icici bank in micro- finance: breaking the barriers
Post on 16-Jan-2016
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ICICI Bank in Micro-finance: Breaking the barriers
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Partnership Model: Joining Hands to Scale up
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Forging long term synergies…
MFIs•Single product•Single customer segment•Knowledge of local area•Poor included
Banks•Multiple products•Large customer variety•Large risk apetite•Poor / Vulnerable excluded
Partnership•Multiple products•Multiple segments•Large risk appetite combined with knowledge of local area•Poor / Vulnerable included
Balance sheet risk separated from business risk
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Undertakes loan origination, monitoring and collectionOffers First Loss Deficiency Guarantee (FLDG)FLDG assumes character of mezzanine equity
Provides loan funds, mezzanine equity and technologyLends directly to clients with risk sharing by NGO / MFIDecides pricing and risk sharing on historical data
BankBank
NGO/MFINGO/MFI
Partnership Model
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The Partnership Model–key differentiators Intermediary assumes fraction of the
credit risk (to the extent of risk sharing), leading to reduction in capital required
Bank prices on basis of underlying asset rather than rating of intermediary Transition from ‘lending to organisation’ to
‘asset-based lending’ ROE of intermediary significantly improves
with portfolio quality remaining unchanged Scope for leverage of 10-12 times compared
to 2-3 times previously
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Partnership Model: A Win-Win proposition Marries the core competence of
NGOs/MFIs with that of banks Social mobilization skills with finance Lending directly to the borrowers through
innovative channels Model overcomes constraints of
NGOs: Complete dependence on donor funding
MFIs: Capital Adequacy requirements
A sustainable solution for Micro-finance
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Securitization: Creating a Secondary Market for Micro-
finance
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Securitization…
ICICI Bank identifies portfolio based on fulfillment of minimum criteria and past portfolio performance
MFI continues to collect receivables from the borrowers
MFI equity leverage reduced enabling it to originate further assets
MFI provides ICICI a credit enhancement in the form of a FLDG FLDG is based on expected losses in the loan portfolio Detailed study of past portfolio data conducted to arrive at expected loss rates Client
needs assessment and hybrid product design
Structure
Credit Enhancement
Mainstreaming Micro-finance
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In collaboration with microfinance partners we offer customized products…
What low income
clients want?
Service•Rapid, convenient access•Respect, connection
Flexible loans•Small initial sizes•Larger subsequent loans•Longer terms
Variety of products•Income generation loans•Housing loans•Emergency loans
Asset building, risk mitigating products•Micro savings•Life and non-life insurance
No traditional collateral
Group based
Individual loans
Financial services that respond to low income clients
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Supported by insurance initiatives
Life InsuranceLife Insurance
Micro insurance – MFIs
Retail products – Individuals
High net worth clients
Life InsuranceLife Insurance
Micro insurance – MFIs
Retail products – Individuals
High net worth clients
Protecting the loan portfolio…..
Non - Life InsuranceNon - Life Insurance
Weather risk
Cash in transit
Accident
Theft
Fire
Critical illness
Motor vehicles
Non - Life InsuranceNon - Life Insurance
Weather risk
Cash in transit
Accident
Theft
Fire
Critical illness
Motor vehicles
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…a steady growth continues
Mar’02
Mar’03
Mar’04
Mar’05
143.5
14.74.4
40.4
US$ in million
321.0
Mar’06
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Very Few MFIsEconomically BackwardLow level of micro credit penetration
Very Few MFIsEconomically BackwardLow level of micro credit penetration
But, large geographic asymmetries exist…
Large no. of MFIsEconomically VibrantHigh micro credit penetration
Large no. of MFIsEconomically VibrantHigh micro credit penetration
…Requires reduction of geographic asymmetries and increasing depth of outreach…
…Requires reduction of geographic asymmetries and increasing depth of outreach…
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SystemsSystems
FinanceFinance
Thus the need for institution building…
Venture capital for start ups On lending funds
CapacitiesCapacities
Shared technology platform Smart cards – biometric
authentication
Entrepreneur development Staff Skills Mentoring Large professional personnel
requirement
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Finance – bringing in risk equity
Initial investment by venture capitalists – start ups.
Tie up with three local venture capital firms focusing on microfinance
On-lending funds available from ICICI Bank under partnership model for building portfolio
Exit route - ICICI Bank provides long term subordinated debt (quasi equity) to MFI to free up initial investments
Projected RoI > 15.5% p.a. Social performance of capital
Take out finance modelTake out finance model
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Guarantees leveragedGuarantees leveraged
Performance guarantees from corporates / banks
Guarantees leveraged – 3 to 4 times Business planning and monitoring throughout
the loan period Documentation support to MFIs
Takes care of External Commercial Borrowing restrictions…
Finance…
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Finance – access to secondary markets
Creating intermediary Financial Institution to provide assistance to Indian MFIs
Enabling access of MFIs to mainstream capital/ debt markets
Enhance resource flows from commercial banking sector
The entity provides quasi equity, credit enhancement and technical & financial services to MFIs
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Operational procesesOperational proceses
Data recording system for start up MFIs Business process reengineering for mature MFIs Internal control and auditing sytems for
multibranch operations Cash flow management
And supporting systems…
TechnologyTechnology
Microbanking solution Automation through card based solutions /
handhelds Evolution of banking interface of MFIs
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Evolution of the Banking Interface of MFIs
Branch
ComputerisedBranches
Validation : In person physical validation at base branch
Record Updation : Manually at the base branch
Validation : In person at branch, limited risk was taken at non-base branch
Record Updation : Computerized through a data interchange
Validation : TPIN; ATM PIN; Login ID & password
Record Updation : Computerized through a secure client application into a central backend
NetworkedMFI Branches
Need to leverage multiple interfaces available to access the database…Simputers, Mobile, Cards
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And enhancing capacities…
Accounting and financial analysis Management of information Process flow and monitoring Internal control
Market research Client needs assessment and hybrid product design
Staff SkillsStaff Skills
Product development Product development
Support from MicroSave – India
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Enhancing capacities…
MentoringMentoring Corporate governance – ICICI Bank volunteering Resource centers – 6 across the country
(partnering with BASIX and CARE, India) Centre for Microfinance Research
Impact assesment Innovative products Research - collaboration with international universities Advance financial training for senior management of MFIs
Initiatives promoting long term sectoral growth…
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Way forward…
Market research based channels and products An inclusive banking paradigm Access to the credit worthy – credit bureau in place Linkage with capital markets – mainstreaming
40,000 kiosks130,000 villages
200 MFIs40 million
clients
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Disadvantaged
Population
Towards a larger dream…
MFI/NGO/Kiosks
Commercial Banks/ Regulatory Authorities
Creation of Wealth
...For All!
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