported by a robust infrastructure, including the use of escrow accounts to ensure secure and efficient transactions.

When selecting a co lending partner, it’s crucial to consider factors like reputation, financial stability, and expertise in the target segment. Evaluate their technological capabilities and track record in co lending, as well as their understanding of regulatory requirements, including the use of escrow accounts.

A strong partnership built on trust and effective communication is essential for long-term success.

Learn More about Digital Lending

Advantages and Disadvantages of Co Lending

co lending benefits

Co lending in the financial services sector offers numerous advantages to banks, NBFCs, and consumers.

To Banks

  • Co lending presents an opportunity for banks to increase their share of credit to priority sectors.
  • By partnering with NBFCs, banks can tap into their expertise and reach in specific market segments.
  • Allows banks to benefit from product innovations and lower interest rates, ultimately expanding their loan portfolio.
  • Helps banks meet regulatory requirements like priority sector lending norms.
  • Enables banks enhance their presence in underserved areas, bridging the credit gap and providing financial services to potential customers.


  • NBFCs can leverage their expertise in niche sectors and reach underserved customers
  • Partnering with banks grants NBFCs access to lower-cost funds and a wider customer base.
  • This enables NBFCs to offer competitive interest rates and customized loan products, enhancing credit flow to priority sectors and supporting financial inclusion initiatives.
  • NBFCs can benefit from the technological interventions and digital penetration of their partner banks.
  • Co lending arrangements allow NBFCs to maximize their potential customer reach and contribute to filling the credit gap in the market.

To Consumers

  • Consumers benefit greatly from this arrangement, particularly underserved customers who may have limited access to credit.
  • Access to a wide range of loan products and enjoy competitive interest rates.
  • The process is faster, as it reduces the turnaround time for loan approvals and disbursements.
  • It also plays a crucial role in ensuring the availability of credit in underserved sectors and rural areas.
  • Creates opportunities for small businesses and individuals to access affordable finance.

Applications of Co Lending

Co lending offers a wide range of application and opportunities across various sectors, including retail, MSMEs, agriculture, and housing finance. It can be utilized for financing business loans, working capital requirements, and capital expenditure.

This arrangement not only provides opportunities for product diversification and expansion into new markets but also enable lenders to share the credit risk and leverage each other’s strengths.

The Future of Co Lending


As it gains traction in the financial services industry, the future looks promising. The joint contribution of credit by multiple lenders offers benefits like diversification, reduced risk, and access to larger loan amounts.

This growing trend is set to disrupt the traditional lending industry, attracting more lenders and borrowers. With housing finance companies and other financial institutions embracing co lending, there is potential to bridge the credit gap and offer affordable cost loans to underserved customers.

The entire process, from application to recovery of interest, is streamlined, saving a lot of time for both lenders and borrowers.

Frequently Asked Questions

What is the meaning of onward lending?

Onward lending refers to the practice of borrowing funds from one lender and then lending them to another borrower. It is a common strategy, where multiple lenders collaborate to finance a single loan. This approach helps spread the risk across different borrowers but also comes with its own set of risks and regulatory requirements.

How does a co-lending model work?

A co-lending model works by bringing together multiple lenders to fund a single loan. Each lender contributes based on their risk appetite and return expectations, with the borrower receiving funds in proportion to each lender's contribution. The lead lender manages loan servicing and distributes returns to other lenders.

What is the typical ticket-size and rate of interest in co-lending?

The ticket-size varies across platforms and lenders, ranging from a few thousand dollars to several million dollars. Similarly, the interest rates also vary depending on the platform and lender, but they are generally competitive and affordable compared to traditional lending options. The rates are determined based on various factors such as the borrower's creditworthiness, loan tenure, and market conditions.

Is co-lending only limited to housing finance?

No, it is not limited to housing finance. While it is true that it has gained popularity in the housing finance sector, it can also be extended to other segments such as personal but generally, co-lending offers competitive rates compared to traditional lenders.

How to Choose the Right Co-Lending Partner?

When choosing a partner, it's important to find someone who shares your business goals and values. Consider their expertise and experience in your industry, evaluate their financial stability and track record of successful partnerships, and ensure clear communication channels for a strong working relationship.


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