RBI working on co-origination model for MSMEs

The Reserve Bank of India is working towards a formal co-origination model to give a boost to the flow of credit to the micro, small and medium enterprises (MSME) sector, SS Mundra, Deputy Governor, said.

A co-origination model is not about a bank financing a micro-finance institution (MFI) or non-banking finance company (NBFC) for on-lending to the ultimate borrowers. Rather, both of them (bank and the MFI/NBFC) join at each underwriting and loan level and share the loan amount at an agreed percentage with all other structures put in place.

“The advantage is that it can bring the strengths of the two sectors together — MFIs have better understanding of the ground level and last mile reach and banks can supplement the resources,” Mundra said at a Bankers-Borrowers Business meet organised by Assocham.

“In my mind, rather than simply going in for refinancing or on-lending, this co-origination can become an important way of catering to the MSME sector,” he added. Mundra’s remarks are significant as it comes at a time when the MSME sector is faced with challenges of non-availability of adequate, cheap and timely institutional credit.

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