12th September 2021
Most of the innovations in India's Financial ecosystem are around lending credit, and the sufferers have been Small and Medium Businesses or MSMEs (who make a vast portion of Indian employment).
Traditional lending processes (banks) are time-consuming and fail to provide money when MSMEs need it the most. Lenders do a risk assessment or a background check on the borrower to verify if he/she is creditworthy (can repay the amount). A huge amount of documentation, physical back & forth, very slow money disbursement. As a result, MSMEs reach out to informal lenders and NBFCs who charge high interest rates since MSME is a riskier customer base.
OCEN (O-ken) stands for Open Credit Enablement Network. OCEN is an infrastructure or a set of APIs that can be used by apps that already interface with individuals and MSMEs to effectively ‘plug-in’ lending capabilities into their current product. These apps will be called Loan Service Providers or LSPs.
Ex: With OCEN infra, Zomato can provide tailored loans to its partnered up restaurants (MSMEs) on their app by assessing factors like daily orders, ratings, etc. Zomato, in the backend, can partner up with legitimate lenders like Bajaj Finserv, SBI, etc. Zomato's in-app data can serve as proof of credit for the MSMEs (along with other financial data that will be facilitated by the AAs).
Example of how OCEN will help
LSPs are called "agents of the borrower" because they are a mere bridge between lenders and borrowers. They aim to make it easier for the borrower to get access to credit, instead of being the sales agent of the lender. If your app has reasonable distribution and some reliable, valuable data about borrowers, it probably makes sense to think about becoming an LSP.
Last essay Day 4: Impact of AA on Fintechs and consumers
In the next essay Day 6: OCEN: How can it be used by startups, we will take look at the reference app Sahay that was built using OCEN and deep dive into business possibilities for startups wrt OCEN.
Resources: A must-read if you want to understand OCEN better, Ever helpful Sahamati blogs