ICICI Case Study Wrap-up

8/8/2019 ICICI Case Study Wrap-up

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ICICI Bank in Micro-finance: Breaking thebarriers


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Partnership Model: Joining Hands toScale 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 collection

Offers First Loss Deficiency

Guarantee (F

LDG)FLDG assumes character ofmezzanine equity

Provides loan funds, mezzanineequity and technology

Lends directly to clients with risksharing by NGO / MFI

Decides pricing and risk sharingon historical data

Bank

Bank

NGO/MFI

NGO/MFI

Partnership Model


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The Partnership Modelkey differentiator

Intermediary assumes fraction of the credit risk (tothe extent of risk sharing), leading to reduction incapital required

Bank prices on basis of underlying asset ratherthan rating of intermediary

Transition from lending to organisation to asset-based lending

ROE of intermediary significantly improves withportfolio quality remaining unchanged

Scope for leverage of 10-12 times compared to 2-3times previously


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Partnership Model: A Win-Winproposition

Marries the core competence of NGOs/MFIs withthat of banks

Social mobilization skills with finance

Lending directly to the borrowers throughinnovative 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 SecondaryMarket for Micro-finance


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Securitization

ICICI Bank identifies portfolio based on fulfillment of minimumcriteria 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

MainstreamingMicro-finance


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In collaboration with microfinance partnerswe offer customized products

What low income

clients want?

ServiceRapid, convenient access

Respect, connection

Flexible loansSmall initial sizes

Larger subsequent loansLonger terms

Variety of productsIncome generation loans

Housing loans

Emergency loans

Asset building, riskmitigating productsMicro 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..

NonNon -- Life InsuranceLife Insurance Weather risk

Cash in transit

Accident

Theft

Fire

Critical illness

Motor vehicles

NonNon -- Life InsuranceLife Insurance Weather risk

Cash in transit

Accident

Theft

Fire

Critical illness

Motor vehicles


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a steady growth continues

Mar02 Mar03 Mar04 Mar05

143.5

14.74.4

40.4

US$ inmillion

321.0

Mar06


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Very Few MFIs

Economically Backward

Low level of micro credit

penetration

But, large geographic asymmetries exist

Large no. of MFIs

Economically VibrantHigh micro credit

penetration

Requires reductionof geographicasymmetries andincreasing depth ofoutreach


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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 biometricauthentication

Entrepreneur development

Staff Skills

Mentoring

Large professional personnelrequirement


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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 underpartnership 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 toprovide assistance to IndianMFIs

Enabling access of MFIs to

mainstream capital/ debtmarkets

Enhance resource flowsfrom commercial bankingsector

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 branchRecord Updation : Manually at the base branch

Validation : In person at branch, limited risk wastaken at non-base branch

Record Updation : Computerized through adata interchange

Validation : TPIN; ATM PIN; Login ID &password

Record Updation : Computerized through asecure client application into a central backend

NetworkedMFI Branches

Need to leverage multiple interfaces available to

access the databaseSimputers, 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 developmentProduct 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 kiosks 130,000 villages200 MFIs 40 million clients


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DisadvantagedPopulation

Towards a larger dream

MFI/NGO/Kiosks

Commercial Banks/Regulatory Authorities

Creation of Wealth

...For All!

Documents

ICICI Case Study Wrap-up