ICICI Financial services for the poor

Presentation By: Ankit Agarawal Ashok Chaudhary Deepesh Agrawal Harshil Samra Vibhor Mehta

ICICI INDIA: Introduction

1st

bank to launch a web site in 1996.

The

1st bank to launch online bill payment in 1999. has more than one million online customers, the largest in India.

It

Facts about India

People

living on less than $1 are greater than the entire population of USA. population is 741.6 million. penetration of banks is as low as

Rural Rural

18%.

428

million deposit bank accounts in the country,30 % are in rural areas.

 In

the formal sector micro financing institutes existed for some time.

Informal

sector is characterized by monopolistic practices.

Interest

rates in the informal market vary from 3% to 10% for a month.

Steps taken by RBI for rural development

It has instituted several policies to encourage rural retailing. As per section 22 of the BRA 1949 private sector banks are required to open a minimum 30% of the total branches in rural areas. It started a pilot project in 1991 by linking SHG with banks.

ICICI: Strategic goals

To

increase banking penetration in rural areas through innovative ways of defining distribution points.
prepare rather than react to the increasingly important rural market.

To

To

support the downtrodden as a good corporate citizen.

 Only

1 million households in India have access to MFIs, so there is vast unmet demand.
it was a challenge for ICICI due to:

However

expensive set up costs, and retaining educated staff.

So,

Joined hands with NGOS & Micro Finance Institutions in this field.

Two channels used by ICICI

Direct

access , Bank led Model

Acquired Bank of Madura (SHG model)

Indirect

channel Partnership

Uses the network of MFIs and NGOs to save costs of setting up a branch

Bank of Maduras SHG model

A group of 20 women from the same village, who are BPL are chosen to form a group called the SHG

Several such groups can be formed in a village

Leaders are selected from each group based on suitable qualities

The group members are trained and educated by bank in basic banking

They are encouraged to begin savings

Formation Of SHG

First step in the formation of SHG was to form groups in order to build mutual dependence. Also, the framework that created a joint guarantee for loan of all members encouraged interaction between women. Slowly, these SHGs started to have own identities and it transformed village ethics and social norms. To attain profitability for not financially sustainable SHG program, ICICI aimed at expanding SHG without increasing managing costs.

ICICIs 3-tier system for SHGs

1.

Project manager - He is a bank employee. He approves the loan applications for area managers, monitors six coordinators and helps in SHGs development Coordinatoran SHG member contractual relationship with bank. She oversees the activities of promoters. in six

Divisional Manager (Social Service Consultanat)

2.

Area Manager (ICICI bank staff, 6 project managers)

Project Manager (ICICI, works with 6 Coordinators)

3.

Promoter- potential coordinator. She has to form new groups and expand SHG network.

Coordinator (SSC)

Promoter (SSC)

 Promoters

become SSCs within a year and have to form 20 groups within next year and by doing so, they will be financially compensated by the bank. march 2003, more than 8000 SHGs had been formed

By

In

order to retain their status, SSCs need to:

Travel to villages within 15-km radius and form five new groups every 2 months. The members of all the groups formed need to be from same village , married and in the age of 20-50.

NABARD Test The National Bank of Agriculture and Rural Development has a list of questions to assess the poverty level of family and its eligibility for SHG participation. Some of these questions are:

Is there only one source of income for the family? Are there any permanently ill members in family? Do you regularly borrow from moneylenders? Do you live far from your drinking water source? Do you belong to a scheduled caste or tribe?

Families answering yes to three or four questions are considered good candidates for SHG.

After establishment of core set of members , a leader along with two animators is selected.
The animators keep the minutes book that contains the details of the meetings, the savings and the loan register, the weekly registers and the members passbooks. The preliminary meetings also include training by SSCs, coordinator or project manager.

Motto of SHG:

The motto is- Savings First- Credit Later. The members are taught the importance of savings. After training a particular group, SSCs leave to form new groups.

After formation of 20 groups by a SSC, she earns 2000 Rs. from ICICI bank and becomes a promoter.
The activities of a SSC are closely monitored by a coordinator. A Coordinator overlooks the activities of 120 groups and earns an annual salary of Rs. 2400 from the bank.

So it goes like this..

In the 1st monthly meeting each member should bring Rs. 50 to contribute to joint savings account
The leaders collect the money and open a savings account for each member. The account with bank however is in the name of the SHG One year after the formation of SHG, the women are ready to submit a loan proposal.

 After

submitting necessary documents, SHG is given a total of Rs. 2.5 L i.e. Rs.12,500 per member loans are non-collateralized.

These

However

SHG as group is responsible for payment of loan, which forms a strong social collateral.

This

has proved to be good enough to have a repayment rate of 99.99 %

 To

fulfill repayment terms, each member must pay Rs. 400 to the bank in 43 monthly installments. effective rate of interest is 18%

The

NABARD
The

test

bank remains in contact only with officers i.e. Coordinator and Promoter.

The Indirect-channel Partnership Model

To

increase its distribution and cost-effectively serve the BOP, ICICI uses the infrastructure of MFIs and NGOs provides MFIs with a line of credit to meet a cash flow deficit for three years.
the 4th year, the MFI begins to repay the loan

ICICI

In

ICICI banks approach to reach the BOP in terms of three drivers :

Acquisition of bank of Madura Meeting priority sector and rural lending requirements set by RBI

Micro finance activities through social and nonprofit initiatives

1.

The Micro Credit and business Correspondent Model

2004 pioneered the partnership model Between 2003 to 2008 lensing of more than $3.5 million FINO Smart Cards

2.

Farmer Financing

Availability of finance at the right time Warehouse receipt based financing Enhancing credits by leveraging on corporate partnerships

3.

Micro Finance Plans (health and non health) Bundling of insurance products with micro credit Total life's insured increased from 64,700 in 03 to 5,61,600 during April 2008 through December 08 Increase of 770% in 5 years Nonlife insurance like health, weather and cattle

By november 2008 ICICI had extended its WIP to cover 33 crops in 50 districts in 12 states to about 3L farmers

4.

ICICI Foundation Facilitation of ICICI foundation which would target inclusive growth. Facilitation in private equity fund The network Enterprises fund Direct micro financial services to individuals via 200-300 micro finance institutions