By Anand Kumar Bajaj
Micro, Small, and Medium Enterprises (MSMEs), often hailed as India’s growth engines, contribute over 26.83% to the GDP. They play a vital role in local development, entrepreneurship, and employment. However, they face challenges in accessing financial services, especially credit, due to their lack of creditworthiness and remote locations. Traditional institutions struggle to cater to them, hindering growth potential. A joint report by TransUnion CIBIL and SIDBI reveals that out of India’s 630 lakh MSMEs, only 250 lakh have obtained credit from formal sources.
Open network platforms present a transformative solution, empowering MSMEs to aggregate and manage financial data to construct a robust digital financial record. By securely sharing this data securely with lenders, MSMEs provide a comprehensive financial view, facilitating more informed credit assessments. These platforms bridge the gap between MSMEs and formal financial institutions, enabling access to once-distant credit and financial services. In essence, these platforms pave the way for MSMEs to unleash their full economic potential.
Emergence of Open Networks
Initiatives such as the Account Aggregator (AA) framework, Open Network for Digital Commerce (ONDC), and Open Credit Enablement Network (OCEN) are driving the expansion of digital public infrastructure platforms in India. By providing seamless access to a unified ecosystem, streamlining data exchange, reducing operational intricacies, and bolstering data security, these open networks facilitate the swift adoption of digital solutions. Designed with a ‘plug-and-play’ approach, these networks enable NBFCs and fintechs to easily access data and utilise offerings, enhancing services for both MSMEs and individuals. Importantly, this is achieved without the necessity for complete infrastructural overhauls, thereby ensuring smoother integration and rapid implementation of digital advancements.
AAs: Solving the Essential Credit Problem
Account Aggregators (AAs) play a crucial role in empowering MSMEs to aggregate and manage their financial data more efficiently, resulting in streamlined operations. AAs seamlessly amalgamate data from diverse financial sources, expediting credit assessments and enabling personalised financial solutions grounded in precise insights. For example, an AA can empower an MSME to showcase its creditworthiness by presenting a consolidated record of transactions. Moreover, AAs facilitate astute financial choices by providing holistic snapshots of cash flows and investment trajectories. In practice, an MSME armed with AA-derived insights can optimise loan repayment structures and identify avenues for cost efficiency. This partnership underscores AAs’ significance in propelling MSME growth through data-driven financial insights.
OCEN: Bridging the Credit Gaps
Another revolutionary platform – OCEN, aims to improve financial inclusion and democratise credit access while addressing the challenges of high-risk profiles, high costs, and limited reach. Introduced in June 2021 by iSPIRT, OCEN is a set of APIs that creates an open network, thus integrating millions of Indians into the formal economy by reducing friction. OCEN provides customised credit offerings through digitised processes, accelerating the growth of MSMEs. It has the potential to improve collaboration among borrowers, lenders, and Loan Service Providers (LSPs), simplify loans, and boost economic growth. As India strives for a $5 trillion economy, OCEN’s role in credit democratisation could be the driving force behind MSMEs’ expansion and inclusive economic success.
Also read: Why a targeted training in tech and finance for MSMEs is critical
ONDC: Revolutionising MSME Credit Access
While AA and OCEN have been in place for some time, ONDC is poised to revolutionise MSMEs’ access to credit by offering an integrated platform that streamlines credit transactions. It focuses on facilitating credit through buyer and seller apps. Specifically tailored for MSME financing, the process entails a comprehensive assessment of creditworthiness using bank statements, credit bureau data, and GST invoice information. This approach simplifies and accelerates the credit-seeking process, empowering MSMEs with seamless access to funds. Collaborating with meta-commerce platforms, ONDC aims to address the needs of rural consumers and empower e-commerce platforms to offer personalised services via the local retailers. This strategy bridges the last-mile gap, utilising technology to enhance service provision without requiring additional working capital.
Public Tech Platform: Enhancing Lending Efficiency
Another important development in this sphere is the launch of a Public Tech Platform by the Central Bank to create a frictionless system that ensures the effortless transmission of essential digital data to lenders. Operating as an end-to-end digital solution, this platform will have an open architecture along with accessible APIs and standardised protocols, allowing all participants within the financial sector to seamlessly integrate through a plug-and-play model. In the future, this innovative initiative will enhance lending efficiency by reducing costs, expediting disbursement processes, and enabling scalable operations. These innovations, taken together, pave the way for MSMEs to reach new heights. As these open networks evolve, a future of expanded reach, efficiency, and global integration awaits, ushering in a new era of prosperity for the country’s growth engines. Largely driven by MSMEs, India’s internet economy is expected to reach $1 trillion by 2030. With the critical role that open networks are set to play, this $1 trillion mark may be achieved much sooner.
Anand Kumar Bajaj is the MD and CEO of PayNearby. Views expressed are personal.