From a paper presented at the NGO Global Executive Forum at Talloires, France, Nachiket Mor, deputy managing director, ICICI Bank, we gain insight into what ICICI’s plans for universal access to financial services in India are.
As MicroCapital had reported earlier, ICICI plans to partner with about 200 Microfinance Institutions (MFIs) and expand its reach into over 600 districts in India by 2010. This working paper adds further that they want to grow their microfinance clientele from 3 million as of March 2006 to 25 million by 2010 with total assets outstanding growing to USD 10bn (USD 10bn by 2010). By some estimates, the demand for total credit in India amongst its 75 million poor households is between INR 255bn to INR 500bn (USD 5.6bn to USD 11bn). On the other hand, ICICI expects its 200-partnered MFIs to serve a million households each. Even after taking into account differences in estimation, by all accounts, ICICI seems to plan to capture a large portion of the Indian microfinance market, if not all of it.
ICICI seems to be targeting this goal with a comprehensive plan. Besides, the ‘partnership model’ for the MFIs through which ICICI lends directly to the borrowers using MFIs as their point of sales, it has also tied up with three venture capital funds (Bellwether, Aavishkaar & Lok Capital) to extend equity financing to MFI start-ups. It has also set up a specialized support and research institutions in the form of Centre for Microfinance Research and Center for Insurance and Risk Management.
In July this year, it incubated and launched an independent technology startup called Financial Information Network & Operations Pvt. Ltd.(FINO), which will offer core banking software and services to MFIs. It also aims to provide automated banking, government transfer services and other financial services through a biometrics based authenticated personal card solution. ICICI has a 20% stake in this company that has an authorized capital of INR 50 crore (about USD 11.1mn). The other partners in this startup are IBM and i-flex solutions, a leading banking system products provider. The International Finance Corporation is also considering an equity investment in FINO.
ICICI has also recently set up a jobsite for microfinance positions called www.microfinancejobs.com to make personnel available for careers in MFIs.
In the paper, Mr Mor further goes on highlight systemic shocks which can derail economic progress for the poor. He envisions a network of organizations which can, in his words, “while not being distortionary improve value realization within the occupations that individuals are already engaged in. ” ICICI is already in the process of partnering with and incubating such grassroots organizations which can engage in skill building, supply services and health and productivity interventions.
The paper, however, and the recent news article where this paper was first mentioned cleanly sidestep the issue of market saturation, which was one of the reasons for government intervention and imposition of interest rate caps, which MicroCapital had covered here.
ICICI, of course, is taking advantage of low competition for this ‘missing market’. Existing banking regulations in India prevent multinational banks from expanding rapidly through inorganic growth. Public sector banks have been traditionally inefficient service providers while the other private commercial banks that have shown interest in the microfinance realm are much smaller.
Indian regulation also prevents external commercial borrowings (ECBs) for MFIs. Thus MFIs cannot get easy financing from multilateral bodies like the IFC. This requires most of the growth to be organic or financed by banks like ICICI.
The microfinance bill to be tabled in the winter session of the Indian parliament is thus going to be interesting to watch out for.
ICICI is the largest private commercial bank in India and the second largest bank overall.
-Anirban Gongopadhyay, MicroCapital Writer
Resources
1) Nachiket Mor Paper: Some Thoughts on Access to Markets as a Strategy to Address Poverty (.pdf file)
2) FINO
3) IMF Seminar publication: China and India Learning from each other- Reforms and Policies for Sustained Growth (.pdf file) pg 40
4) Financial Express: ICICI Bank in major micro-finance thrust; targets $10 bn loans by 2010
5) MicroCapital Blog: ICICI Bank Expands Retail Microfinance Business In India
6) Microfinancejobs.com: Homepage
7) The Hindu: ICICI launches new initiative in microfinance
8) MicroCapital: Microfinance Institutions Reach Crucial Agreement with Government in Andhra Pradesh, India
9) Sify.com : http://sify.com/news/fullstory.php?id=13709188
