Modern lending pillars – OCEN and RXIL

Written by - Vibhav Bhat and Yash Prashant Bhave

PGDM Finance- TAPMI, Manipal

There is always a need for funds to expand business or to improve lifestyle. Earlier the options to raise funds or borrow were banks, sahukars or relatives/friends. Over the period more options rose. These included a gold loan, NBFC, Digital lending. Government today is focusing on promoting digital lending among all. Digital lending exponentially increases the potential of people joining the formal financial market. There are two services or platforms which serve this need RXIL and OCEN.

RXIL (Receivable Exchange of India Limited)

What are the difficulties? why the need for this?

Bajaj Finserv is serving retail customers in an efficient way. MSME, one of the major segments, is currently still being underserved just because of the unavailability of proper data. Why MSME is so much important to look at?

MSMEs don’t have in hand cash availability. Hence, they cannot have longer receivable days. If any larger corporation delays in the payment, it adversely affects the working capital of these MSMEs.

Fig: MSME situation

Source: The Digital Fifth and Mr. Ketan Gaikwad, TReDS

The government has tried multiple options to resolve this difficulty. Account auditing, redressal mechanism, reduction in receivable days, TReDS creation (Trade Receivable e-Discounting System) were implemented to improve the MSME’s conditions.

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What is RXIL?

RXIL stands for Receivable Exchange of India. It is a JV of SIDBI and NSE. There are other two companies under TReDS which are – Mynd solution and A.TReDS limited. Below figure shows the evolution of RXIL with time.

Fig: Evolution of RXIL

Source: The Digital Fifth and Mr. Ketan Gaikwad, TReDS

RXIL gained extreme popularity in a very short period because it provides credit access to MSME within 48 hours at competitive rates. This helps in bolstering MSME’s growth and relieves the pressure on operations by providing strong funding.

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How does it work?

Fig: RXIL workflow

Source: The Digital Fifth and Mr. Ketan Gaikwad, TReDS

The schematic diagram shows the working. First, there is a contract between corporate/PSU and MSME. Once the goods or services are rendered payment reminder will be sent. In an event where corporate/PSU is not able to pay MSME, RXIL creates contact between MSME and a financier.

There are two ways in which credit is given factoring and reverse factoring. In this stage beforehand bank asks Corporate/PSUs to validate their receipt. Then within 48 hours, they disburse the amount and then Corporate/PSU pays back as per the pre-decided period and interest rate to the financier. Thus platform connects all 3 parties- financier, MSME and corporates, relieving the MSMEs burden on collection.

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How is it beneficial?

To MSME

To Corporates / PSU

To Financiers

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OCEN (Open Credit Enablement Network)

What is OCEN?

Another lending pillar of the financial ecosystem is Open credit enablement network (OCEN) which is developed by iSPIRT and popularized by CredAll. OCEN is basically group of standardized of APIs for digital lending. Currently existence of multiple lending platforms and processes has led to non-uniformity in the application process. This has created a difference between LSPs (Loan Service Providers), lenders and other players in ecosystem. OCEN with standardized APIs makes it easier for integrating all the parts of digital lending process making it sort of a common communication.

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OCEN Working

OCEN acts as an enabler placed in between the LSPs and the lenders. It is a framework of collective common APIs placed between lender and LSPs or other aggregators. It allows a common platform to communicate making it easier for the flow of credit from lender to the borrower. Given existence of multiple LSPs, OCEN allows lender to access entire network of multiple institutions from a single standardized point. This network thus in nutshell accelerates the access to credit.

Fig: Implementation of OCEN over digital lending network

Source: www.goMEDICI.com

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Advantages of OCEN

Fig- Benefits derived from OCEN

IndiaStack when implemented led to a major shift in the India’s fintech ecosystem. OCEN implementation is expected to do the same in the formal credit infrastructure of the country. Developing this lending sector by making affordable credit available is a key ingredient to development of the economy as well.

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