Philanthropy can democratise credit for India’s 60 million micro-enterprises by supporting a new digital tool.

The Open Credit Enablement Network (OCEN) is a digital protocol being developed in India that has the potential to revolutionise credit and financial services, especially for historically underserved groups. Historically, borrowers who lacked creditworthiness, such as micro-enterprises in India, have been unable to access affordable credit and financing, which has limited their potential to scale and grow. The OCEN offers a promising solution and framework for providing fast, small-sized, and customised loans to micro businesses without the need for physical collateral.

However, to deliver on its promises and effectively include micro-enterprises in the financial fold, the design and implementation of OCEN must be carefully executed. Philanthropy can play a crucial role in ensuring that OCEN delivers on its promise to democratise credit for the ‘next billion‘ by supporting its design and implementation.

Enabling micro-enterprises through cash flow-based lending

OCEN is an open-source protocol infrastructure that enables the seamless exchange of credit information between different actors and allows for decentralised credit services to be built on top of it. Instead of relying on traditional methods of assessing creditworthiness, such as audited financials and physical collateral, OCEN leverages digital data sources to provide real-time projections of a borrower’s cash flows. This approach known as ‘cash flow-based lending’ is ushering in a new paradigm of lending in India. Furthermore, OCEN reduces credit costs and optimises the risk assessment process, making it feasible for formal financial institutions to offer low-cost, timely, and small-sized loans to underbanked populations such as micro enterprises. OCEN thus promises to revolutionise the way credit is offered to micro-enterprises, making it easier for them to access the credit market, improve their working capital flows, and stimulating progress, ultimately leading to economic growth and employment opportunities.

Although OCEN promises to bring India’s micro enterprises into the realm of financial inclusion, the current environment for this infrastructure in India is not yet conducive. The Indian economy is largely informal and cash-based, and almost 190 million Indian adults lack access to bank accounts. Additionally, micro-enterprises have varying degrees of access to and usage of digital financial products and services, with many unable to access digital devices due to low levels of digital and financial literacy. Therefore, we believe that philanthropy can play a critical role in facilitating the enabling environment for the implementation of OCEN by addressing these challenges, such that micro-enterprises can make the most of OCEN’s innovative and simplified credit delivery process.

Using philanthropy to build a sustainable digital financial ecosystem

Philanthropy has already been instrumental in the development of the OCEN, with initial funding coming from the Omidyar Network and subsequent support from the Bill & Melinda Gates Foundation and the Michael & Susan Dell Foundation. However, to realise the goal of accelerating affordable credit for marginalised individuals, philanthropy should not simply stop at the development stage but also support the effective deployment of OCEN.

Philanthropic organisations can facilitate the successful implementation of OCEN by collaborating and coordinating with different entities involved in the ecosystem, such as technology partners, service providers, and government agencies. This can be achieved through several key approaches.

1. Building safeguards such as inclusion, trust, competition, security, and privacy
   To ensure equitable development and societal transformation through OCEN, philanthropists must consider the ways in which ethics and safeguards can be baked into its design and implementation. Philanthropists can invigorate multi-stakeholder alliances to deliberate upon and establish a shared vision, standards, frameworks, processes and structures of decision-making, participation, monitoring and evaluation, and of accountability. This will help ensure the inclusive, equitable and secure development and deployment of OCEN for different users in myriad contexts.

2. Creating demonstrable use cases
   To promote financial inclusion for micro enterprises, philanthropy should invest in creating various use cases for them, which can be achieved by conducting research on micro-enterprises in different contexts. Philanthropy can also identify common issues faced by micro-enterprises that ecosystem players are already attempting to solve and map them to the features of digital public goods. This approach will broaden the ecosystem’s imagination and vision of how OCEN can be optimally deployed.

3. Catalysing the innovation ecosystem
   To ensure a sustainable digital financial ecosystem, philanthropy should facilitate partnerships and collaborations among OCEN, financial institutions, business associations, and government agencies. This may involve collaborating with financial institutions to create customised products and services that cater to the specific requirements of micro enterprises and teaming up with fintech companies to design groundbreaking digital solutions.

4. Driving adoption of OCEN amongst micro enterprises
   Philanthropic support can strengthen the ability of micro enterprises to fully leverage OCEN through training and education programs. These programmes could cover thematics such as digital literacy, financial management, and platform usage. Such technical assistance will empower micro entrepreneurs to effectively utilise and derive maximum benefits from OCEN.

The pathways outlined above are just a few of the many strategies that philanthropic organisations can pursue to support the successful implementation of OCEN. By working together with other stakeholders in the ecosystem, philanthropic organisations can help to create a more inclusive and equitable digital financial ecosystem in India.

To learn more about the promise of OCEN for Micro enterprises.

Abhishek Modi leads the Digital Platform Practice at Sattva. Asawari Luthra is a research consultant with Digital Platform.