OCEN — the digital pathway for credit availability
OCEN is one of the latest efforts led by iSPIRIT to digitally simplify and enable the access of credit to individuals and MSMEs in India.
As India Stack has revolutionized the foundational layers of Identity, Payments, and Data empowerment in the fintech space, now OCEN’s open credit protocol is expected to be “UPI for Credit”.
OCEN (pronounced OKEN), is expected to redesign and bridge the current gap in formal lending caused by :
1. Lack of credible digital footprints in segments such as MSME’s to perform underwriting
2. Limited traditional credit options offered by the lending institutions
OCEN aims to simplify the complex problem of missing or unfavorable terms of credit, by enabling a collaborative digital ecosystem.
What is the current gap?
SMEs and MSME’s contribute close to 8 and 30% of the Indian GDP respectively and also 40% of the total export from India. Over 45% of the total manufacturing output comes from this sector and hence this segment plays a crucial role in reducing unemployment, eliminating poverty, and blurring income inequalities and financial inclusion and empowerment.
Access to affordable credit/capital becomes really crucial in this segment, where the high credit period, working capital requirements significantly impacts the cashflows and operations of the day to day business and hence growth. But the MSME bureau coverage is reported to be only ~10%, which establishes the need for alternate/credible data.
Despite the presence of formal lending options via regulated financial institutions, often these businesses need to rely on traditional ways of accessing capital via an unorganized market which lends at extremely high and unsustainable interest rates.
This gap between Lender and Borrower leads to :
What will OCEN enable?
OCEN will be a layer between these stakeholders and will standardize the loan disbursal, monitoring, and collection process with help of the data access and digital communications.
OCEN will enable ease of access to credit via digital interactions between these stakeholders –
1) Lenders — Lenders are the financial institutions that will be offering the loan amount to the prospects. These players can be Traditional Banks, NBFCs or any upcoming FinTech player subjected to regulations. They will be responsible for underwriting the applicant, providing loan options, and finally disbursing the amount to the beneficiary.
2) Borrowers — Borrowers are the customers looking for any type of loan ranging from daily invoice funding to a retail loan.
3) Loan Service Providers (LSPs) — LSPs are the loan marketplaces that have direct and good access to the borrowers. They are responsible for providing a single integrated platform (Like an Android App) bringing together all the key players.
4) Account Aggregator — Account Aggregators are responsible for accumulating all the available and consented information of the applicant from different financial sources and provide them further to the lenders for better underwriting
OCEN implements a simple architecture or a protocol incorporating a set of APIs to enable communications between these stakeholders -
The APIs provided under this solution cover the entire life cycle of a customer-lender interaction — that is from acquisition, underwriting to the servicing of the loan.
This entire loan origination and loan management set of OCEN APIs include –
APIs for Loan Origination Stage activities -
1- Loan Application: A potential borrower, either visits or is a member of an LSP platform and fills a loan application. The corresponding LSP then activates the Loan Application API wherein all the information related to the applicant like the loan amount, documents, etc. are shared with the Lenders on the platform.
2- Consent: Once the lender receives the request, it looks for credible information for underwriting. The regulated lender then reaches out to Financial Information Providers, FIPs, through an ecosystem — Account Aggregator. The consent APIs are then activated for the borrower’s permission and the required information is provided by the FIP to the lender for underwriting.
3- Loan Offer: Once the lender has underwritten the applicant, it shares the loan offers to the LSPs for the borrower through Offer API.
4- Loan Acceptance: The borrower picks from the available options from different lenders and accepts one through Loan Acceptance API.
APIs for Loan Management Service activities -
5- Repayment: Post the loan acceptance, repayment methods are set in between the borrower and the lender using repayment API.
This process from initiation of the request to loan disbursal takes less than four minutes for a new applicant.
Along with these, there are also other touchpoints like the disbursement process involved in the architecture making the process a one-stop solution for borrowers and lenders.
The framework surely provides a lot of opportunities in enabling Financial Institutions and fintechs to offer better and simpler lending products to a wide market in India.
Sources:
https://www.smechamberofindia.com/about-msme-in-india.php#:~:text=SME%20Sector%20In%20India&text=It%20also%20accounts%20for%2045,to%20the%20GDP%20is%2037.54.
https://www.cii.in/Sectors.aspx?enc=prvePUj2bdMtgTmvPwvisYH+5EnGjyGXO9hLECvTuNuXK6QP3tp4gPGuPr/xpT2f
BCG-Digital-Lending-Report_tcm9–197622.pdf
