Ispirt Sets Up Initiative For Priority Sector Lending Through Ocen. Here’s How It Works

Think tank for Indian software products iSPIRT alongside UGRO Capital, IIFL, and fintech firm GetVantage has launched the Priority Sector Lenders Association of India (PSLAI) to streamline the credit process for micro, small, and medium enterprises (MSMEs).

For context, priority sector lending (PSL) is an initiative regulated by the Reserve Bank of India (RBI) directing banks and financial institutions to allocate a portion of their lending to specific vulnerable sectors. These include agriculture, MSMEs, education, housing, and social infrastructure, among others. Currently, domestic banks are stipulated to disburse 7.5% of their adjusted net bank credit (ANBC) as priority sector loans for MSMEs.

The PSLAI seeks to create a platform that focuses on PSL through a new lens. In a conversation with MediaNama, GetVantage Founder Bhavik Vasa explained the workings of the initiative, and its capitalisation of digital public infrastructure (DPI) like OCEN, among others. Below are a few excerpts from the interview.

How does PSLAI leverage OCEN: What role does GetVantage play?

The initiative relies on the Open Credit Enablement Network (OCEN), an interoperable framework that connects traditional lenders—banks, NBFCs, and fintech firms—with MSMEs via a standardised protocol, Vasa explains. Using this system, borrowers can upload the invoices of their marketplace or digital transactions on a platform to avail loans. Following this, companies like GetVantage utilise AI/ML technologies to churn transaction data of the borrower’s business to offer instant credit and working capital. In addition to GetVantage, borrowers can access credit offerings from multiple NBFCs. Vasa adds that for small businesses, this system is akin to one for example where customers navigate the options furnished for health insurance by multiple players on a single platform. Ultimately, it “transitions priority sector lending from a lender’s market to a borrower’s market, offering MSMEs greater choice”, he adds.

Notably, priority sector lending is distinct from traditional MSME lending, which typically involves a one-on-one approach. With OCEN, firms like GetVantage acting as a “capital gateway” become a borrower’s agent or an intermediary between small businesses or borrowers and regulated entities like banks and NBFCs.

How is data collected?

Data collection is necessary to establish the creditworthiness of different borrowers. To enable this, GetVantage plugs its capital gateway into the Government e Marketplace (GeM) portal through GeM Sahay, gaining access to the transaction history of the MSMEs. To explain, GeM is a portal that maintains records of the products and services procured by different government agencies and organisations. Notably, GeM Sahay enables organisations to receive loans from financial institutions to meet government-placed orders. Tenure for the loans extends up to four months and borrowers can avail the same at the point of acceptance of a government order. Besides GeM Sahay, the firm also uses Growth Sahay to avail the sales and volume data of small businesses with offerings on e-commerce platforms.

how does this differ from traditional lending for MSMEs?

These mechanisms allow fintech firms to analyse real-time transactional data, monthly GST filings, and bank credits to quickly determine loan tenure and amounts, Vasa explains. This acts in contrast to the traditional loan disbursal process, where lenders focus on analysing previous years’ financial statements.

Collections into OCEN (APIs)

GetVantage labels the APIs built into the e-commerce marketplaces become the derived data partner, while the other end is the collection partner. Vasa explains that once GetVantage builds APIs into different payment gateways and marketplaces, the receivables for these loans are split in real-time when they are received.

How does GetVantage classify financing deals?

Moving off these APIs, Vasa explains that GetVantage establishes four types of profiles for lending deals.

1. T1: The traditional method where documents of MSMEs are physically evaluated and capital is disbursed. The collection process here is contingent on the borrower making monthly repayments.
2. T2: An intermediary platform exists between the two parties which houses the transaction data or commerce history of the business (borrower).
3. T3: Within this profile, intermediaries can undertake collection controls by having accessibility to receivables.
4. T4: Intermediaries have end-use control alongside derived data, transaction data, and collections control.

Overall, Vasa explains that these parameters can enable risk assessment for credit disbursal instead of a “rear-view mirror” assessment done traditionally. “Through end-use control, collections control, and live data feed of the small business’ transactions throughout the tenure of the loan repayment, financial institutions can forecast early-warning signals”, he adds.

How does consent work?

When asked about how digital consent would fit into this new ecosystem, Vasa referred to “OAuth consent“. To explain, MSMEs can either digitally fill out their credentials on e-commerce platforms or give one-time consent enabling the capital gateway and the lenders to have access to their data. Notably, this phenomenon differs from account aggregators, which act as a supplement to the process, alongside other mechanisms. To explain, in contrast to account aggregators which depend on borrower’s submitted data, OCEN relies on data collected from sources directly. Vasa adds, “OCEN builds on the India Stack, using Udyam Aadhar for accessing know-your-customer (KYC), GST with consent for revenue data, account aggregator directly from the bank, and transaction data from a marketplace.”

What is GetVantage’s business model?

Firstly, GetVantage acts as a “capital gateway” aggregating lenders on one hand and connecting them with borrowers. During a credit disbursal, the revenue GetVantage accrues differs from a traditional processing fee during a transaction. Equating GetVantage to an Uber-like revenue system, Vasa explains that the broad commercial structure is similar to Uber’s that keeps a percentage of the ride’s total fare for a particular ride, while the remaining goes to a driver. In the case of the PLSAI, the majority share would be directed to the lender and the rest receive monetisation based on the role they play in the ecosystem. However, Vasa explains that the gateway’s role extends to the entire collections and repayments system rather than simply during the disbursement process.

Why it matters?

This development is especially significant given the RBI’s introduction of a Unified Lending Interface (ULI) to enable credit. Akin to the OCEN, ULI’s architecture would be based on common and standardised APIs with a plug-and-play approach allowing lenders access to information from diverse sources. With the initiative, the RBI aimed to reduce the time for credit appraisal for smaller and rural borrowers and digitise access to customers’ financial and non-financial data.

As both the PSLAI and the ULI focus on solving the “unmatched demand for credit” in priority sector lending, it will be interesting to note how they leverage digitisation and dependence on tech stacks to reduce operational expenditure and enable quicker loan disbursals.

Also Read:

• Interview: CAMSfinserv CEO explains the role of Technology Service Providers in the Account Aggregator ecosystem
• Exclusive: OCEN, which aims to reshape the lending ecosystem, will go live in a few weeks
• Unified Lending Interface, new CBDC pilots: RBI Governor lists upcoming DPI offerings

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