The primary cause of weaker credit penetration in India is not the lack of capital. That’s available in abundance, as evidenced by the funding and IPOs of the startup ecosystem. It is more the inadequacy of the channels that allow for capital transmission.
Although there are numerous such channels offered, the underlying cause is their operational standards for credit sourcing, underwriting, monitoring, and service. Only by dramatically improving those standards can credit be made accessible to all.
OCEN is one technology that up levels these operational norms to a large degree while still leveraging the existing banking ecosystem. The Open Credit Enablement Network (OCEN) addresses most of the pain points of credit transmission by bringing everything under one umbrella, from sourcing to identity verification, to disbursement to recollection.
OCEN: Democratising Credit
OCEN is a set of standardised APIs that facilitate and automate the process of lending. Each represents a part of the lending value chain. It allows anyone, be it an app that individuals use or a marketplace for SMEs, to be a Loan Service Provider (LSP).
For instance, e-commerce giants like Flipkart could ‘plug in’ lending into their existing service offering and offer sellers credit based on their invoices. Ultimately, OCEN ensures that credit transmission is not just limited to banks. Payment aggregators, Kirana tech apps, fintech firms, Agritechs, or even education providers can participate in it.
Reimagining Lending
OCEN is just one piece of the puzzle in creating an open network to facilitate the flow of credit. The whole infrastructure that enables more democratised lending includes other key players like account aggregators (AA), Technology Service Providers, LSP, lenders, Data Empowerment and Protection Architecture (DEPA), and the Public Credit Registry (PCR).
Source: RBI
Take, for example, the problem of data asymmetry. The borrower often has the most information about their risk and economic condition, while lenders have limited access to it. That is one reason seriously limiting credit transmission. Another could be control of user data, where lenders keep tight rein on the information of profitable customers.
With PCR in place, this lopsided balance in user data is reduced. It enables access to verified information so any lender can know the credit history and the current indebtedness of a borrower. Coupled with OCEN, it not only increases the speed of credit availability but also offers an appropriate interest rate with fair loan terms within the right time frame.
A New Paradigm
There is no doubt that the traditional channels of capital flow to the MSME sector are broken. Constrained by outdated methodologies, large operational costs, manual processes and more, they have dammed credit transmission.
Even with the growing adoption of digital transactions and e-commerce, the availability of credit is still woefully short. OCEN and the various players of its infrastructure widen the penetration by empowering embedded financial services.
Embedded finance providers, like GLaaS, will ultimately help LSP provide credit to all. More than that, they can accelerate, optimise, and standardise credit transmission across the nation.
