Introduction

 
Over the years, the Reserve Bank of India (RBI) has repeatedly urged banks to step up credit flow to the Priority sectors. Time and again, the central government has launched several schemes to address this concern. The RBI, in its press release on ‘Statement on Developmental and Regulatory Policies’ dated August 1, 2018 introduced Co-origination Model between Banks and Non-Banking Financial Companies – Non-Deposit taking - Systemically Important (NBFC-ND-SIs)’ for providing competitive credit to priority sector. Furtherance to the above press release, RBI released guidelines for co-origination of loans which will be helpful for credit delivery to small enterprises and financial inclusion. The initiative is aimed at leveraging the reach of NBFCs to help banks meet their priority sector lending targets and reach to last mile entrepreneur, reach to unreached.
 
What is co-origination?
 
The co-origination means an arrangement in which the joint contribution of credit at the facility level, by both the lenders. It should also involve the sharing of risks and rewards between both lenders (bank and NBFC) for ensuring appropriate alignment of respective business objectives, as per the mutually decided agreement between the lenders. In Co-origination, lender not only fund Micro-Finance Institutions (MFIs) or NBFCs rather both of them provide a loan at borrower levels and share the loan amount at an agreed percentage.
 
Priority sector lending
 
Priority sector lending refers to those sectors of the economy which may not get timely and adequate credit in the absence of this special dispensation. Priority sector lending is aimed to provide institutional credit to those sectors and segments for whom it is difficult to get credit. This includes agriculture, MSME, affordable housing, education, export credit, renewable energy, social infrastructure and others.
 
 
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