Credit and finance for MSMEs: MSMEs’ principal financial institution Small Industries Development Bank of India (SIDBI) on Thursday announced partnering with the non-deposit taking non-banking financial company (NBFC) lender Ambit Finvest to co-lend unsecured loans to MSMEs. Co-lending is among the focus areas for SIDBI in its direct credit approach to small businesses and hence partnering with NBFCs provides it with a wider geographical reach to deepen its credit offerings to MSMEs.

Sivasubramanian Ramann, CMD, SIDBI said in a statement that while it has been providing financial assistance to a wider spectrum of NBFCs, the bank is looking at the co-lending framework put in place by the Reserve Bank of India (RBI) another major opportunity to channelize affordable and timely credit to the smallest of the MSMEs, especially new-to-credit borrowers, in partnership with NBFCs.

Also read: How co-lending is re-shaping MSME credit

“In this foray, we are happy to commence the first co-lending arrangement with Ambit Finvest, which will help provide affordable business loans to lower segment of the MSMEs. While most of the tie-ups in co-lending space have been for secured loans, our partnership with Ambit Finvest is one of the earliest such arrangements for unsecured Business Loans,” said Ramann. 

Co-lending works as a win-win arrangement for two lenders wherein relatively smaller NBFCs, which usually operate in remote geographies, can increase their business footprints and income by leveraging the balance sheet strength of banks. On the other hand, banks, through the risk and reward sharing model, are able to extend their geographical reach and fulfil their priority sector lending obligations.

Also read: Co-lending pacts to help allay risks: KPMG

Sanjay Agarwal, CEO, Ambit Finvest said the alliance with SIDBI will enable Ambit Finvest to reach wider geographies and offer unsecured business loans at a blended lower rate of interest to MSMEs who currently face challenges of higher interest rates, and hence are excluded from access to Banking services. “Also, a co-lending partnership with a pioneering organisation like SIDBI will help Ambit Finvest further expand its footprint in the MSME segment.” 

In fact, more NBFCs are expected to get into co-lending arrangements going ahead in order to grow their balance sheets at a time when these entities are expected to post a double-digit growth in credit in 2022-23 (April-March), FE reported on November 30. “While NBFCs’ assets will grow in double-digit levels in the medium term, their balance sheets may not grow to that extent on account of the asset-light business strategy that a number of NBFCs plan to follow,” Krishnan Sitaraman, senior director and deputy chief ratings officer, Crisil Ratings, said.

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