An OCEN of opportunities: Expectations from the next digital public good

The launch of Open Credit Enablement Network, OCEN, announced at the Global Fintech Festival 2020, is expected to change the face of lending for India’s credit-starved growth engine i.e. MSMEs. OCEN a credit protocol infrastructure built by iSpirt is expected to disrupt lending in a similar way to their digital public good, UPI, disrupted payments. But what’s a public good? In economics, a public good refers to a commodity or service that is made available to all members of society such as air or the military. We expect OCEN to be the next digital public good that will facilitate India’s economic growth.

Addressing a $330bn credit gap

India’s MSMEs face a credit gap of $330 bn as traditional lenders haven’t been able to deliver credit to the hands of small businesses and individuals who require it the most. Despite the RBI’s priority sector lending targets, this segment is ignored by banks since the small loan ticket size and difficulty in underwriting as well as collections make the business unviable.

How will OCEN address these issues?

OCEN is a framework of APIs for interaction between small borrowers, lenders, loan service providers, and account aggregators. The APIs will act as a common language connecting marketplaces to use and create innovative financial credit products.

With OCEN, lenders can create customized loan products to address the financial needs of small businesses and will be able to underwrite norms based on a new set of information by getting access to data that helps them monitor credit.

Without having to invest in technology development or having to tie up with multiple lenders, online intermediaries like e-commerce businesses, digital businesses, known as loan service providers can easily embed the credit products. In the future, loan service providers can become lenders themselves as they have low-cost customer acquisition, visibility to end credit usage, better control of payment flow. A daily credit settlement line for small shop owners selling through e-commerce will become available soon wherein the borrower will be able to borrow in the day and pay during the night.

Borrowers i.e. the small businesses will be able to access credit options offered by multiple lenders on the loan service provider’s platform. The credit solution will be completely digital, evaluated based on continuous cash flow instead of income and assets. The turnaround time and finance costs should be minimized, as the loan application process will be simplified besides competition among lenders will increase.

Before loan disbursal, merchants will have to set up a collection mandate through UPI’s Autopay feature.

Since there are multiple stakeholders that need to engage simultaneously, I expect that adoption of OCEN will take a little longer than seen by UPI. Offline businesses and lenders will take a little time to recover from the negative impact of Covid. But online marketplaces have grown and should be the early adopters for this public good. Over 10 years, I expect OCEN to at least half the credit gap from $330bn to below $150bn.

If implemented well, OCEN will disrupt the credit market in India, thereby providing the finance that will help MSMEs grow into SMEs or large corporates. The growth of these micro-enterprises will in turn lead to sustainable job creation and benefit all Indians.

(The writer is founder, Credit Fair)

(The one-stop destination for MSME, ET RISE provides news, views and analysis around GST, Exports, Funding, Policy and small business management.)

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