The Reserve Bank of India’s 2025 Co-Lending Arrangements (CLA) reform enables government-owned and private financial institutions to jointly lend, combining the low-cost capital of public entities with the efficiency of private NBFCs and fintechs. This hybrid model can transform credit flow in MSMEs, renewable energy, and rural infrastructure by sharing risk through guarantees, reducing lending costs, and ensuring faster, more inclusive access to credit for last-mile borrowers.
Co-lending refers to two financial institutions jointly issuing a loan, sharing both the risk and returns. Under RBI’s 2025 Co-Lending Arrangement, PSU banks, NBFCs, and fintechs can now collaborate. For example, NABARD can co-lend with fintechs like KreditBee or Lendingkart to reach farmers and micro-entrepreneurs, expanding access to formal credit in rural and semi-urban areas.
Previously, co-lending was largely restricted to partnerships between banks and NBFCs. The 2025 model expands this to include NBFC-to-NBFC collaborations. For instance, Kerala Financial Corporation can now partner with Tata Capital or Mahindra Finance for MSME lending, blending public-sector stability with private-sector agility and innovation.
The RBI mandates that the lead lender retains at least 10% of every loan—ensuring “skin in the game.” Additionally, the first-loss default guarantee (FLDG) is capped at 5%. For example, if a ₹10 lakh loan defaults, the originating NBFC bears ₹50,000 in loss. This risk-sharing structure promotes prudent lending and stronger borrower monitoring.
MSMEs: SIDBI can co-lend with fintechs like NeoGrowth to fund small manufacturers.
Renewable Energy: IREDA can partner with Hero FinCorp to finance rooftop solar projects.
Rural Credit: APSFC can collaborate with agri-NBFCs to finance irrigation pumps and rural warehouses.
Housing: HUDCO can co-lend with fintechs for affordable housing loans in Tier-2 and Tier-3 cities.
Borrowers benefit from cheaper blended interest rates—as PSU NBFCs provide low-cost funds while private NBFCs ensure faster disbursal. For instance, a ₹5 lakh MSME loan could see interest rates fall from 14% to 11% through this partnership. This also boosts entrepreneurship, job creation, and local economic growth in smaller towns and villages.
Institutions like IREDA and HUDCO can co-lend with fintech startups to finance projects such as rooftop solar panels, EV charging stations, and energy-efficient housing. This supports India’s goal of achieving 500 GW of renewable capacity by 2030 while enabling small renewable developers to access affordable credit.
According to RBI and SIDBI data, co-lending loans have already exceeded ₹1.8 lakh crore, primarily in the MSME and affordable housing sectors. For example, SBI co-lent ₹10,000 crore with Shriram Finance and Paisalo Digital to support small entrepreneurs. These partnerships demonstrate how public credit strength and private innovation can double the flow of inclusive finance.
• PSU NBFCs like PFC, REC, and NABARD should issue standardized co-lending guidelines within six months.
• Digital loan templates and shared platforms such as the Public Credit Registry should be widely adopted.
• The government should incentivize co-lending in priority sectors like MSME clusters, renewable energy, and rural housing to accelerate adoption.
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