Avinash Jha, Sr. Vice President, Knight Fintech, said that, “The concept of colending is relatively new and still evolving in the financial industry. There are numerous challenges associated with co-lending, but fortunately, Night Fintech has been able to address these challenges effectively. Currently, on our platform, we facilitate approximately 40 digital co-lending transactions every month, amounting to a total disbursement value of approximately 300 crore rupees.”
Adding on, he stated, “The challenges in co-lending can be categorised into four main categories. The first category involves the integration between banks and NBFCs. Banks aim to onboard multiple NBFCs, potentially more than 10 or 15, onto their banking system. Similarly, NBFCs seek to collaborate with several banks, typically more than five or seven. However, each bank has different expectations and requirements, even if the NBFC is offering a single loan product such as home loans. This leads to complexities in integrating and aligning with various banks and partners, as the interest rates and policies differ significantly. While this integration challenge is significant, it represents only around 10% of the overall co-lending problem, as it can be achieved with dedicated effort and a timeframe of approximately six months.”
He further added, “The second significant challenge revolves around accounting and reconciliation, which, in our understanding, forms the core of the problem statement. These issues are particularly prominent and prevalent in co-lending relationships, causing difficulties for many participants involved. The third challenge is escrow management. This task involves the division of funds, particularly in scenarios like CLM2, where the loan has already been disbursed a few months ago, and now it needs to be transferred to the bank’s books from the originator’s account. Managing the collection and transfer of funds within the escrow can be highly complex, presenting a significant problem in co-lending relationships.”
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He stated, “The fourth challenge is related to CLM1, which involves co-origination, where both the bank and NBFC simultaneously underwrite the loan. In this process, if the NBFC has completed the underwriting within two days, the borrower waits for the bank’s approval before loan disbursement. If the bank takes a longer time, it can cause a loss to the entire ecosystem. Ensuring that underwriting is done at the pace of NBFCs is the fourth challenge we have identified. However, at Night Fintech, we have developed a solution that effectively addresses all these problem statements and provides resolutions.”
