Transcript Changing gears

End to End Financing in the
Agriculture and Livestock Sector
March 17, 2007
The Unfolding India Story
Rural India
India –
The Economy
…a global giant in making
2
Rural banking
Financing value
chain
The Unfolding India Story
Rural India
India –
The Economy
…a global giant in making
3
Rural banking
Rural banking
Financing
value
chain
India
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Largest democracy in the world
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Fourth largest economy & tenth most industrialized
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projected to grow larger than Italy, France, Germany and
Japan in 30 years
One of the fastest growing economies
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1 billion strong consumers
at 8.5% in FY 04, 7% in FY05 and 7.25% (E) in FY 06
Abundant skilled manpower
One of the most liberal FDI regime
AT Kearney:
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third most attractive investment destination
 best BPO destination
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4
Sixth largest forex reserves in the world at USD 140 bn
Fastest growth among major economies
11%
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
10.3%
Annual GDP growth rate
6.0%
3.5%
US
India

2.8%
2.5%
Brazil
Mexico
UK
Finland
1.6%
1.5%
Italy
France
1.3%
Japan
Germany
Fastest growth among all democracies having GDP > $100 bn
Over 7% growth in 4 years in the 1990s
Source:
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2.9%
1.7%
China
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3.1%
2002 World Development Indicators Report (data for 1990-2000,
average annual percentage growth)
India - Sectoral share of growth
Sector
Sectoral
share of
GDP(%)
Growth
2005 (%)
Growth
Q1 FY06 (%)
Services
57.9
8.6
9.6
Industry
22.5
8.3
10.1
Agriculture
19.6
1.1
2.0
6.9
8.1
GDP
Source: Central Statistical Organization
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Agriculture growth has lagged...
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3rd largest producer of food in the world but the
growth of the sector has been limited
While the Tenth Plan assumed that agricultural
production would grow at the rate of 4.0%, the
growth has been less than 1.5% in the first three
years
India’s entrepreneurial initiative has been behind
growth in other sectors but it is still in a nascent
stage with myriad laws coming in the way
Inadequate credit delivery mechanism to the rural
sector has been the main cause
Agriculture remains mainstay of livelihood of over
60% of Indian population
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The Unfolding India Story
Rural India
India –
The Economy
…a global giant in making
8
Rural banking
Rural banking
Financing
value
chain
The Rural Economy
GDP
(Rs. 28.3 Tn)
Urban
(Rs. 13.9 Tn)
Rural
(Rs. 14.4 Tn)
Non-Agri
(Rs. 8.4 Tn)
Agri
(Rs. 6.0 Tn)
Share of non-agricultural output has exceeded
agricultural output in the rural economy
Source: CERG (Consumer & Economic Research Group
– Based on research by Omkar Goswami & Rama
Bijapurkar)
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Increasing Rural & Agri Credit
Rural
Credit
1580 Bn
(O/s)
Agri Credit
(O/s)
1115 Bn
656 Bn
1999-00
494 Bn
2004-05
1999-00
2004-05
Institutional Credit extended in rural India has grown by
19% p.a. (compounded)
Source: RBI
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The Unfolding India Story
Rural India
India –
The Economy
…a global giant in making
11
Rural banking
Rural banking
Financing
value
chain
Rural customer is characterized by …
Socio-economic profile
Occupational profile
Farm based
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Rich
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Middle Income
Non-Farm based
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Low income
Agriculture
Commodity trade
Dairy / poultry
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Services
Enterprises
Handicrafts
and large variations in financial requirements across the
year
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Rural lending entails varied risks
Price Risk
Yield Risk
Risk
Elements
Crop Risk
Payment Risk
Other Risks
Diversion of
Funds
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Non Delivery
of Products
Liquidity
Constraints
While identifying the risks we realised that
integrating the value chain...
Farmer
Commission
Processors
Agent
Wholesaler
Sub
Retailer
Wholesaler
Consumer
Intermediaries take 75% of MRP
25%
15%
Non-transparent
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pricing
Limited financial
capability
Primitive grading &
pricing facilities
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10%
10%
15%
Opportunistic
profiteering
Wastage rampant
Quality & hygiene
problems
25%
High
100%
prices
Limited choices
… greatly benefited the farmers…
Farmer
Trader
Ginner
Textile Mill
Farmer
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Brought together seed cos., farmers, insurance
cos., ginners and textile cos. on common platform
Improves cotton quality, reduces cost and ensures
economies of scale at the village level
…and mitigated our risks, hence…
Day 45 - 60
Sells Fully Grown Birds
Poultry Feed
Co.
Pays the Balance amount
Repays the loan with interest
Day 2 - 45
Poultry Feed Provides veterinary support
Constant monitoring
Co.
Poultry Feed Sells Day Old Chick, Feed, Medicine
Co.
Corporate
Risk Sharing
Credit Assistance
Day 1
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…we took an integrated approach…
ICICI Bank acts as a catalyst for the integration of players
in the value chain
Finance facility
Banana (Middle East)
Integrated Value
Addition Centre
Exports
Farmer
Infrastructure
- Grading/Packing
- Ripening
- Cold Storage
These initiatives have increased
realisations by 30%
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Mangoes (U.K)
Vegetables (U.K. /
Mumbai)
Covering Sectors in Agri Space through Corporate
Loans...
Poultry
Seeds
Horticulture
Rural Infra
Understanding evolution of
global and domestic industry
In depth
Sector
Analysis
Getting insight into sector specific
characteristics
Developing thorough
understanding of supply chain
Identifying key risks and mitigants
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...Individual Loans - both Farm and Non-Farm
Farmer Finance
Agriculture
(pre-harvest)
Agri Credit Line
Farm Equipment
Agriculture
(post-harvest)
Agriculture
(infrastructure)
Commodity Finance
Irrigation facilities
Micro Warehouses
Jewel Loans
Non - Farm
Microfinance
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...And Facilitating Farmer- Corporate Tie Ups
Creating a closed loop of credit, extension services & output off-take
Hariyali Kissan
Kendra
Loan for pass
through to
farmer
Extension
service/advice
Inputs
Produce
Repayment of
loan with
interest
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DSCL
Procurement
...Funding along the dairy value chain...
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Cattle financing through village level co-operative societies
 To enhance the milk production in the State
 To provide opportunity for farmers to diversify in to
dairy sector
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SMP and butter purchase/production finance for dairies for
stocking and/or conversion of excess milk to SMP/butter
during flush season
 Regular and timely milk payment to dairy farmers is thus
ensured
...Financing the entire Gherkin value
chain...
Gherkin farmers
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•Crop loan to farmers with buy back arrangement from the
company
•Farmer should be registered with the company
Intermediaries
•Financing the glass jar manufacturers & traders supplying other
ingredients
•Financing of the transporters (collection agents as well as the
logistic supplier for finished goods)
Processing units
•Term loan for expansion (new bottling lines, cold store units etc)
•Working capital assistance (export credit)
...Structured financing of rural warehouses...
Private
Entrepreneurs
Rent payment
guarantee
Warehousing
Corporations
Funds Construction of rural
warehouses
Tripartite agreement
on Escrow of
receivables through
ICICI Bank
ICICI Bank
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Complemented by “Risk mitigants”
Non - Life Insurance
Life Insurance
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Micro insurance – MFIs
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Weather risk
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Retail products – Individuals
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Cash in transit
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High net worth clients
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Accident
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Theft
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Fire
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Critical illness
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Motor vehicles
Protecting the loan portfolio
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And redefined rural banking…
Conventiona
l banking
Branch
based
Manpower
intensive
Product
driven
Single
product
ICICI Bank
Hybrid
channels
Technology
intensive
Customer
driven
Multiple
products
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Resulting in a holistic approach…
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Comprehensive
channel strategy
Comprehensive
product strategy
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Branches at major agricultural markets
 Rural branches
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Franchisees, internet kiosks, MFI &
corporate partners
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Credit: focus on farmer financing, agribusinesses, commodity-based
financing and micro-credit
Savings and investment products
Insurance
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Multiple channels targeting specific
segments of the rural population
Branches
Thank You
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