1. ICICI Bank in Micro- finance: Breaking the barriers

2. 2 Partnership Model: Joining Hands to Scale up

3. 3 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

4. 4 Undertakes loan origination, monitoring and collection Offers First Loss Deficiency Guarantee (FLDG) FLDG assumes character of mezzanine equity Provides loan funds, mezzanine equity and technology Lends directly to clients with risk sharing by NGO / MFI Decides pricing and risk sharing on historical data Bank NGO/MFI Partnership Model

5. 5 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

6. 6 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

7. 7 Securitization: Creating a Secondary Market for Micro-finance

8. 8 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

9. 9 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

10. 10 Supported by insurance initiatives Life Insurance Micro insurance – MFIs Retail products – Individuals High net worth clients Life Insurance Micro insurance – MFIs Retail products – Individuals High net worth clients Protecting the loan portfolio….. Non - Life Insurance Weather risk Cash in transit Accident Theft Fire Critical illness Motor vehicles Non - Life Insurance Weather risk Cash in transit Accident Theft Fire Critical illness Motor vehicles

11. 11 …a steady growth continues Mar’02Mar’03Mar’04Mar’05 143.5 14.7 4.4 40.4 US$ in million 321.0 Mar’06

12. 12 Very Few MFIs Economically Backward Low level of micro credit penetration Very Few MFIs Economically Backward Low level of micro credit penetration But, large geographic asymmetries exist… Large no. of MFIs Economically Vibrant High micro credit penetration Large no. of MFIs Economically Vibrant High micro credit penetration …Requires reduction of geographic asymmetries and increasing depth of outreach…

13. 13 Systems Finance Thus the need for institution building… Venture capital for start ups On lending funds Capacities Shared technology platform Smart cards – biometric authentication Entrepreneur development Staff Skills Mentoring Large professional personnel requirement

14. 14 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 model

15. 15 Guarantees 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…

16. 16 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

17. 17 Operational 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… Technology Microbanking solution Automation through card based solutions / handhelds Evolution of banking interface of MFIs

18. 18 Evolution of the Banking Interface of MFIs Branch Computerised Branches  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 Networked MFI Branches Need to leverage multiple interfaces available to access the database…Simputers, Mobile, Cards

19. 19 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 Skills Product development Support from MicroSave – India

20. 20 Enhancing capacities… Mentoring 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…

21. 21 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 MFIs40 million clients

22. 22 Disadvantaged Population Towards a larger dream… MFI/NGO/Kiosks Commercial Banks/ Regulatory Authorities Creation of Wealth...For All!