Nilekani opens credit infrastructure to aid small businesses

A major new technological innovation is in the works connecting lenders with the marketplace, Aadhaar architect Nandan Nilekani announced on Wednesday, as he buttressed the need for India to “democratise credit” for millions of small businesses to revive its virus-battered economy.

Speaking at the Global Fintech Festival, 2020 on Wednesday, Nilekani, co-founder and non-executive chairman of Infosys Ltd, described the initiative as a credit protocol infrastructure called the Open Credit Enablement Network or OCEN, built by the Indian Software Product Industry Roundtable (iSpirt), a think-tank of the software industry.

Under these new credit rails, OCEN will act as a common language, connecting lenders and marketplaces to utilise and create innovative financial credit products at scale. Aggregators will be using this programming interface to embed credit offerings in their applications , which in turn will play a crucial role in democratising access to credit and lowering interest rates for borrowers. iSpirt is partnering with the State Bank of India, HDFC Bank Ltd, ICICI Bank Ltd, IDFC First Bank Ltd, Axis Bank Ltd and Bajaj Finserv Ltd for this new credit rail.

“Apart from the digitisation of the lending process, we have data stores through the Account Aggregator (AA) network, and for credit to move seamlessly to small businesses, lenders will need to have a common protocol. Just like what UPI did with payments,” Nilekani said. “We are working on a common language for lenders and borrowers, called the Open Credit Enablement Network protocol, which will have a dramatic impact to enable small businesses to get loans.”

In July, last year, Nilekani introduced the Account Aggregator (AA) platform, a digital public infrastructure developed in collaboration with major Indian financial regulators, to manage data on behalf of consumers and streamline its access to payment and financial service providers.

“Lenders focus on blue-collared workforce want to solve cost and data asymmetry. Cost is solved by digitisation and asymmetry is solved by the Account Aggregator model. Now, credit protocol (OCEN) will democratise the process for millions of small businesses. For our economy to revive we need to fund small businesses,” Nilekani said at the virtual event.

He emphasised that many micro-enterprises, which constitute India’s backbone, don’t have access to credit, with a large portion of India’s lending capital still going to large enterprises.

This is despite the digitisation of India’s credit economy, which now allows for shorter duration and small ticket loans, reducing the cost of new credit disbursements.

“Small businesses don’t get loans because there is no data around them and the AA helps in data asymmetry. Data is important and reflected in different activities of the business. For example, GST data on a merchant’s billings can be used by small businesses to get a loan or data from marketplaces like GeM which can be used to track a merchant’s billing in order to give a loan,” Nilekani added.

He also said that when public systems are developed, one needs to think about how a billion Indians can participate in the infrastructure.

“We need to get a billion people to participate in the public infrastructure we develop, and have a solution for everyone in the country and be inclusive when we think about these public systems,” said Nilekani.

During India’s demonetisation, retail organisation National Payments Corporation of India (NPCI) added feature phone capabilities to make Unified Payments Interface (UPI) ready for feature phones. But UPI transactions still come majorly from smartphones and Aadhaar Enabled Payment System (AePs) has helped individuals in Tier 2 and 3 towns for withdrawals.

“We need to do something about feature phone payments so we can expand digital payments to everyone,” added Nilekani. “You need to bring public digital goods and public digital rails and let private players build on it. The internet and GPS is a great example where the US government worked on it and private players like Google, Facebook and Amazon are building on it.”