Track 2 b mor-icici microfinance bank

ICICI Bank in Micro-finance: Breaking the barriers Nachiket Mor, Executive Director, ICICI Bank San Francisco, December 13, 2004

Agenda About ICICI Group ICICI Bank & Micro-finance New Revolutionary Channels Micro-finance in India What is Micro-finance Going Ahead

The ICICI Group today Largest private sector bank in India Largest consumer credit provider in India Largest private sector life and general insurer in India Building a global presence Over 10 million retail customer accounts Asset base of Rs 1327.80 bn Profit after Tax of Rs 16.37 bn for FY04

Technology-enabled delivery ,[object Object],[object Object],[object Object],Branches m-Banking ATMs Internet Banking Call Centers Multi-channel delivery model

Transforming channel usage Share of transactions in March 2000 Channel 2% Internet & mobile 3% ATMs 94% Branches Call centre 1% Share of transactions in May 2004 17% 46% 27% 10% India’s largest online trading site with about 460,000 customers and 43% of NSE’s online trading volume

Agenda About ICICI Bank ICICI Bank & Micro-finance New Revolutionary Channels Micro-finance in India What is Micro-finance Going Ahead

What is micro finance… ,[object Object],Micro credit Insurance and Investments Savings Transfer Payment

Institutional micro-finance is important for poor people… ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],… and helps smoothen cash flows across time

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Rural banking in India: progress made

But large gaps persist in reaching out to the poor… ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Source: BSR, March 31, 2001, Table 1.3, RBI Census, 2001 Mahajan, Vijay”A framework for building a sustainable rural financial system (RFS) for India”, BASIX, www.basixindia.com

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Banking with the poor is challenging… Customer needs Present status … and conventional banking may not be poised to meet these demands

Identification of potential growth areas… ,[object Object],[object Object],[object Object],… provided compelling reasons to look at low income clients ,[object Object],[object Object],[object Object],Urban Markets Low Income Markets

Profitable business opportunities exist… … setting the path for scale up Market size and potential of low income clients Low delinquency in pilot phase Creating bigger customers for future Vision To be the largest provider of financial services in India with a ubiquitous presence; while becoming the major banking sector partner in impacting the economic development process in the country Stepping stone to the entire rural market

Conventional Rural Banking Branch based Manpower intensive Channel driven Single Product focus Our strategy Entrepreneur based Technology intensive Customer driven Multiple Product approach An innovative strategy was evolved…

For unraveling the Bottom of the Pyramid (BOP) Low Income Middle Class Rich/ SME … through the right channels * Micro Finance Institutions Franchisees MFIs Kiosks Corporates

Existing micro finance models lacked scalability SHG-Bank Linkage Bank SHG Branch Bank-MFI Linkage MFI Bank Ind./SHG/JLG ,[object Object],[object Object],[object Object],NGO

… which would leverage pre existing networks ,[object Object],[object Object],[object Object],New structures were required…

Partnership Model: Joining Hands to Scale up

Bank Extends loan to MFIs Create charge on capital for the loan to MFI MFI Extends loan to clients Create charge on capital for the loan to clients Clients ,[object Object],[object Object],[object Object],[object Object],Traditional Model of lending to MFIs…

… Led to the paradox… Banking system capable of providing large quantum of wholesale finance to the ultimate clients Banking System MFIs / NGOs Clients A burgeoning segment with effective demand for finance Grass-root agencies capable of providing origination and supervision support in a cost-effective manner … of supply being a small fraction of demand for finance

We decided to resolve the paradox… ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],… through a structure that is capable of massive scaling up

… And evolved the Partnership Model ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Structure separates risk of the MFI from risk of the portfolio Banks MFIs

Model 1 Clients Bank NGO Lends 100 No liability No consideration ROI payable Mobilises clients Capital allocation Against UL On 100 Efficient use of capital Y Incentive alignment N Not constrained by NGO b/s

Model 2 ,[object Object],ROI+service fee Clients Capital Allocation on 100 r.t MFI rating On-lends 100 Capital Allocation r.t UL on 100 s.t constraint of capital on MFI b/s Bank Lends 100 ROI Efficient use of capital N Incentive alignment Y

Partnership Model ,[object Object],Clients Lends 100 not constrained by MFI b/s Bank Provides OD limit as a % of 100 advanced Commitment fee on OD and penal rate in the EoD K allocation Against Portfolio (100) and OD limit to MFI (x% of 100) Service fee Applicable ROI Origination & supervision Efficient use of capital Y Incentive alignment Y OD limit provides MFI the ability to share risk & catalyse lending without corresponding increases in its equity capital

The Partnership Model–key differentiators ,[object Object],[object Object],[object Object],[object Object],[object Object]

Partnership Model: A Win-Win proposition ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],A sustainable solution for Micro-finance

Securitization: Creating a Secondary Market for Micro-finance

Securitization Credit Enhancement ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Structure

Securitization: Pricing Parameters ,[object Object],[object Object],[object Object],[object Object],Enablers

On-tap securitization ,[object Object],[object Object],[object Object],MFIs are able to scale up their outreach while maintaining a healthy debt-equity ratio

Showing the way… ,[object Object],[object Object],[object Object],[object Object],… .by creating linkages for MFIs to capital markets

Sectoral initiatives to deepen the market The entity would provide quasi equity, credit wraps and technical & financial services to MFIs ,[object Object],[object Object],[object Object]

ICICI’s achievements in this field… Particulars SHG / JLG position Sep ‘04 … made possible through wide acceptance of the new models by MFIs Villages covered 8,781 Groups financed 39,740 No of Clients 456,712

… and commitment to scale up! 100000 300000 200000 400000 500000 600000 700000 800000 Mar’02 Mar’03 Mar’04 Mar’05 920,000 175,390 72,980 244,570 Number of clients 900000

Developing synergies through Corporate Partnerships…

Corporate Employees ,[object Object],[object Object],[object Object],[object Object],Exploring Micro-Credit with Corporates… Corporate Foundation

… to make a difference Support SHGs formed by the corporate Create loyalty with the low wage workers Complement the corporates philanthropic initiatives

… Implemented Through a Partnership ICICI Bank ,[object Object],[object Object],[object Object],[object Object],Corporate ,[object Object],[object Object],[object Object],GIVE Foundation ,[object Object],[object Object],[object Object]

In summary… Corporate Partnership Beneficiary SHG Entrepreneurs Contract Labourers Low Wage labour Educated Unemployed Microcredit Kiosks Housing Loan Insurance Provide access to Household assets 2 wheeler loans

Internet Kiosks Bridging digital divide through…

And creating an alternate channel… ,[object Object],[object Object],[object Object],Internet Kiosks – Harnessing technology for rural reach

Internet Kiosks… Connects rural India to the world Connectivity ,[object Object],[object Object],Printer & Other Accessories : Enabling desk top publishing and other similar work ,[object Object],[object Object],[object Object],Multimedia PC with Power backup Internet Kiosk

Concept of a kiosk ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Kiosks can offer financial services ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],as well as non-financial (partner services) Financial Products Non Financial Products

The drivers of Rural Internet Kiosks entrepreneurs & multi-service delivery The film

Challenges faced ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Customer Process Entrepreneur and how they were resolved

Learnings from the channel ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Customer Process Entrepreneur Service and convenience wins hands down

Implications for future ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Customer Microfinance Network convenience, flexibility, a complete financial solution

ICICI Bank’s kiosk network is increasing… Kiosks offer low cost distribution capabilities for our products and services, reaching out to the rural population

Credit franchisee- adapting structured finance for rural segment Agri-input dealers Fuel-outlet owners Auto dealers CA/ Business ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Franchisee roles Origination Credit scoring Documentation Collections 1 2 3 4 Channel concept Channel partners

… and meeting complete financial needs Disability *Framework by Accion Moving beyond credit… Life Cycle Events Death Property Covariant Health Certain Highly Uncertain Degree of Uncertainty Very Large Small Relative Loss / Cost Disability Savings, credit and investments Insurance Savings offering only partial coverage

Through comprehensive product suite Insurance (Ins) – Life and General Investments – Mutual Funds designed for Rural Channels Home Ins Weather Ins Tractor Ins Accident Ins Kiosks Micro Finance Life Ins

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Offering weather insurance for losses due to vagaries of weather… Cover is provided for deviations from the optimum range required

Critical Illness: An innovation for BOP ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Securing rural lives through Insurance Life Insurance 0.2 mn members of Micro-credit Foundation of India covered by ICICI Pru/ ICICI Lombard 62.5 mn rural customers insured by ICICI Lombard covering mainly Personal accident as well as emerging products such as Weather and Health Insurance General Insurance

Scaling up access to BOP markets… ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],… Requires reduction of geographic asymmetries and increasing depth of outreach…

And meeting finance needs of urban India also… ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Scaling up would require exploring new horizons Productivity Frontier (Financial and technological innovation) Limited services to limited customers Credit Bureau Technological innovation Allied Interventions Multiple delivery channels

Establishing Credit Bureaus… ,[object Object],[object Object],[object Object],[object Object],… would enable systematic expansion and deepening of the BOP markets

Pollinating the countryside with entrepreneurs… Identification of potential entrepreneurs willing to partner with ICICI Bank Training the entrepreneur on processes and assessing their capabilities Providing funds, know how & support for initiating operations Putting in place a fool proof system & robust processes for service delivery Providing the entrepreneur technical & financial support for delivering service Entrepreneurs Training Infrastructure Processes Service Delivery … for establishing MFIs, kiosks or becoming franchises in order to expand outreach to under served areas

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Need Vision Implementing hybrid agent-linked models…

… To provide universal access to finance Regulator support required for implementing the pilot project Agents loads value onto customers card by transfer from agent account and collects cash Direct Card Load Indirect Card load Collections Payments Value transferred to customer card from the customer’s bank account at branch Merchants transfers value from their own card to the agent and receive cash in return Value transfer from one customer to another in payment for services rendered

Allied Interventions – Mass Retailing Company ,[object Object],[object Object],[object Object],MFI ,[object Object],[object Object],[object Object],MFI becomes a channelising agency for distribution of all kinds of goods and services required by the members Clients ,[object Object],[object Object],[object Object]

Allied Interventions – Livestock Productivity Spandana NDDB ICICI Bank Ltd. Extension ,[object Object],[object Object],[object Object],[object Object],Facilitation Majority of micro loans are for purchase of livestock

Allied Interventions -- Nutrition ,[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],Leveraging technology to reduce transaction costs

The Road Ahead… ,[object Object],1000 Franchises 40,000 internet kiosks 40 million clients 630,000 villages 200 MFI partners

Towards a larger dream… ,[object Object],[object Object],[object Object],[object Object],[object Object],Disadvantaged Population MFI/NGO/Kiosks Commercial Banks/ Regulatory Authorities ,[object Object],Creation of Wealth ...For All!

Kisan Loan Card Tobacco farmer issued a card Limit set on card on the basis of inputs availed by farmer & production needs Farmer has access to funds through cash dispenser Excess funds instantly swept to deposit account of farmer Tobacco sale proceeds offset against the loan availed

Expected Benefits to Stakeholders ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Teba Bank ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Track 2 b mor-icici microfinance bank

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