Finance to MFIs/Co-Lending Arrangements with NBFCs | PAPER II – PRINCIPLES & PRACTICES OF BANKING | MODULE B: FUNCTIONS OF BANKS
Finance to MFIs, NBFCs, and Co-Lending Arrangements Finance to MFIs/Co-Lending Arrangements with NBFCs Background Microfinance Institutions (MFIs) and Non-Banking Financial Companies (NBFCs) play a critical role in extending credit to underserved sectors. Banks have increasingly collaborated with these institutions to improve credit penetration through co-lending models and direct financing. Bank Borrowings: Source of Finance for NBFCs Banks act as a major source of funds for NBFCs by extending term loans, working capital facilities, and other structured finance instruments. This enables NBFCs to on-lend to small borrowers who may not be directly serviced by banks. Bank Finance to NBFCs Banks finance NBFCs based on risk assessment, credit rating, capital adequacy, asset quality, and regulatory compliance. Typically, NBFCs borrow for: On-lending to retail or MSME clients Infrastructure developm...
