Public Sector Banks Strengthen Ties With Fintechs For MSME Lending

(MENAFN- KNN India) New Delhi, Mar 7 (KNN) Public sector banks (PSBs) are ramping up collaborations with fintech startups to enhance lending to micro, small, and medium enterprises (MSMEs).

This follows the government's push in the recent budget to accelerate credit flow to the sector and meet priority sector lending targets.

With a slowdown in unsecured consumer lending-where fintech partnerships were most common-banks are now focusing on supply chain finance, loans against property, and term loans for businesses.“MSME and business loans drive greater economic impact than consumer lending.

There's strong regulatory and industry momentum toward PSB-fintech co-lending,” said Pallavi Shrivastava, co-founder of supply chain finance startup ProgCap.

Startups like Mintifi, Vayana, and ProgCap are helping banks serve small businesses, including suppliers, equipment manufacturers, retailers, and distributors.

Traditionally, small businesses struggled to access formal banking credit, relying instead on local moneylenders.

However, fintechs are leveraging GST data and account aggregator frameworks to improve underwriting, making banks more willing to partner.

The Reserve Bank of India (RBI) has approved co-lending, where banks hold 80% of a loan while fintechs manage underwriting and retain 20 per cent.“Banks are moving away from first loss default guarantees (FLDG) and increasingly prefer co-lending,” said a supply chain finance startup founder.

Startups like Knight Fintech and Yubi are aiding banks in digital loan management.“Co-lending for MSMEs covers commercial vehicles, agriculture, and property loans.

Supply chain finance is smaller but growing,” said Kushal Rastogi, CEO of Knight Fintech, estimating the co-lending market at Rs 1 lakh crore, with Rs 5,000-8,000 crore allocated to supply chain financing.

While banks like SBI and Union Bank are interested in expanding in this space, complex trade financing processes require deeper technological integration.“PSB-fintech partnerships will grow, but scaling co-lending in supply chain finance will take time,” noted Ramaswamy Iyer, founder of Vayana.

(KNN Bureau)

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