OCEN can potentially change the playing field for India’s MSME sector, especially in the northeastern region, with women being the biggest beneficiaries.
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Micro, small, and medium enterprises (MSMEs) are the lifeblood of emerging economies, particularly India. MSMEs contributed a significant Gross Value Added of 29 percent share to India’s Gross Domestic Product in 2021. However, they still widely face challenges: access to credit is a persistent issue that exacerbates inequalities and widens gender gaps. Data from July 2020 to March 2022 indicate that women own only 18 percent of India’s 8,016,195 registered MSMEs.
India's digital public infrastructure, the Open Credit Enablement Network (OCEN), is a major step in tackling some of these challenges in India’s journey to mass digitisation in the 21st century. OCEN is a set of protocols designed to promote an open, democratised network in the money lending process, primarily targeting MSMEs. It can potentially change the playing field for India’s MSME sector, especially in the northeastern region (NER), with women being the biggest beneficiaries.
India's digital public infrastructure, the Open Credit Enablement Network (OCEN), is a major step in tackling some of these challenges in India’s journey to mass digitisation in the 21st century.
The NER, consisting of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, and Tripura, had 1.64 million MSMEs in the mid-2000s, adding approximately 138,000 more since 2020. The informal manufacturing sector, consisting of many MSMEs, is the highest contributor towards industrial output in the NER at 62 percent. Therefore, helping such MSMEs could catalyse the region, and OCEN could address their financial struggles. Additionally, OCEN has the potential to increase access to capital and grow operations for MSMEs in the NER, especially those owned by minorities in business, such as women.
The NER has the highest number of women entrepreneurs in income-generating activities. In the first quarter of 2022, 7,880 female-owned microenterprises from the NER registered with the Ministry of MSMEs, with handicrafts and handloom weaving as major sectors of employment for female entrepreneurs. Across the NER, 84 percent of the 18,509 registered weavers and artisans are women.
However, many of these women-owned MSMEs had to rely on lending from their local community to launch their businesses. Unable to provide collateral security against loans from banks and financial institutions, female entrepreneurs had to rely on informal lending from their local community. A 2003 study suggested that female entrepreneurs often received loans from friends and family at high interest rates and unreasonable debt repayment schedules for financial support for their businesses. Such reliance on informal community lending ultimately proved detrimental to their businesses.
A 2016 study on female bamboo handicraft entrepreneurs in Tripura suggested that the availability of credit scores had a significant positive correlation with entrepreneurial behaviour. Consequently, women entrepreneurs who could not approach the formal lending channels lacked the prerequisites for starting and running a business. Another study on handloom microenterprises in Assam found that access to borrowing was also a factor with a significant positive correlation with a woman deciding to become a handloom microentrepreneur. Stronger credit standing and more access to lending increased women’s likelihood of opening a business. These insights confirm several trends in the NER: credit and access to borrowing are crucial for female microentrepreneurs, and traditional lending from banks is more challenging for female entrepreneurs than for men.
Given this situation, OCEN can address credit and lending challenges faced by female-owned MSMEs throughout the NER.
OCEN can provide female-owned MSMEs from the NER more access to loans and break the barriers many female entrepreneurs face with traditional money lending.
OCEN can provide female-owned MSMEs from the NER more access to loans and break the barriers many female entrepreneurs face with traditional money lending.
Firstly, money lending under the OCEN protocol is fully digital. The entire process can be completed using an app on a smartphone or similar device, allowing easy access to female-owned MSMEs.
Secondly, a hallmark of OCEN is the short-tenure, small-ticket loans. Lender banks in the OCEN framework provide short-term loans of smaller amounts to businesses. Many small businesses are not eligible for longer-term loans because multiple years of stable salary income are required to apply for credit. This applies to MSMEs in the NER, especially from the informal manufacturing sector, as they lack consecutive years of stable income—a prerequisite for eligibility. In addition, traditional weaving microenterprises in the NER suffer from financial challenges like “choking credit lines,” harming their credit histories and restricting their access to conventional loans. Loans under OCEN are of smaller amounts and specific purposes, giving more confidence to the lenders to provide loans to these borrower MSMEs without strong credit history or stable salary income records. Short-term loans suit the needs of female-owned MSMEs who need a quick financial boost to remedy an issue and keep their businesses afloat. For example, a loan through OCEN could provide MSMEs with direct market access for their products. Access to capital also eliminates barriers, such as middlemen, allowing businesses to access customers directly.
Thirdly, loan agents in the OCEN framework help borrowers to access loans at lower interest rates. Lower interest rate loans make credit more affordable and accessible for female entrepreneurs, especially those who usually struggle with high interest rates from informal lending and debt repayment.
Fourthly, unlike traditional collateral securities required in conventional bank lending, the OCEN uses open application programming interfaces (APIs) to collect personal financial data as surety.
Small businesses are the foundational pillars of economies, particularly in emerging nations. This pattern is observable in countries like Mexico and Indonesia. Although the OCEN may not provide a comprehensive solution for MSMEs in India, empowering these enterprises is crucial for economic enhancement. MSME empowerment is critical for the NER to elevate its economy, stimulate growth, and enhance its contribution to India's GDP. This approach will invariably yield a net positive impact on the region, fostering a more robust and resilient economic landscape.
Promoting OCEN among female-owned MSMEs in the NER cannot be discussed without considering the technological capabilities of residents. As OCEN is fully digital and has had pilot runs on smartphone apps, smartphone and internet access is crucial. As of January 2024, 47 percent of individuals in the NER own a smartphone. The 2023 Annual Status of Education Report found that 78.8 percent of surveyed 17-18-year-olds in Assam had access to a smartphone to do basic digital tasks. This percentage varied from 68 to 91.4 percent for the other surveyed northeastern states. In Assam, Mizoram, and Meghalaya, the percentage of surveyed females in the same age group with access to a smartphone to do basic digital tasks was lower than the male percentage.
Promoting OCEN among female-owned MSMEs in the NER cannot be discussed without considering the technological capabilities of residents. As OCEN is fully digital and has had pilot runs on smartphone apps, smartphone and internet access is crucial.
Unequal access to smartphones could significantly impact female-led businesses in the region. The lack of granular data, which could indicate the number of female business owners who use the Internet, complicates this analysis. Limited access and usage would likely exclude these businesses from new, innovative, and beneficial policy interventions, as well as broader access to information.
For instance, the Ministry of Development of the North Eastern Region has schemes in the Science and Technology sector to improve digitisation, such as developing IT infrastructure in Arunachal Pradesh schools. The primary objective remains unchanged: empowering women and establishing pathways for the NER to strengthen its economy. There are several approaches to achieving this goal and harnessing new technologies like OCEN to empower businesses in the region is undoubtedly one of them.
Tenzin Karma is a Research Intern at the Observer Research Foundation.
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