Govt. to encourage banks to use the co-origination model of financing in order to address the needs of MSMEs

The government has decided to encourage banks to use the co-origination model of financing in order to address the needs of the micro, small and medium enterprises (MSME) in the country especially in smaller towns.

On this finance minister Nirmala Sitharaman said, “I am pushing all the banks to be ready to handle co-originating models of financing because NBFCs have their advantage with their spread in tier 2 and tier 3 cities where some of the banks are not present.”

Sitharaman said the efforts to disinvest some of the big companies are going on fine. “The EOIs have come in and the next stage is going on. Within this financial year, I expect DIPAM (Department of Investment & Public Asset Management) to be able to prove that they are more actively engaging for which the cabinet has already given the approval,” she said, at an event organised by Indian Chamber of Commerce.

Expressing satisfaction over the economic revival after a four-decades low economic contraction, she said that the government is eager to engage with industry leaders to make it sustain.

“I need to understand from you, the industry leaders, as to what exactly you’re looking at, what is the changed economy wanting? What are the kinds of things in which the government has to be and facilitate? I would like your inputs, I’ll be very happy to receive any input for the budget preparation,” the minister added.

Co-origination or co-lending model is a financial system of leveraging the comparative advantages of both the banks and non-banking finance companies (NBFCs) in a collaborative effort.

State Bank of India chairman Dinesh Kumar Khara said last week that his bank prefers this approach as it helps in assessing the risk profile of the borrower better.

Just last month with an aim to improve credit flow to the un-served and underserved sector of the econom, the Reserve Bank of India (RBI) had revised the co-lending scheme to provide greater operational flexibility to lenders. This helps flow of credit at a lower cost to a wider market.