What is Open Credit Enablement Network (OCEN)?

The government of India launched the Open Credit Enablement Network (OCEN) last year. It is an initiative in India aimed at democratizing credit access and fostering innovation in the financial ecosystem. It is a kind of a virtual credit marketplace which brings distributors, lenders, and borrowers together in one location. Basically OCEN is a set of protocols that enables seamless interaction between the lenders, loan service providers and borrowers by creating a standardized framework for credit underwriting, disbursement, and management for small-ticket financing with brief tenures by enabling distant lenders to conduct business in remote areas and permitting access to data from other sources.

Stakeholders in OCEN:

Banks and Financial Institutions:

Banks and financial institutions are the lenders who provide credit products to the borrowers through loan service providers.

Loan Service Providers (LSPs):

LSPs are the platforms and services that facilitate the loan process for borrowers with the banks and financial institutes.

Regulators:

Reserve Bank of India developed the OCEN protocol in association with many other industry participants which includes banks, financial institutions and technology providers. OCEN being part of the financial system, naturally the RBI is the regulator of the OCEN. All the participatory entities have to ensure that the protocol and its applications comply with financial regulations as updated from time to time.

Technology Providers:

RBI developed OCEN in collaboration with many industry participants which includes banks, financial institutions and Fintech companies. Fintech companies that develop and maintain the infrastructure and technology supports OCEN and are responsible for maintaining the infrastructure.

Key Features of OCEN:

Standardized Interface:

OCEN provides a common language and set of protocols for lenders and LSPs by creating a standardized framework for credit underwriting, disbursement, and management, making it easier to integrate various financial services and products.

Interoperability:

The protocol allows for the interoperability of different financial systems. Any lender or LSP using OCEN framework can work with other entities using the same framework without the need for custom integrations. It makes things easier than said.

Efficiency:

By standardizing the processes involved in credit enablement or credit underwriting, disbursement, and management, OCEN reduces the time and cost associated with credit disbursement and management. This results in lower rates of interest and better credit terms for the borrowers.

Increased Access to Credit:

OCEN aims to make credit more accessible, especially to underserved segments such as small businesses, individuals in rural areas, and those without a significant credit history.

Data-Driven Decision Making:

The protocol encourages the use of data-driven objective credit assessments than any subjective presumptions, leveraging various data points to better evaluate the creditworthiness of borrowers.

Regulatory Compliance:

The best part of OCEN is that it has been designed to be compliant with existing regulations and to adapt to future regulatory changes, ensuring that all transactions and processes are within the legal framework and have no negative impact on overall lending processes and liquidity in the economic system.

Benefits of OCEN:

There are many benefits of OCEN from lenders to LSPs to borrowers. For the lenders, OCEN will enhance the reach giving access to more customers across a broad area, resulting in better risk management, and streamlined operations. For the loan service providers, it offers easier integration with multiple lenders while seamlessly expanding their service offerings at the same time. It is also very beneficial to borrowers as the borrowers have improved access to the credit with potentially better terms and quicker loan processing.

Implementation:

OCEN is part of the broader public digital infrastructure being promoted by the Indian government and industry stakeholders to enhance financial inclusion and economic growth. It is associated with the India Stack, a set of APIs that allow governments, businesses, startups, and developers to utilize a unique digital infrastructure to solve India's hard problems towards presence-less, paperless, and cashless service delivery.

By enabling a more inclusive and efficient credit ecosystem, OCEN has the potential to significantly impact the financial landscape in India, fostering greater innovation and economic development leading to realizing the goal of making India a $50 trillion economy by 2047, India a $50 trillion economy by 2047.

Rajeev K Upadhyay