Digital lending -OCEN
Problem with traditional loan disbursement method
Assume you run a small business. For the coming month you find that demand for your product will be high. In order to finance (a loan) to meet the demand. There are two ways, Loan from formal or informal sector.
The problem with financing loans from the formal sector is:
It takes too long to process the loan.
Usually for small businesses the loan requirement is less. However for the banks to process those loans. There will be unit economics constraints. Cost of acquisition, underwriting and services, will be the same with any amount of loan lent.
Because of this only 11% of the 63 million MSMEs have access to formal credit. It can be solved through financial technology. This is a huge opportunity for start-ups.
Role of OCEN
OCEN stands for Open credit enablement network.
Is a open banking initiative in 2020. Through OCEN protocol credit lending becomes easier for the Small businesses and individuals who need loan for short time, Instantly and at low ticket size. It enables easy credit flow through a framework of API.
How does OCEN work?
A Protocol to connect borrowers and lenders.
In order to get a loan through this, User have to register through a app and register their GST and bank account. And put in the necessary amount.
Participating lenders will quote the amount they are interested to provide. digitally the user can see the loan offers available. Then user can choose the offer of their choice, read T&C and verify.
According to SAHAY a OCEN based app, It takes less than a minute through this method
Through data from GST, the user can also get loan through financing invoices or purchase order through this framework
The decision to whether give a loan or not will be decided through the data available about the borrower from their bank statement and the Account aggregator. Account aggregator is a NBFC that collects and retrieves information pertaining to its customers.