Launching the Open Credit Enablement Network, also known as OCEN, was the decisive step India needed to take in order to go in the direction of democratizing credit and achieving financial inclusion. However, the OCEN is neither a good nor a service. It is just a set of guidelines to follow. In order for it to show results, it has to be implemented effectively. Companies in the technology industry are designing their products in accordance with the requirements and are providing the required functionalities necessary to make OCEN’s vision a reality.
What is the Open Credit Enablement Network?
Open Credit Enablement Network, often known as OCEN, is an open protocol infrastructure that would serve as a connection between Loan Service Providers (e-commerce giants and FinTech startups) and financial institutions (NBFCs, banks). Lenders, Technology Service Providers (TSPs), and Loan Service Providers (LSPs) all participate in the construction of this system, which is constructed on a framework between the three of them.
This protocol is used to credit in the same way as UPI is used to pay, and account aggregators are used to collecting data. The application for a loan is significantly streamlined as a result of this standardized procedure. Its goal is to enable any service provider which it engages with consumers and micro, small, and medium-sized enterprises (MSMEs) to become either a credit ecosystem that is enabled by fintech or a loan service provider (LSP).
It is tackling various pain issues of the Indian lending business by democratizing access to credit. These include reducing the cost of attracting new clients, chopping off loan deposit payback duration, keeping interest rates low, streamlining credit criteria, and many more.
1. Opportunity for lenders
These are conventional financial institutions, such as banks, which, as a direct result of the open credit enablement network protocol, will now enjoy the benefits of increased collective size and simplified distribution. These financial institutions (lenders) are now able to build products and economically attend to the requirements of small companies as a direct result of capitalizing on the preexisting digital infrastructure and gaining access to data that has been independently verified by borrowers.
2. Lender and borrower connection
The customer-acquisition cost is typically rather expensive, which is a significant structural barrier to lending. This is due to the fact that eligible lenders, as well as borrowers, are not linked with each other. In this context, the LSP model that the open credit enablement network has suggested using as a basis for its operations may prove to be beneficial for lenders in terms of reducing operational expenses and locating cost savings.
3. Credit made available to more people
Credit information and the capacity to provide credit services are both democratized thanks to Embedded Finance and OCEN. This promotes new actors to play vital roles in the distribution of credit, which in turn benefits consumers. It is now possible for digital platforms to utilize their positions in order to distribute credit to their clients, and technology players are able to make important changes to the loan value chain in order to make it more effective and inclusive.
It is quite likely that the implementation of an open credit enablement network will be a game-changer. It would also result in an integrated and efficient interaction between lenders and markets, which would be a significant step toward effective financial inclusion.
In these times of economic uncertainty, the introduction of a new platform that provides simple access to credit should result in a constructive disruption of the conventional lending rules, producing a situation in which all of the relevant parties come out ahead.