ICICI Rural Banking

8/4/2019 ICICI Rural Banking

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ICICIFinancialservices for thepoor

Presentation By:Ankit AgarawalAshok ChaudharyDeepesh AgrawalHarshil SamraVibhor Mehta


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ICICI INDIA: Introduction

1st bank to launch a web site in 1996.

The 1st bank to launch online bill paymentin 1999.

It has more than one million onlinecustomers, the largest in India.


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Facts about India

People living on less than $1 are greaterthan the entire population of USA.

Rural population is 741.6 million.

Rural penetration of banks is as low as18%.

428 million deposit bank accounts in thecountry,30 % are in rural areas.


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In the formal sector micro financinginstitutes existed for some time.

Informal sector is characterized bymonopolistic practices.

Interest rates in the informal market varyfrom 3% to 10% for a month.


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Steps taken by RBI for rural

development

It has instituted several policies to encouragerural retailing.

As per section 22 of the BRA 1949 privatesector banks are required to open a minimum30% of the total branches in rural areas.

It started a pilot project in 1991 by linking SHGwith banks.


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ICICI: Strategic goals To increase banking penetration in rural areas

through innovative ways of definingdistribution points.

To prepare rather than react to theincreasingly important rural market.

To support the downtrodden

as a good corporate citizen.


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Only 1 million households in India have accessto MFIs, so there is vast unmet demand.

However it was a challenge for ICICI due to: expensive set up costs, and

retaining educated staff.

So, Joined hands with NGOS & Micro FinanceInstitutions in this field.


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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 savecosts of setting up a branch


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Bank of Maduras SHG model

They are encouraged to begin savings

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

Leaders are selected from each group based on suitable qualities

Several such groups can be formed in a village

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


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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 encouragedinteraction between women.

Slowly, these SHGs started to have own identitiesand it transformed village ethics and social norms.

To attain profitability for not financially sustainableSHG program, ICICI aimed at expanding SHGwithout increasing managing costs.


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ICICIs 3-tier system for SHGsDivisional

Manager (SocialService

Consultanat)

Area Manager(ICICI bank staff,

6 projectmanagers)

Project Manager(ICICI, works with6 Coordinators)

Coordinator(SSC)

Promoter (SSC)

1. Project manager - He is a bank employee.

He approves the loan applications forarea managers, monitors six coordinatorsand helps in SHGs development

2. Coordinator- an SHG member incontractual relationship with bank.

She oversees the activities of sixpromoters.

3. Promoter- potential coordinator.

She has to form new groups andexpand SHG network.


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Promoters become SSCs within a year and have toform 20 groups within next year and by doing so,

they will be financially compensated by the bank.

By march 2003, more than 8000 SHGs had beenformed

In order to retain their status, SSCs need to:

Travel to villages within 15-km radius and form fivenew groups every 2 months.

The members of all the groups formed need to befrom same village , married and in the age of 20-50.


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NABARD Test

The National Bank of Agriculture and RuralDevelopment has a list of questions to assess thepoverty level of family and its eligibility for SHGparticipation. 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?


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

After establishment of core set of members , a leaderalong with two animators is selected.

The animators keep the minutes book that contains thedetails 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.


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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 newgroups.

After formation of 20 groups by a SSC, she earns 2000 Rs. fromICICI 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 earnsan annual salary of Rs. 2400 from the bank.


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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 asavings account for each member. The accountwith bank however is in the name of the SHG

One year after the formation of SHG, the womenare ready to submit a loan proposal.


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After submitting necessary documents, SHG is

given a total of Rs. 2.5 L i.e. Rs.12,500 permember

These loans are non-collateralized.

However SHG as group is responsible forpayment of loan, which forms a strong socialcollateral.

This has proved to be good enough to have arepayment rate of 99.99 %


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To fulfill repayment terms, each member must

pay Rs. 400 to the bank in 43 monthlyinstallments.

The effective rate of interest is 18%

NABARD test

The bank remains in contact only with officersi.e. Coordinator and Promoter.


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The Indirect-channel

Partnership Model To increase its distribution and cost-effectively

serve the BOP, ICICI uses the infrastructure ofMFIs and NGOs

ICICI provides MFIs with a line of credit to meeta cash flow deficit for three years.

In the 4th year, the MFI begins to repay theloan


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Acquisition of bank of Madura

Meeting priority sector and rural lendingrequirements set by RBI

Micro finance activities through social and non-profit initiatives

ICICI banks approach to

reach the BOP in terms of threedrivers :


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1. The Micro Credit and business CorrespondentModel

2004pioneered the partnership model

Between 2003 to 2008 lensing of more than $3.5million

FINO Smart Cards


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2. Farmer Financing

Availability of finance at the right time

Warehouse receipt based financing

Enhancing credits by leveraging on corporatepartnerships


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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 to5,61,600 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 tocover 33 crops in 50 districts in 12 states to about 3Lfarmers


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4. ICICI Foundation

Facilitation of ICICI foundation which would targetinclusive growth.

Facilitation in private equity fundThe network

Enterprises fund Direct micro financial services to individuals via

200-300 micro finance institutions

ICICI Rural Banking

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