fintech finezza nbfcs: Finezza in discussions with NBFCs for soon-to-launch co-lending platform: CEO
Iyer, who is also the co-founder of Finezza, said co-lending is aimed at solving liquidity and access to credit issues in the priority sectors and accounts for a significant share of the nearly $1 trillion digital lending opportunities in India by 2025.
He said Finezza is already working with some of the leading NBFCs and fintechs in the country and specifically for co-lending, a few large fintech NBFCs have approached and expressed keen interest in implementing the platform.
“This eagerness and agreement to engage accelerated our efforts to develop this functionality on our loan management system. The fintech NBFCs we are talking to are in the domains of SME loans, education loans, loans against property,” Iyer said.
The startup will enable banks and non-banking finance companies (NBFCs) to easily manage their funds with lending to priority sectors in the RBI-approved 80:20 format, where NBFCs have to fund at least 20 percent of the loan amount and banks must take care of the rest.
To push lending in priority sectors including rural areas, renewable energy, education, affordable housing and MSMEs, the Reserve Bank of India (RBI) had introduced the co-lending model in 2020. The process solves the problem of access to funds for NBFCs, increases reach in the priority sectors for the banks and makes credit available at reasonable terms for borrowers.
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Iyer said Finezza’s platform will not only facilitate disbursement of loans under the co-lending model, it will also remove various operational inefficiencies.
When asked about the market size Finezza is targeting, Iyer said co-lending is claimed to solve the liquidity problems in the priority sectors. For loans to large companies, loan syndication from banks has always existed, the real challenge lies in SMEs, small loans for mortgages, agricultural loans and other segments.
“This market represents a significant share of the nearly USD 1 trillion digital lending opportunity in India (by 2025). A conservative estimate would put this at USD 300 to 400 billion. As a platform provider, even if 1 percent of this volume flows through our platform , we’re looking at a very significant market,” he added.
In a co-lending arrangement, most of the capital to finance the loan comes from the bank partner who offers the money at a lower price compared to the NBFC. However, it is the NBFC that is responsible for creating the loan, servicing the customer and recovering the loan amount.
While operationalizing the joint loan concept on a large scale, challenges arise when dividing the principal, interest rate and other components such as the processing fee, penalty interest and so on, after the loan is repaid. The operational complexity increases further if an NBFC works with several co-lending partners.
Finezza’s loan management system will help clients – banks and NBFCs – to manage the co-lending partnerships, set up and maintain the co-lending terms, thus solving their operational challenges and expenditure issues.
