Key Points:
– Micro-, small- and medium-sized enterprises (MSMEs) are crucial for the economies of emerging countries, but often struggle to access financial resources.
– Digital public infrastructure, such as India’s Open Credit Enablement Network (OCEN), offers a potential solution for financing MSMEs and driving economic growth.
In emerging economies, micro-, small-, and medium-sized enterprises (MSMEs) are vital drivers of economic growth. They contribute to innovation, employment, and export revenue, despite facing obstacles such as limited access to financial resources. However, advancements in digital public infrastructure, such as India’s Open Credit Enablement Network (OCEN), offer hope for bridging the financing gap and supporting the growth of MSMEs in these countries.
MSMEs play a critical role in India’s economy, accounting for over 29% of GDP and half of the country’s total exports. They also employ over 110 million individuals, with plans to increase this number in the future. In Indonesia, there are currently 64.2 million MSMEs, making up 61% of the country’s GDP and employing a significant portion of the workforce. However, only a small percentage of these enterprises have transitioned to digital platforms and leveraged e-commerce opportunities.
Access to financing is a key challenge for MSMEs, as they are often excluded from mainstream credit channels. Banks and traditional financial institutions face high operating costs that make it difficult to serve borrowers with smaller loan requirements. As a result, MSMEs often turn to informal moneylenders and costly microfinance institutions for financing.
India’s digital public infrastructure, exemplified by India Stack and OCEN, offers valuable insights and solutions for addressing these financing challenges. OCEN aims to bridge the credit gap in the Indian MSME sector by enabling remote lenders to operate in distant regions and offering short tenures and small-ticket loans. It is built on India Stack’s open application programming interface, democratizing access to affordable credit and promoting financial inclusion.
OCEN simplifies the lending process and acts as a universal language, connecting lenders and mediators to create scalable financial products. Non-financial service providers, such as logistics companies, can seamlessly offer loan products to MSMEs within their platforms, reducing the need for MSMEs to venture outside their ecosystems for credit. This innovative framework, supported by digital public infrastructure, has the potential to transform various industries and reshape the financial ecosystems of developing nations worldwide.
India, as a member of the G20, envisions itself as a catalyst for global change and offers OCEN as a model for other developing nations seeking to elevate their MSMEs. The G20 Leaders’ Declaration in New Delhi emphasizes the responsible and inclusive utilization of digital technology by MSMEs. While the OCEN is not explicitly mentioned in the declaration, there is precedent for India exporting fintech innovations, such as the UPI payments system. Through digital public infrastructure and the determination of nations to empower their MSMEs, economies can work towards a more inclusive and prosperous global economy.