A major new technological innovation is in the works connecting lenders with the marketplace, Aadhaar architect Nandan Nilekani announced on Wednesday that, as he buttressed the need for India to “democratize credit” for millions of small businesses to revive its virus-battered economy. Speaking at the Global Fintech Festival, 2020 Nilekani, co-founder & non-executive chairman of Infosys Ltd, described that the initiative as a credit protocol infrastructure called the Open Credit Enablement Network, or OCEN, built by the Indian Software Product Industry Roundtable (iSpirt), a think-tank of the software industry.
Under these new credit rails, OCEN will be act as a common language, connecting lenders and marketplaces to utilize and create innovative financial credit products to scale at it. Aggregators will use this platform to embed credit offerings in their apps, which in turn will play a crucial role in democratizing access to credit and lowering interest rates for borrowers.
iSpirt is partnering with State Bank of India(SBI), HDFC Bank Ltd, ICICI Bank Ltd, IDFC First Bank Ltd, Axis Bank Ltd and Bajaj Finserv Ltd for this new credit rail. “Apart from this digitization of the lending process, we have data stores through the Account Aggregator (AA) network, and for credit to move seamlessly to small businesses, lenders will need to have a common protocol. Just like what UPI did with payments,” Nilekani said.
“We are working on a common language for lenders and borrowers, called the Open Credit Enablement Network protocol, which will have a dramatic impact to enable small businesses to get loans.” Nilekani introduced the AA platform, a digital public infrastructure developed along with major Indian financial regulators, a year ago as a tool to manage data on behalf of consumers and streamline access to payment and financial service providers.
“Lenders focused on blue-collared workforce want to solve cost and data asymmetry. Cost is solved by digitization and asymmetry is solved by the account aggregator model. Now, credit protocol (OCEN) will democratize the process for millions of small businesses. For our economy to revive, we need to fund all the small businesses,” Nilekani said at the virtual event.
He said many of the micro-enterprises that make up India’s industrial backbone don’t have access to credit, with a large portion of India’s lending capital still going to big enterprises. This is despite the digitization of India’s credit economy, which now allows for shorter duration and small-ticket loans, reducing the cost of new credit disbursements.
“Small businesses don’t get loans because there is no much data around them and the AA helps in data asymmetry. Data is important and reflected in different activities of business. For eg. GST data on a merchant’s billing can be used by small businesses to get a loan or data from marketplaces like GeM (government e-marketplace), which can be used to track a merchant’s billing in order to give a loan,” he said.
He also said that when public systems are developed, one needs to think about how a billion Indians can participate in the infrastructure. “We need to get a billion people to participate in the public infrastructure we develop, and have a solution for everyone and be inclusive when we think about these.”