How will you benefit from investing early in mutual funds?

Now when you borrow a loan, usually its the bank or the financial entity that bears the entire risk. But have you heard of a lending model where the loan is given by one entity and the risk is shared by two entities. That is called as a co-lending model and that is what we will tell you here.

So, as said in the beginning, co-lending is an arrangement where the loan is given by one entity but the risk is shared by two entities. A Non Banking Financial Company (NBFC) is the originator while a bank is where major portion of the loan rests.

An NBFC can partner with multiple banks and a bank can partner with multiple NBFCs. For example, lets say an NBFC has tied up with a Bank. Here the bank need not share the responsibility of generating the loan. The NBFC runs the basic filters include Know Your Customer’ or KYC for the prospective borrower before forwarding the application to the bank.

The most binding aspect of this structure is the risk sharing code-80% of the risk is borne by the bank and the rest by NBFC. Therefore, it enforces accountability on NBFC.

Now coming to the ticket size of the loan. Typically, these loans are retail focused and are small sized. Since co-lending is more popular in the small business loan and affordable housing segments. The ticket sizes start in the range of 3 lakh rupees to 5 lakh rupees and can go up to 1 crore rupees.