Beijing, China October 19, 2007 Taking Action for the World’s Poor and Hungry People Scaling up Micro-finance: Initiatives by the Private Sector The Case of ICICI Bank, India.

2 Microfinance in India is still largely “public”… The “public” model (the Self-Help group Bank linkage model) currently provides the bulk of micro credit in India However, the most dynamic segment of the microfinance market has been the “private” segment It was spurred by priority sector lending guidelines This model involves commercial banks lending to micro finance institutions who on-lend to clients

3 Scaling Up Microfinance in India: Key Messages: The private sector is essential to scaling up efforts in India The size of the market is estimated at $ 17 billion Current public and private efforts meet barely a fifth of this need Evidence of robust rural growth implies need for finance will grow Both debt and equity funds are needed A great time to capitalize on overall interest in India

4 Innovative models are needed to reach our target clients Conventional banking Conventional banking Branch based Manpower intensive Manpower intensive Product driven Product driven Single product Our strategy Hybrid channels Technology intensive Technology intensive Customer driven Customer driven Multiple products

5 The ICICI Bank Partnership Model Provider of loan funds, mezzanine equity and technology Lends directly to clients with risk-sharing by NGO/MFI Decides pricing and risk sharing by NGO/MFI based on historical data Undertakes loan origination, monitoring and collection MFI provided OD limit by Bank equivalent to amount of risk sharing, which is drawn in event of default upto specified limit Transfer of economic capital from Bank to MFI Structure separates risk of the MFI from risk of the portfolio ICICI Bank MFIs

6 Microfinance is more than credit Provision of financial services to low income clients Credit Insurance & Investments Thrift/savingsRemittances

7 Risk mitigation is key & Micro Credit Foundation of India Integrated product offering – Life and General insurance Simplified premium calculation for the poor Finance insurance through credit partners

8 Finance to MFIs needs to be coupled with capacity building efforts Identification of a partner NGO/MFI based on our stringent criteria Training them on the processes and assessing their capabilities Providing funds, know how & support for computerization Strengthening system & robust processes for credit delivery Disbursing the loan & monitoring of the partner as well as the groups Reviewing the progress as per the targets and incorporating the learning Partner Training Infrastructure Processes Disbursement Review

9 With technology enablers… Paving the way for 200 MFIs serving 3 districts each… Authentication Device

10 Finance to clients needs to be complemented with efforts at building livelihoods Not everyone is an entrepreneur Link to markets is essential Standardization and aggregation of products is required ICICI Bank-supported Network Enterprises Fund creates a set of network enterprises in craft, foods, etc to link small producers to markets.

11 Scaling up of microfinance needs to be complemented with impact evaluation A lack of good longitudinal studies on impact of microfinance on clients’ lives in India Has led to innumerable needless debates on whether microfinance is a “panacea” or a “stop gap” solution or a perpetuator of rural indebtedness Important role for independent research institutes/govt. bodies.

12 What is the role of government in facilitating the scaling up of microfinance? Provision of systemic infrastructure – unique biometric IDs, credit registries etc. Facilitate absorption of credit by improving rural infrastructure – an impressive effort ongoing in India via the Bharat Nirman program. Do not regulate interest rates as this will hurt the poor in terms of reduced access to credit.

13 Micro-finance: coverage Areas with major partnerships Areas with minor partnerships Areas of work-in-progress Partnering with 154 MFIs / NGOs across India Reaching out to over 3 million clients Total portfolio size approximately $ 350 million

14 Thank You