Thank you nirvana_laha. for breaking down the co-lending math so beautifully. And I do think it is wonderful. Beyond the asset light model, I also think it is a potent method for a small NBFC with a limited amount of credit supply to meet a larger demand for credit.
But my main concern, as Focused_Investor stated so much better than me, is about the cross-selling by the banks, fintechs, other nbfcs who sign up for it with UGRO. While UGRO will be the client facing entity, IIRC, the management had said that the details of the client will be shared with their co-lending partners.
From what I understand, the reason for the high yield from MSME lending is that the uncertainty in their credit worthiness. And say this is priced at 12%. UGRO is sifting through the MSME universe with their tripod model to understand the clients actual creditworthiness. And let’s assume that comes up to 10%. Isn’t this arbitrage what gives UGRO their true edge?
But once a clients’ true creditworthiness has been revealed, the uncertainty is no longer there, making them eligible for loans at a lower rate. As a co-lending partner, I get access to this information for every loan I take up with UGRO.
And if I am a fintech/bank/nbfc who has a lower cost of funds and has co-lended with UGRO for a few years, what is stopping me from creating a database of these clients and their credit behavior over these cycles, and then approaching them directly with loans at a lower rate?
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