Beijing, China

1

Taking Action for the Worlds Poor and Hungry
People Scaling up Micro-finance Initiatives
by the Private Sector The Case of ICICI Bank,
India.

• Beijing, China
• October 19, 2007

2
Microfinance in India is still largely public

• The public model (the Self-Help group Bank
  linkage model) currently provides the bulk of
  micro credit in India
• However, the most dynamic segment of the
  microfinance market has been the private
  segment
• It was spurred by priority sector lending
  guidelines
• This model involves commercial banks lending to
  micro finance institutions who on-lend to clients
  

3
Scaling Up Microfinance in India Key Messages

• The private sector is essential to scaling up
  efforts in India
• The size of the market is estimated at 17
  billion
• Current public and private efforts meet barely a
  fifth of this need
• Evidence of robust rural growth implies need for
  finance will grow
• Both debt and equity funds are needed
• A great time to capitalize on overall interest in
  India

4
Innovative models are needed to reach our target
clients
Conventional banking
Manpower intensive
Product driven
Single product
Branch based
Our strategy
Technology intensive
Customer driven
Multiple products
Hybrid channels
5
The ICICI Bank Partnership Model

• Provider of loan funds, mezzanine equity and
  technology
• Lends directly to clients with risk-sharing by
  NGO/MFI
• Decides pricing and risk sharing by NGO/MFI based
  on historical data

• Undertakes loan origination, monitoring and
  collection
• MFI provided OD limit by Bank equivalent to
  amount of risk sharing, which is drawn in event
  of default upto specified limit
• Transfer of economic capital from Bank to MFI

Structure separates risk of the MFI from risk of
the portfolio
6
Microfinance is more than creditProvision of
financial services to low income clients
Credit
Insurance Investments
Thrift/savings
Remittances
7
Risk mitigation is key

• Integrated product offering Life and General
  insurance
• Simplified premium calculation for the poor
• Finance insurance through credit partners

8
Finance to MFIs needs to be coupled with capacity
building efforts
Identification of a partner NGO/MFI based on our
stringent criteria
Partner
Training them on the processes and assessing
their capabilities
Training
Providing funds, know how support for
computerization
Infrastructure
Strengthening system robust processes for
credit delivery
Processes
Disbursement
Disbursing the loan monitoring of the partner
as well as the groups
Review
Reviewing the progress as per the targets and
incorporating the learning
9
With technology enablers
Authentication Device
Paving the way for 200 MFIs serving 3 districts
each
10
Finance to clients needs to be complemented with
efforts at building livelihoods

• Not everyone is an entrepreneur
• Link to markets is essential
• Standardization and aggregation of products is
  required
• ICICI Bank-supported Network Enterprises Fund
  creates a set of network enterprises in craft,
  foods, etc to link small producers to markets.

11
Scaling up of microfinance needs to be
complemented with impact evaluation

• A lack of good longitudinal studies on impact of
  microfinance on clients lives in India
• Has led to innumerable needless debates on
  whether microfinance is a panacea or a stop
  gap solution or a perpetuator of rural
  indebtedness
• Important role for independent research
  institutes/govt. bodies.

12
What is the role of government in facilitating
the scaling up of microfinance?

• Provision of systemic infrastructure unique
  biometric IDs, credit registries etc.
• Facilitate absorption of credit by improving
  rural infrastructure an impressive effort
  ongoing in India via the Bharat Nirman program.
• Do not regulate interest rates as this will hurt
  the poor in terms of reduced access to credit.

13
Micro-finance coverage
Partnering with 154 MFIs / NGOs across India
Reaching out to over 3 million clients
Total portfolio size approximately 350 million
14
Thank You