Professional Documents
Culture Documents
Evolution of Microfinance in
India
• Microfinance has been in practice for ages
( though informally).
• Legal framework for establishing the co-
operative movement set up in 1904.
• Reserve Bank of India Act, 1934 provided for
the establishment of the Agricultural Credit
Department.
• Nationalisation of banks in 1969
• Regional Rural Banks created in 1975.
• NABARD established as an apex agency for
rural finance in 1982.
• Passing of Mutually Aided Co-op. Act in AP in
Considerable gap between demand and
supply for all financial services
8
Microfinance: ICICI
Bank’s Approach
Microfinance: An Overview
• Working capital
• Household investment in
diversification
• Better balance sheets
– More assets
– Secure stores of value
• More profitable economic
activities
• More productive savings
strategies
Constraints to scaling access for the
poor
Information
Asymmetry High Costs of Intermediation
• Low value, high volume transactions
• Inability of the poor
• High Transaction Costs (8-20%)
to offer collateral
• Low use of technology
• No credit history
• High supervision costs
available • High cash handling costs
• Potential success of
enterprises difficult to
evaluate
Provision of Poorly
microfinance is functioning Markets
constrained by…
Regulatory Issues
Microfinance: An Overview
13
Traditional models lack
scalability…
SHG-Bank Linkage Bank-MFI Linkage
Bank Bank
Branch
MFI
NGO
SHG Ind./SHG/JLG
Microfinance: An Overview
Global Strategy
Maintaining High Growth Rate on
Sustainable Basis requires…
Sound state
of economy
Level of Economy
Participation of Main Stream Organizations to facilitate Community Based Institutions
Financial resources
for on-lending
Specialized Institutions for research Creation of the Centre for Micro Finance,
training and product design capabilities Centre for Insurance & Risk Management
at IFMR, Chennai
Specialized institutions for providing Launch of the MFI Strategy Unit with the
consulting services to MFIs Centre for Micro Finance at IFMR, Chennai
Dedicated Microfinance
Development Team
Creating specialized network organizations to build links between the poor & large
4240
1100
120 440
Rs. in
millio Mar’0 Mar’0 Mar’0 Mar’0 Mar’ Mar’
n 2 3 4 5
Micro Savings Account
• Low value savings and deposits
product
• Addressing the needs of
– Small & Marginal Farmers/ Daily Wage
Earners
– Medium Farmers/ Entrepreneurs/
Salaried
• Features
– Zero balance account
Business Correspondent
(BC)
An intermediary of Bank in providing financial and
banking services
Business
Authentication Device (AD)
Corresponde
nt
Bank
Core Banking Solution (CBS)
Technologies in Microfinance
What Technologies?
• Information Systems (IS) Tech:Custom
built IS s/w to track Fin Transactions and
create Reports for Management, Donors
and Regulators
• Large MFIs n Banks use ATMs, POS(Point
Of Sale n/w) and Mobile Phone banking.
Eg SKS using Handheld Smart Cards
• Use of Biometric ATMs , PDAs(Personal
Digital Assistants) and Voice
Why Technologies?
• More Informed Decisions: Predict Cash
Needs and anticipate and respond to
Crisis
• Increased Flexibility: Customer Mobility
• Lower Operating Costs: Mibanco (Peru)
reduced it’s Loan Origination cost by
10% by streamlining it’s Loan Approval
Process
• Increased Deposits: By placing easy to
use ATMs in well trafficked areas
Prodem (Bolivia) was able to increase
it’s business manifold
Limitations of Technologies:
• Technology will not solve deficiencies
in MFI’s business strategy or
operational process. Before
beginning any technology planning,
the org. must be clear on its mission,
goals, and especially operational
procedures.
ICICI Venture Capital
Venture Capital
• Private equity capital provided by
professional investors to new growth
businesses.
• High-risk investments
• Potential for above average returns
• Popular among new companies who
cannot raise funds through debt
issue.
ICICI Venture Capital
• Challenge in scaling up microfinance
sector is lack of equity capital
• To cover this shortage,ICICI Bank is
encouraging venture capitalists to
start entering the sector.
• Lok Capital at Delhi
• Aavishkar at Mumbai
• Bell Weather at Hyderabad
The Funds
• Bell Weather, Hyderabad has made 3
equity commitments for start up and
decided to raise fund amount from
US $10mn to US $25mn
• Lok capital mobilizes and directs
capital fund to finance microfinance
initiatives and technical support for
MFI’s
• Aavishkar provides micro-equity
funding of $25000 to $100000
Other Initiatives
Agri - Micro-credit initiatives
• Innovative structure for micro-credit in
rural areas
– Overcome the reach problem
– Lower administration costs
• Channels for delivering micro-credit
– Sugar companies
– Seed producers
– Input companies
– NGOs and micro credit institutions
38
Agri - Farmer Service Centres
(FSCs)
• FSC provides one stop solution to the
farmer
– Agri extension support
– Inputs and other services
– Credit
– Market linkage
– Rural infrastructure
• These FSCs are promoted by Agri
Input suppliers , and avoids
duplication of efforts by different
39
40
Social Initiatives -
ICICIcommunities
• Give Online: On-line donation channel
– Retail donors can donate to specific
initiatives across India
– 100% of donations reach the initiative
– Prompt feedback on utilisation of grant
– Rs. 11.5 million towards Gujarat
Earthquake
• Shop the Cause: On-line shopping
mall
– Over 100 exquisite hand crafted
products available
41
Innovations in Delivery
Channels
• Sustainable Access for Rural India (SARI)
project
– Partners: MIT Media Labs, Harvard
University, IIT-Chennai, I-Gyan, DHAN
Foundation, ICICI Ltd
– Providing reliable Internet access through
Kiosks in rural Madurai using corDECT WiLL
– 100 kiosks managed by entrepreneurs to be
set-up
– Providing e-governance, communication and
information services
• Possibility of delivering banking services
42
Future Initiatives and
Products
• Rural ATM Machine
– Currently in development in the lab of
Dr.Ashok Jhunjhunwala
• Mobile ATM
– To be installed in ICICI-branded trucks
that would circulate in a number of
villages
Smart Card Based Payment
System
Smart Cards … An
alternative
• Difficulty in rural banking
– Management of Cash
• Cost of idle cash
• Cost of cash handling infrastructure
– Geographical spreads
• Solutions through
– Elimination/ reduction of cash handling
– Innovation of low cost delivery channels
• Smart Card - an ideal vehicle
45
Future Initiatives and
Products
• Insurance
– Using insurance to manage risks
– Rain insurance- Allows framers to collect
money during droughts
• Venture capital model
– Enable the poor to invests in long term
assets
– Model would spur economic activities
• Derivatives
– Many farmers already involved in informal
derivative dealing by buying and selling
crop futures
Weather Insurance: Covers Risks beyond the
Customers’ Control
Production Output Risks
Risks
Controllable Risks
Pest and
Improper Policy Risk
Cultivation
Spurious
Inputs
Price Risk
Customization of Insurance Products
•I ntegrated product offering – Life and General insurance
•Simplified premium calculation for the poor
•Finance insurance through credit partners