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What is OCEN

Technical advancement has left no space untouched, and lending and borrowing is no exception. The evolution of digital financing is unprecedented. With “next billion” customer coming on board, this genre has a lot to cater for. To provide better services and make the digital financing more secure and accessible, The Open Credit Enablement Network (OCEN) has been introduced. The aims of OCEAN is to make borrowing easier for last-mile borrowers by providing a framework that will facilitate MSMEs to access formal lending.

What is OCEN?

In 2020, the government announced the launch of Open Credit Enablement Network (OCEN), which is a framework of application programming interfaces (APIs) designed to create interaction among lenders, borrowers, lending service providers and account aggregators. Its aim is to facilitate the creation of new financial products tailored to the needs of the last-mile borrower while supporting collaboration and partnerships between lenders, LSPs, and aggregators in the MSME credit industry.

OCEN also helps the government to utilize a shared digital infrastructure to streamline digital lending and data-driven processes. Its implementation, there is significant potential to revolutionize the MSME lending industry in India to increase access to credit. By creating a common language and digital infrastructure, it could help unlock the potential of this industry and drive economic growth.

Top 5 Ways OCEN is Unique

  1. Bridge the credit gap: MSME sector plays a big role in India’s economy, compromising approximately 63 million businesses. It contributes to over 30% of the country’s GDP and 40% of its exports. This sector generates income for more than 120 million people through employment and entrepreneurship. Despite its vital role, the MSME sector suffers from a shortage of funding that results in underserved business. The World Bank estimates that this credit gap amounts to approximately $380 billion.
    To address this issue, digital lending to MSMEs needs significant increase. OCEN aims to expand the digital lending services available to MSMEs beyond fintech NBFCs to banks and traditional NBFCs. This will help to extend the digital advantage that fintechs have been providing. It will strengthen the digital infrastructure of these lending entities and broaden the scope of MSME lending services
  2. New credit products: With OCEN, forming partnerships and collaborations becomes easier and more efficient, allowing digital platforms to engage in specialized origination. With a clear understanding of their customers, these platforms can offer tailored credit products that are more relevant to their needs and come with favourable terms. OCEN’s collaborative approach to lending enables lenders to work together to benefit all parties involved, particularly the borrowers.
  3. Evolution of India Stack: India Stack is a set of open APIs and digital public goods. It aims at unlocking the economic primitives of identity, data, and payments at population scale. The first layer, the identity layer, was implemented through the Aadhaar project, where over 1 billion Indians have received an Aadhaar card. It helps them to unlock the benefits of formal economy. The second layer, the payments layer, was implemented through the Unified Payment Interface (UPI). It’s India’s homegrown real-time mobile payments system that enables interoperability between money custodians, payment rails, and front-end payment applications. The success of India Stack and UPI has set the foundation for OCEN, at facilitating interaction between an ecosystem of lenders, lending service providers, account aggregators, and small business borrowers to transform the way MSME lending is carried out in India.
  4. Credit Democratization: OCEN aims at democratization of credit systems which means making them available to everyone. It is opening the door for new players to enter the market and play important roles in delivering credit to underserved populations. With the support of digital platforms and technology players, the lending value chain can become more inclusive and effective in reaching those who need it most. This shift towards democratization is expected to improve access to credit, create new opportunities for innovation, and spur economic growth in emerging markets like India. It’s expected to increase competition in the lending industry, as new players enter the market and traditional lenders are forced to adapt. This could lead to lower interest rates, better terms and conditions, and ultimately more affordable credit for consumers and MSMEs alike.
  5. Financial inclusion: The lending process for MSMEs has always been flawed, with financial institutions finding it expensive to identify creditworthy borrowers due to a lack of formal data. Additionally, MSMEs require smaller loan amounts, shorter repayment timelines, and quick access to funds, which further complicates the underwriting process. Banks usually take a long time to process their loan applications, making small ticket loans unfeasible. However, OCEN and Embedded Finance are changing this scenario by enabling entities closest to the borrowers to deliver financial services. These entities can bring valuable platform data to underwrite new-to-credit customers and provide cheap and tailored credit systems to MSMEs, leading to the growth of the sector.

How does OCEN work?

OCEN is a part of the larger India Stack framework, which includes Aadhaar and UPI as its base. It aims to facilitate paperless, presence-less, and cashless service delivery. It has disrupted the Fintech space in India and has expanded to a variety of applications through open APIs offered as public digital infrastructure. It will transform the credit ecosystem in India by altering the way credit is supplied to MSME entrepreneurs, the last-mile borrower. It enables new players such as digital platforms to play significant roles in the lending value chain.

The different stakeholders in the OCEN ecosystem include LSPs or digital platforms, TSPs or Fintechs, lenders such as banks, NBFCs, and other loan providers, along with borrowers such as MSME entrepreneurs who are the end users of the credit. It offers APIs for each stage of the loan lifecycle and enables all stakeholders to seamlessly. It integrates their processes and provide end-to-end digital lending process. This collaboration allows LSPs, TSPs, and lenders to create credit options that are best suited for the customer.

3 Ways OCEN Works

  1. To borrowers: MSMEs or individual borrowers can check out the credit options available under a secured lending process.
  2. To lenders: Banks and NBFCs along with other lenders can provide access and capital to core banking network. The digital access can be a web app or an android app that already has a core offering and a customer base. It will help then build on and grow the business and serve the needs they may have.
  3. To loan services: Fintech companies and customers that have digital access can be on the same platform. Lenders can provide customized loan application options while borrowers can access them easily.

Open Credit Enablement Networks (OCEN) is a lending protocol infrastructure. It connects Loan Service Providers (LSPs) such as FinTechs and E-commerce players with traditional lenders like banks and NBFCs. It enables the digitization of the origination, underwriting, and servicing process of loans. With aiming to democratize credit access it will reduce costs, shorten turnaround time for loan deposits, lower interest rates, and streamline loan requirements. Tailor made loan options catered through it will efficiently integrate credit capabilities. It simplifies the access to the market that hosts a broad array of credit products.

OCEN also provides a robust infrastructure for financial institutions to efficiently and profitably service end-borrowers by taking advantage of digital initiatives like Aadhaar-based eKYC. With OCEN, lenders can use fast, standardized loan data to take a more proactive, efficient approach to compliance, lending decisions, disbursements, assessing creditworthiness, and risk management functions. By decentralizing credit to low-resource Indian borrowers, OCEN is expected to play a pivotal role in the fast digitalization of India’s credit ecosystem.