Definition
Co-Lending Model (CLM)
The Co-Lending Model is an RBI framework where a bank and an NBFC jointly fund a loan, sharing the exposure and combining the bank's low-cost funds with the NBFC's reach.
Under co-lending, the bank typically takes a majority share (often 80%) of each loan and the NBFC the rest, with the NBFC originating and servicing borrowers in underserved segments. This lets banks deploy cheap funds to priority and retail borrowers while NBFCs leverage their distribution.
The RBI's guidelines require a master agreement, escrow arrangements and clear sharing of risk and reward. Co-lending has grown in priority sector and MSME finance, though regulators watch that risk-sharing is genuine and not a way to mask off-balance-sheet exposure.
Related terms
- Non-Banking Financial Company (NBFC)An NBFC is an RBI-registered financial company that lends and invests but cannot accept demand deposits or offer cheque facilities like a bank.
- Direct AssignmentDirect assignment is the sale of a pool of loans by an NBFC or bank directly to another lender, transferring the cash flows and a share of the risk.
- Securitisation (Loans)Securitisation is the pooling of loans and issuing of tradable securities backed by their cash flows, letting originators raise funds and transfer risk.
- Priority Sector Lending (PSL)Priority Sector Lending norms require banks to direct a minimum share of their credit to sectors such as agriculture, MSMEs and weaker sections.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.