Know How Does Open Credit Enablement Network (OCEN) Can Help Small Businesses

Know How Does Open Credit Enablement Network (OCEN) Can Help Small Businesses

OCEN, which has been in the headlines for a considerable amount of time, has been referred to as the up-and-coming trend in the lending industry. The primary objective of OCEN, which may be pronounced “O-Ken,” is to put in place a collection of frameworks and guidelines that can assist in increasing the availability of credit to those who have the greatest requirement for it. Who will become the most influential people, and how exactly will this system function in terms of small businesses?

Small firms, which make up some of the most vulnerable segments of our economy, have been deprived of access to formal finance from the government and other sources for a number of years. These big groups of potential clients are difficult to reach for financial institutions, which results in increased expenses associated with distribution. In addition to this, they have certain credit requirements, such as low loan amounts, brief payback durations, and immediate access to money.

Here’s how OCEN can help small businesses?

In order to conform to these regulations, financial institutions are required to direct their attention toward large corporations in order to move a significant amount of credit. Because of this flawed structure, approximately 11 per cent of the 63 million small companies in the United States have access to conventional loans. Another challenge for persons who are interested in borrowing money is to demonstrate that they are creditworthy.

What is OCEN?

OCEN is a new model for credit that aims to “create a common language for lenders and markets to construct creative, financial credit products at scale.” OCEN is a paradigm shift in the credit industry.

The OCEN protocol offers a standardized collection of application programming interfaces (APIs), which enables apps that currently interact with consumers and MSMEs to “plugin” lending capabilities within their existing products and services in an efficient manner.

These OCEN-enabled markets are known as Loan Service Providers (LSPs), and they play a revolutionary role in this reinvented digital lending flow as borrower-facing agents or intermediaries.

Financial inclusion

There are 63 million small and medium-sized businesses in India. On the other hand, 11% of them meet the requirements to obtain loans from conventional lenders.

The remaining individuals rely on non-banking financial organizations (NBFCs) and loan sharks, both of which demand extremely high rates of interest. The remaining 89% of borrowers would be able to receive credit at a lower interest rate if OCEN is implemented. This will also help promote the objective of financial inclusion of the population that does not have access to a bank account.

Additional choices

The credit solution would be conducted entirely online, and applicants will be judged on the basis of their ongoing cash flow rather than their income and assets. As a result of the simplification of the process of applying for a loan and the increased level of competition among lenders, the amount of time it takes to finish the entire process, along with the expenses that are linked with financing, need to be kept to a minimum.

Credit made available to more businesses

Credit information and the capacity to provide credit services are both democratized thanks to Embedded Finance and OCEN. This encourages new players to have a vital role when it comes to the distribution of credit, which in return benefits consumers. It is now possible for digital platforms to utilize their positions in order to distribute credit to their clients, and technology players are able to make important changes to the loan value chain in order to make it more effective and inclusive.

End borrowers, which include small enterprises, will now have the ability, through LSP’s platform, to view the many loan choices made available to them by several lenders. These borrowers will have access to cash more quickly thanks to a credit procedure that will be entirely digital, thanks to data sharing that is governed by permission and infrastructure that is enabled by Aadhar and UPI. Credit solutions will eventually shift from being “one size fits all” to being “customized,” with the primary focus being placed on ongoing cash flows instead of income or assets in the evaluation process. It shouldn’t be long until borrowers notice that their partner marketplaces and e-commerce platforms are beginning to provide credit options.

Credit on an individual basis

Credit requirements for small firms tend to be more specific. They require a smaller loan with a shorter payback period and the ability to make their payments quickly. The conventional lenders, who favoured high-value customers, came to the conclusion that this would not be liable for them. The entrance of OCEN, on the other hand, will cause this to alter.

Small and medium-sized enterprises (MSMEs) would have access to low-interest loans of both moderate as well as substantial amounts. In addition, LSPs and lenders would issue these loans based not on the borrower’s balance sheet but rather on the borrower’s cash flow instead of the borrower’s balance sheet. As a result, the micro, small, and medium-sized enterprise sectors will appreciate the move.


Lenders are prepared to collaborate with Loan Service Providers just on the back of OCEN, which presents the following significant potential for the financial technology sector: the open credit network. This protocol is anticipated to play an important part in the decentralization of credit for under-resourced Indian borrowers as the Indian lending ecosystem continues to develop at a rapid pace due to the growing adoption of digitalization.

Ishat Narain