Ugro Capital – Opportunity To Invest in a Fintech-like Company Below Book Value

Thanks Sharvan for the reply. This is where I am still struggling to understand.

Lets take a example, in regular case(non co-lending) , UGRO borrows money from XYZ bank for 10.5% and lends 14.5%(taken from companies illustration) and pocket the spread. UGRO takes the credit risk of the borrower with 14.5% and XYZ bank takes the credit risk of UGRO with 10.5%

Now if we say a 10 lakh rupee is disbursed with co-lending partner XYZ banks. For 20% of loan UGRO gets 14.5% and for remaining 80% of loan, UGRO gets 4% and XYZ bank gets 10.5%.

Now with this setup, XYZ banks has to factor in the credit risk of the actual borrower, and not the UGRO. In regular lending model XYZ bank earns 10.5% yield with UGRO as their credit risk, in colending also XYZ bank earns same 10.5% yield with much risker MSME borrower. So technically, XYZ banks credit risk increase but their yield is not. Why would a bank agrees to this? What exactly bank is benefitting from this co-lending?