OCEN and digital lending: a revolution waiting on the anvil
The newest kid on the block of digital lending and financing is the OCEN, or the Open Credit Enablement Network. Announced by Nandan Nilekani, cfounding architect of Aadhaar and co-founder and non-executive chairman of Infosys, this is the newest initiative to help bring credit to the ones who need it the most. OCEN promises the same ease of availing credit as UPI is for peer-to-peer payments. Let’s see how OCEN is built to unlock fresh avenues in the world of digital lending to unleash a fresh wave of growth for countries like India.
OCEN is a new credit protocol infrastructure that is more like a common language between lenders and marketplaces. This has been made possible due to the already established UPI ecosystem, mobile data network access to millions, as well as Aadhaar-linked bank accounts – in short, the JAM trinity – Jan Dhan – Aadhaar – Mobile. OCEN will make it possible to create innovative credit products at a large scale, fit for the masses. So much so that even a street hawker who is not that tech savvy will be able to take an intraday loan in the morning and pay it back by the evening through an easy app interface. Though still in the works, OCEN has been built to realise this.
How does OCEN work?
OCEN works as a standardized set of APIs that can be plugged into interfaces already working with MSMEs and individuals. Any OCEN-enabled marketplace is called a Loan Service Provider (LSP) and these will play a very important role as intermediaries. OCEN will then activate these LSPs to be a source of customer discovery and credit delivery, further allowing for the creation of several new types of loan products and unique offerings. This application is intended to work along with the Account Aggregator framework, which are a group of companies that have permission to collate and aggregate all data surrounding an individual in order to give benefactors a clearer and bigger picture. All with the individual’s consent, of course.
Through this Account Aggregator framework, which can be embedded as an API into the LSP, lenders can access borrower data that was previously inaccessible.
Why is OCEN important?
Now, with OCEN, banks will be able to fill these gaps. India has a credit gap of $330 bn because traditional lenders have failed to direct credit to the hands of those who need it the most. For LSP, OCEN will serve as a way to cater to a whole new set of customers who were previously unreachable: the small business-holders. Formal credit flow to this section of society has been broken due to a number of reasons: high distribution costs, lack of smaller loan offerings, requirements like shorter repayment timelines, and a lack of quick access to funds. Aside, the borrowers themselves face the issue of not being able to prove their creditworthiness, mostly due to a lack of data.
When would the OCEN open?
OCEN was announced to be launched through the Sahay app, which would allow for borrowers to decide which bank they wanted to borrow from, instead of the traditional reverse, where banks take the lending decision. However, various bottlenecks including the COVID-19-led lockdown and economic shutdown, the app has so far been on a ‘hiatus’.
The team behind Sahay is the same team that enabled BHIM UPI app (BHarat Interface for Money) which was a success beyond expectation. On a blog post in May 2020,, team OCEN announced: “This slow down is obviously disheartening for many iSPIRT volunteers, and to all market players we have been working with. Months of hard work may not come to life in the next quarter or two. But these same months of hard work were possible only because we saw ourselves as architects with a 10-20 year horizon to solve India’s hard problems. Cash flow lending is a powerful idea to democratise credit in our country. Its time will come, and come soon. Right now, we need to pace ourselves to our new realities and revive the energy again when lending picks up in this country.” This only means that OCEN will be one among the many recovery tools that will help banks and financial institutions pick themselves and the rest of the economy up along with them in the aftermath of this pandemic.