By Arun Poojari
Open Credit Enablement Network (OCEN) is an initiative that emerged in 2020 as a beacon of hope in the world of digital finance. Spearheaded by iSPIRT, the visionary non-profit think tank behind Aadhar and UPI, OCEN seeks to revolutionize credit access for MSMEs in India. It addresses the persistent issues brought on by the MSME credit gap, estimated at $ 250 billion.
In a scenario where only 11% of MSMEs have formal credit access and more than 60% of credit demands go unmet, OCEN emerges as the solution. It addresses this challenge by setting standardized guidelines for the core aspects of credit flow, creating a fairer playing field for lenders, borrowers, and LSPs (Loan Service Providers). OCEN isn’t just another financial innovation; it’s an open network that codifies the essence of credit flow, uniting all the players under a common umbrella of standards.
OCEN’s Credit Code: Deciphering Financial Inclusion
Around 630.5 lakh micro, 3.3 lakh small, and 0.05 lakh medium-sized firms make up 99% of all MSMEs in the nation; therefore, reducing the MSME credit gap is essential. Since its founding, OCEN has improved its digital capabilities by bridging the gap between cutting-edge Fintech businesses and conventional financial institutions. This initiative envisions a future characterized by paperless, cashless, and remote lending, empowering emerging MSME entrepreneurs to reshape India’s credit landscape. Moreover, leveraging India’s distinctive model of combining public digital infrastructure, exemplified by UPI and OCEN, with private innovation, OCEN is driving financial inclusion and creating a more accessible and dynamic credit ecosystem for all the players.
Post-Launch Landscape Of OCEN Brimming With Transformative Opportunities
Credit assurance relies on rich customer data and a shared API network, rendering traditional credit assessment methods obsolete. The days of poring over credit histories and determining creditworthiness through scores are fading into history, allowing the adoption of new technology in the marketplace.
Benefitting Loan Service Providers (LSPs)
The diminished need for security or collateral is even more promising, significantly reducing barriers to obtaining loans. Loan Service Providers (LSPs), such as e-commerce and digital businesses, can effortlessly integrate credit products without the burden of extensive technology development or the necessity to form partnerships with multiple lenders.
Looking ahead, LSPs stand to evolve into lenders themselves, armed with advantages like cost-effective customer acquisition, insights into end credit usage, and enhanced control over payment flows.
Empowering Borrowers
For borrowers, OCEN opens doors to a wealth of credit options seamlessly integrated into Loan Service Providers’ platforms. These digital credit solutions shift the focus from traditional income and asset evaluations to continuous cash flow analysis. This transformation promises a streamlined loan application process, significantly reducing turnaround times and finance costs.
Moreover, OCEN fosters heightened competition among lenders, translating into more favorable terms and options for borrowers. OCEN empowers borrowers by offering many digital credit choices that prioritize their cash flow, efficiency, and financial flexibility.
Challenges on the Horizon of OCEN
Cybersecurity Concerns
For such technologies, cybersecurity is a major challenge. Nearly 43% of cyber attacks are aimed towards small businesses, and only 14% are prepared for them. These cyberattacks exposed private information, emphasizing how urgent it is to strengthen online safety. The lack of technical know-how leaves individuals vulnerable to online theft and financial fraud. To address these challenges, targeted digital literacy programs should accompany the rollout of new technologies and platforms.
Lack of Managing Loan Defaults
With OCEN’s involvement in credit expansion, there’s a possibility of more borrowers, which may increase loan defaults. Creating a task force, implementing an online dispute resolution system, and appointing a digital ombudsman are crucial steps to tackle this challenge. These measures build confidence and encourage more private players to join the ecosystem and drive wider technology adoption. Balancing credit accessibility with effective risk management is key to OCEN’s continued success.
Future Outlook
In its implementation, OCEN has already demonstrated its value by streamlining customer screening processes and facilitating the onboarding of new borrowers. Looking ahead, the ambitious goal is to expand OCEN’s reach to hundreds of thousands, and eventually millions, of small businesses. This necessitates widespread experimentation, adoption, and scaling of the platform across market participants. Drawing parallels with India’s monumental successes like Aadhaar and UPI, which achieved massive scale and global recognition, there is strong optimism that OCEN is poised to become another uniquely Indian success story in the years to come.
Arun Poojari is the CEO and Co-founder of Cashinvoice. Views are personal.