Explained In Detail: What Is Open Credit Enablement Network (OCEN)

In the field of lending, there are a plethora of processes that must be followed, from loan origination through disbursal. From the perspective of the loan seeker, it entails significant time, effort, as well as logistical investments. The whole loan life cycle, from KYC verification through application submission, loan application form as well as user setup, account requirements, amount sanction, as well as a disbursement, end-use monitoring, and EMI/Principal collection, is primarily conducted offline. This is where the open credit enablement network comes into the picture to help people who need instant loans. 

Since its launch, the Open Credit Enablement Network (OCEN), which has been in the headlines, has been lauded as the next great disruptor in the world of lending. This organization’s central concept is to establish a set of frameworks & protocols that will allow for the democratization of credit for those parts of society that are most in need. Open credit enablement network is pronounced, “O-Ken.” How it will affect small firms, who will be the major stakeholders, and how it would operate are all questions that need to be answered.

It has also been decades since formal credit flow has been restored to the most vulnerable portion of our economy, particularly small enterprises. Due to the difficulty financial institutions have in reaching these broad sectors of clients, distribution expenses are quite expensive. There are also some very special credit requirements for them, including often smaller loan amounts, shorter payback deadlines, and immediate access to money. The financial institutions are constrained by these constraints, which prompts them to concentrate their efforts on major firms in order to dump significant sums of debt.

How does it help?

Due to this flawed structure, credit distribution is significantly underdeveloped, with only roughly 11 percent of the 63 million MSMEs having access to formal financial services as a result of the system’s failure. On the other hand, borrowers face an additional burden in demonstrating their creditworthiness. Lenders are unable to analyze these small company clients because there is insufficient information. For the purpose of fixing this broken system, the open credit enablement network is developing an infrastructure protocol that allows consent-based direct exposure to verified input from numerous governmental and non – governmental data sources as well as connects borrowers with lenders through an ecosystem that provides affordable credit.

Here’s how OCEN is solving the biggest problems

A loan application is still one of the most time-consuming and inconvenient processes available today. Because of the mountains of paperwork, the length of time it takes, and the high likelihood of denial, the loan approval procedure frequently sends applicants away, throwing them into the debt trap of loan sharks and other collection agencies. Consider the possibility of paying a monthly interest rate of 20 percent. ‍‍

In this case, an organization known as an open credit enablement network can help. In essence, it is the Indian equivalent of the current Open Banking system, which would be widely used in Europe.

As a result, agencies will be able to become loan service providers (LSPs), expanding the scope of lending beyond the traditional realm of banks, non-bank investment firms, and other similar organizations.

So, in the not-too-distant future, companies like Zomato, Swiggy, Paytm, Oyo, Airtel, as well as every other service that you are using, will be able to become Loan Service Providers and supply you with loans, as would financial institutions.

In other words, what exactly does the Open credit enablement network do?

In general, it aspires to service all potential borrower groups, including personal, home mortgage, and corporate borrowers, among others. In addition, it provides a marketplace approach for loan services.

With an emphasis on digital-only evaluation, sanctioning, and delivery of loans to borrowers, the Open credit enablement network hopes to alleviate the most pressing issues. It facilitates the monitoring of borrower and lender use, resulting in a 360-degree data collecting and analysis process.

Both parties — the loan applicant and the loan provider — can benefit from digital lending by avoiding misgovernance or fraudulent lending practices.

OCEN Is Addressing the Issues of Concern

However, while the full impact of this ground-breaking technology has yet to be realized, the following list of pain problems that the open credit enablement network is addressing in the Indian loan business as of today is a good starting place.

  • Borrowers who are creditworthy can be identified more quickly.
  • The expense of gaining new customers is being reduced.
  • Integration of lenders and markets through automation
  • Loan deposits are being processed more quickly.
  • The construction of unique credit instruments can be made more straightforward.

Growing the number of small and medium-sized enterprises (SMEs) that may obtain finance throughout the country.

According to OCEN, the credit environment will be reshaped over the next several months and years. Small enterprises will be able to get finance in real-time as a result of this initiative. Whether it’s supply chain financing for broad/long-term credit, instant-short-term credit, and any other market situation, you may expect a sea-change shift in the more comprehensive credit procedure in the coming months.

What the future holds for OCEN?

Also benefiting from OCEN’s efforts will be Account Aggregators, who have yet to receive widespread attention but who have the potential to become one of the most significant international organizations.

OCEN’s framework will also serve as a baseline for data privacy as the organization strives to achieve its goal of increasing the number of credit-worthy individuals by one billion and therefore boosting the country’s economic viability.

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