Co-lending and securitisation are two ways in which a lender shares its loans with banks and investors, so that it can lend more. In co-lending, a bank and an NBFC give one loan together, and each puts in part of the money. In securitisation, a lender bundles many loans together and sells the bundle to investors. Platforms for both also act as a marketplace where India's lenders and investors find each other.
Here is why they are needed. Many loans in India are made by NBFCs, finance companies that lend but, with a few exceptions, do not take deposits from the public. The page on NBFCs and banks explains the difference. NBFCs are good at finding borrowers in small towns, but they have limited money of their own. Banks have deposits to lend, but fewer staff in those towns.
Take, for example, co-lending. An NBFC in Madurai finds a small trader who needs ₹10 lakh. Its loan origination system checks the trader and sends the loan details to the platform. A bank approves its part. The bank puts in ₹8 lakh and the NBFC puts in ₹2 lakh. The trader sees one loan and pays one EMI. The platform then divides each EMI between the two lenders.
Now consider securitisation. An NBFC has given 8,000 two-wheeler loans worth ₹100 crore in total. It sells the bundle to a trust. The trust issues certificates to investors, such as mutual funds and banks. Every month, the EMIs from the 8,000 borrowers are paid to the holders of the certificates. RBI rules make the NBFC keep a part of the risk itself, here 10% of the certificates, so that it also loses money if the borrowers do not repay. So the NBFC receives about ₹90 crore now, and it can lend that money again. Before investors buy, a credit rating agency rates the bundle, to show how likely the borrowers are to repay.
The same platforms are also used to sell invoices and the bonds of mid-sized companies. A bond is a loan from investors that a company repays over a fixed period. Some firms are also testing real-world asset tokenisation, in which a share of such a loan is recorded as a digital token.
How do the two differ? In co-lending, the loan is shared from the first day. In securitisation, the loans already exist, and they are sold later.