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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!