New Delhi, June 12 -- India's financial ecosystem is evolving fast, driven by digitization and the need for inclusive credit. Within this landscape, collaborative lending has emerged as a promising way to bridge traditional credit gaps and bring formal finance closer to retail borrowers as well as small and medium businesses, especially the historically underserved.

Among the various collaborative lending models available to banks and non-bank financial companies (NBFCs), two are most popular. One, co-lending arrangements between banks and NBFCs; and two, partnerships involving digital Lending Service Providers (LSPs). Though these models currently represent a small portion of India's total outstanding advances, their growth is far outpa...