What is Credit Delivery Mechanisms ?

Credit Delivery Mechanisms

Credit delivery mechanisms refer to the methods and systems that financial institutions use to provide credit to their clients. The credit delivery mechanism is a critical component of the lending process, as it determines how the credit is distributed, the terms and conditions of the credit, and the level of risk involved. Here are some common credit delivery mechanisms used by financial institutions:

Direct Lending: Direct lending is a credit delivery mechanism where a financial institution lends directly to a borrower, without any intermediaries. Direct lending is typically used for large loans, such as mortgages or business loans, and involves a thorough credit analysis and underwriting process.


Indirect Lending: Indirect lending is a credit delivery mechanism where a financial institution provides credit through an intermediary, such as a car dealer or a retailer. Indirect lending is commonly used for consumer loans, such as auto loans or credit card loans, and involves a simpler credit analysis and underwriting process.


Group Lending: Group lending is a credit delivery mechanism where a financial institution provides credit to a group of borrowers who are jointly liable for the loan. Group lending is commonly used by microfinance institutions to provide small loans to low-income clients who lack collateral or credit history.


Peer-to-Peer Lending: Peer-to-peer lending is a credit delivery mechanism where individuals lend money directly to other individuals, typically through an online platform. Peer-to-peer lending is often used for small personal loans, and involves a simplified credit analysis and underwriting process.


Securitization: Securitization is a credit delivery mechanism where a financial institution pools a large number of loans together and sells them to investors as securities. Securitization is typically used for large commercial loans or mortgage loans, and involves a complex credit analysis and underwriting process.

The choice of credit delivery mechanism depends on a number of factors, including the type of credit being offered, the size of the loan, the creditworthiness of the borrower, and the level of risk involved. Financial institutions must carefully consider these factors when selecting a credit delivery mechanism to ensure that they are able to provide credit in a way that is efficient, effective, and sustainable.