Three platforms in the lending space are poised to change the way lenders offer credit and borrowers access funds in India:
There were 2 crucial milestones in India’s credit market in the last couple of yea years – the launch of Open Network for Digital Commerce, or ONDC, in April 2022 and that of Open Credit Enablement Network, or OCEN, earlier in July 2020. While ONDC is intended to help small businesses and improve the online shopping experience, OCEN, which was part of India Stack, was aimed at improving access to credit for MSMEs in the country. Both these open networks are aimed at creating a partnership environment for lending institutions and ensure that credit is available mainly to the underserved areas of the market.
Now comes a third and pivotal moment. The Reserve Bank of India in August this year has indicated that it may launch a Unified Lending Interface, or ULI, a digital platform intended to facilitate the creation of a smooth lending infrastructure at the national level. The central bank hopes the ULI will ease the lending process, particularly for rural people and MSMEs.
Announcing the regulator’s intention, Governor Shaktikanta Das said ‘Just like UPI transformed the payments ecosystem, we expect that ULI will play a similar role in transforming the lending space in India’.
The ULI platform is now functioning as a pilot.
MSME TO BENEFIT
It will be beneficial to have a closer look at the 3 platforms to understand their effective roles in the credit management and disbursal, especially among the MSMEs in the country.
The OCEN, the first to become functional, is essentially a collection of open APIs that enable the movement of money, information and data. Its goal is to help MSMEs have improved access to credit by simplifying the lending process. It is in effect a link between lenders, borrowers and other stakeholders in the lending chain. The platform functions as a mechanism that integrates multiple lenders and offer credit on their own platforms. At the same time, it enables lenders to open their financial infrastructure to multiple digital platforms, thereby having new source of borrowers.
OCEN AND ONDC
In short, OCEN acts
- as a common language between lenders, borrowers and other stakeholders in the credit chain
- empowers new players
- allows digital platforms to integrate with multiple lenders and offer credit on their own platforms
- creates a new ecosystem
- enables lenders to open their financial infrastructure to multiple digital platforms, which can help them source new borrowers
The ONDC, which is a direct government initiative, is mainly intended to promote small businesses and improve the online shopping experience. It is also based on open-source technology and the target is to make e-commerce available to more users. It will
- act as a link connecting lenders and marketplaces to utilize and create innovative, financial credit products at scale
- allow account aggregators to using APIs provided under OCEN and embed credit offerings in their applications
- democratize access to credit, and lower interest rates.
ULI IS UPI IN CREDIT REALM
ULI, on the other hand, is explained as a ‘UPI in the credit realm’, helping both ONDC and OCEN. RBI plans to create a digital database of financial and non-financial information of borrowers and provide the lenders with access to vital information about borrowers. It will also have APIs with a ‘plug-and-play’ method making access to data easy for lenders and decrease the complexity of technical integration. It will be a nationwide platform. The thrust will be to meet the needs of farmers, rural population and MSMEs specifically reducing the time of accessing credit.
In fact, ULI has been in pilot since 2022, and work has been progressing on end-to-end digitization and it has already achieved significant efficiency in loan processing and reduction in TAT in disbursals.
ULI can be:
- beneficial to all stakeholders, including consumers, lenders and data service providers
- beneficial to lenders and data service providers in view of the network effect, standardization, efficiency in terms of cost, innovation in lending process
- instrumental in unlocking even more data from sources such as gig platforms and payment systems for driving deeper insights and smarter credit decisions.
ULI is being developed and handled by the Reserve Bank Innovation Hub, which is a wholly owned subsidiary of the RBI that facilitates innovation in the financial sector. It is slated to be handed over to either NPCI or other similar entity.
IMPACT ON LENDING
How does this trinity going to help develop the digital lending market in India?
Digital lending in India is expected to grow to a huge $1.3 trillion market by 2030. There have been several contributing factors that have already simulated this growth, including proliferation of smart phones and the high level of internet penetration. With more people online than ever before, availing loans digitally is now a preferred option, In this scenario, the relevance of ONDC, OCEN and ULI is very crucial. In fact, it can be said that in the days to come digital lending in the country will be largely managed by these 3 frameworks.
Their roles will be:
ONDC will simplify the lending process by bringing together various financial players and connecting them with businesses and consumers. Lenders get access to a broader pool of potential borrowers, from small businesses to individual consumers, all through a unified digital network. It will be the preferred lending platform for borrowers, particularly small businesses and MSMEs.
OCEN will be the credit network enabler, It is essentially a bridge between the lenders with digital marketplaces and platforms. OCEN benefits the digital lenders by automating and consolidating the resources-heavy practices like screening loan applications, verifying borrower details, and processing paperwork, On the other hand, it will be helpful to borrowers, especially those who may not have a strong credit history or access to traditional banking services. It will open up new avenues for credit, making loans easier and faster to obtain.
ULI as the name suggests will be the true interface that will enable seamless, secure and fast lending process by connecting the borrowers with lenders through different digital platforms. Once fully developed and implemented it will be a platform that will seamlessly integrate with various platforms – an e-commerce site, or a payment app, or a user at a marketplace.
There are, however, significant differences among the 3. While ONDC focuses on creating a digital marketplace where lenders and borrowers can connect, OCEN acts as the backbone for platforms to offer credit services, automating the lending process, making it faster and easier for digital platforms. ULI is an integrator of digital lending experiences, simplifying borrowing by embedding loan options within platforms like e-commerce sites, giving borrowers instant access to loans or instalment plans right at checkout.
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