icici

(1)

ICICI Bank in

Micro-finance: Breaking the

finance: Breaking the

barriers

(2)

A

bout ICICI Group

A

bout ICICI Group

A

genda

ICICI Bank & Micro-finance

Issues

Micro-finance in India

(3)

T

he ICICI Group today

Largest private sector bank in India

Largest consumer credit provider in India Over 15 million retail customer accounts

Serving over 2000 large and small corporate houses

with a variety of wholesale and treasury products

Largest private sector life and general insurer in India Building a global presence

Largest rural and micro loans provider in the country Asset base of ~US$ 45 bn, PAT of about US$500 mn

(4)

A

bout ICICI Group

A

bout ICICI Group

A

genda

ICICI Bank & Micro-finance

Issues«

Micro-finance in India

(5)



Indian banking system has achieved a formidable

outreach in rural areas



49% (32,538) of all scheduled commercial bank

branches are rural



31% (131.1 million) of the total deposit accounts are

in rural India



43%(22.4 million) of total credit accounts are in rural

India



Number of people per branch has reduced from

64,000 in June 1969 to 15,000 in June 1997 (all India

average)

Source:

BSR, March 31, 2001,Table 1.3, RBI

Deolalkar, G.H., ³The Indian Banking Sector: On the road to progress´,AStudy of Financial Markets

Rural banking in India: progress

made

(6)

But large gaps persist in outreach to the

poor



For the rural population of 741.0 million



Population per branch: 22,793



Penetration of savings accounts is below 18%

A

s against 104% in urban and semi-urban areas



Number of villages per branch: 19



High dependence on informal sources



36% of rural credit from informal sources



Dependence even higher for lower income households

78%

Source:

BSR, March 31, 2001,Table 1.3, RBI Census, 2001

Mahajan, Vijay´Aframework for building a sustainable rural financial system (RFS) for India´, BASIX, www.basixindia.com

(7)

 Doorstep banking Flexibility in timings Timely availability of

services

Low value and high volume

transactions

Require simple processes

with minimum documentation

High cost of service delivery Timings and procedures:

Rigid and inflexible

High transaction cost for the

customers

Expansion of branch

network expensive and time taking

Nature of Demand

Nature of Supply

Banking with poor is challenging«

«and conventional banking was not poised to meet

these demands«

(8)

«leading to new innovations in credit

delivery

MFIs/NGO

Variety of models under

implementation with stress on

 Door step delivery of services  Professional management and

computerized systems

Govt / N

A

B

A

RD

Govt / N

A

B

A

RD

SHG-Bank

L

inkage Program

launched with ambitious

targets

 Nearly 1 mn SHGs promoted  Rs.39 bn disbursement

(9)

A

bout ICICI Group

A

bout ICICI Group

A

genda

ICICI Bank & Micro-finance

Issues«

Micro-finance in India

(10)

(11)

T

he SHG Bank linkage Model«

Structure Structure Bank Bank SHG SHG Branch Branch

Branches assess credibility of individual SHG and monitor repayment process

NGO

 Public Sector banks

implementing Government schemes

 Poverty eradication  Financing farmers and

small entrepreneurs  Emphasis on SHGs  Concept promoted by NABARD  I mn SHGs financed  Innovative Practices  Oriental Bank  Public Sector banks

implementing Government schemes

 Poverty eradication  Financing farmers and

small entrepreneurs  Emphasis on SHGs  Concept promoted by NABARD  I mn SHGs financed  Innovative Practices  Oriental Bank Characteristics Characteristics

(12)

Divisional Manager Project Manager Coordinators Promoters 20 Bank employees able to manage project 1 Coordinator manages 6 Promoters with each

Promoter forming & managing 20 SHG_s ICICI Bank staff Ou_tsou_rced staff (leaders of old SHG_s) SHG_s

Commu_nity Group of 20 poor

women

«was modified by ICICI Bank«

«thereby enabling increase in outreach from 1,200

SHGs to more than 12,000 SHGs in 3 years

(13)

High infrastructure costs High operating overheads Long gestation period

Low technology usage in rural

areas

Transaction at branch costs

US$ 1 vis-a-vis 25 cent at ATM

Limited outreach

Concentrated in urban areas High cost low ticket items Cash intensive transaction

Transaction cost of 8-20% Existing Branches Existing Branches New Branches New Branches

Bank led SHG banking was not scalable«

«and we decided to look beyond our own

network«

(14)

Bank

Extends loan to MFIs

Create charge on capital for the loan to MFI

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

MFI

Extends loan to clients

Create charge on capital for the loan to clients

Clients

(15)

Optimising costs«

 Branch licence ± manpower

intensive process

 Staff Costs ± at least 10

times due to higher salary structure in Commercial banks

 Larger overheads due to

centralised operations and larger gegraphies covered

 Branch licence ± not

applicable

 Staff costs ± substantially

lower due to hiring of local manpower

 Considerably lower cost

structures due to local area approach

Bank Costs

MFI Costs

(16)

But opening up new challenges«



Double counting of capital by bank and

MFI



Sub-optimal lending structure

L

ower flow of resources from banks



Higher pricing than warranted by riskiness

(17)

«leading to the paradox«

Banking system capable of providing large quantum of wholesale finance to the ultimate clients

Banking System

MFIs / NGOs

Clients A_{demand for finance}burgeoning segment with effective Grass-root agencies capable of providing origination and supervision support in a cost-effective manner