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Personal Loan

What is co-lending?

21 May 2025 by Team FinFIRST

Colending

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There has been a rise of co-lending in the financial space. With the Reserve Bank of India (RBI) formalising this model through guidelines in 2020, co-lending has become a strategic focus area for many financial institutions. In this article, we delve into what exactly is co-lending, and how it is changing the game.

What is co-lending?

Co-lending is a financial model where banks and Non-Banking Financial Companies (NBFCs) jointly offer quick loans to borrowers. This partnership helps banks widen their lending reach while allowing NBFCs to offer credit at competitive rates. Thus, this joint venture offers lower interest rates, quicker approvals, and improved accessibility for borrowers.

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How does co-lending work?

Under the RBI’s Co-lending Model (CLM), banks and NBFCs collaborate to offer loans. The process given below, is followed for disbursing the loan.

· Loan origination:

The NBFC identifies and verifies borrowers based on eligibility criteria.

· Loan share:

Banks fund 80% of the loan, while the NBFC funds 20%.

· Loan disbursal:

The amount of loan is disbursed by the NBFC to the borrower.

· Loan repayment:

Borrowers repay loans via the NBFC, who pay off the bank’s share.

This partnership ensures seamless loan approval, better risk management, and quicker disbursals.

Advantages of co-lending

Co-lending process is beneficial for lenders as well as the borrowers in the following ways:

For borrowers

Borrowers enjoy lower interest rates as banks fund most of the loan compared to the interest rate of a loan solely funded by NBFC.
NBFCs provide EMI schemes according to affordability and income.
Even individuals with moderate credit scores can get access to loans.

For lenders

Banks can lead to a wider market as NBFCs identify the borrower.
Co-lending follows an 80:20 funding structure, reducing the bank’s exposure to financial risk.
NBFCs require minimal paperwork so the loan is disbursed quickly.

Co-lending vs traditional loans

Feature	Co-Lending	Traditional Loans
Interest Rates	Lower due to risk-sharing	Generally higher
Loan Approval Speed	Faster due to NBFC involvement	Slower due to stricter banking regulations
Credit Eligibility	More relaxed, suitable for a wider audience	Strict criteria, limiting borrower access
Loan Customisation	High flexibility in terms & repayment	Standardised loan structures

Co-lending bridges the gap between old-school banking and new-age lending, offering better, faster, and cheaper access to loans.

FIRSTmoney: A safe personal loan solution

Although FIRSTmoney is not a co-lending site, it provides an easy online lending process with great advantages:

Increased loan amount: Get ₹ 50,000 to ₹ 10 lakhs based on your eligibility.
Competitive rate of interest: Pay 10.99% p.a. for convenient repayment.
Flexible repayment tenure: Choose from a flexible repayment tenure range of 9 to 60 months based on your budget and needs.
100% digital experience: Apply online with minimal documentation and get instant approvals after verification.
Zero foreclosure fee: Pre-pay the loan anytime without incurring any additional charge.

With its instant disbursal option and borrower-friendly terms, FIRSTmoney is the perfect choice for those who need instant personal loans.

Conclusion

Co-lending is transforming the lending industry by making loans easier to access, more affordable, and quicker to process. It is fast becoming a preferred model in sectors such as affordable housing, MSME finance, personal loans, and consumer durables. By using the strengths of NBFCs and banks, it offers a win-win situation for both lenders and borrowers. As digital lending expands further, co-lending will remain pivotal in expanding financial institutions.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

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