ICICI Bank - Innovations in Microfinance

            
 
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Case Details:

Case Code : FINC041
Case Length : 16 Pages
Period : 1995-2005
Pub. Date : 2005
Teaching Note :Not Available
Organization : ICICI
Industry : Microfinance
Countries : India

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Introduction Contd...

The structures included buying the microfinance portfolios of MFIs either on a selective basis or buying the complete loans of a branch or a particular area, and also entering into partnership arrangements with MFIs. This helped in leveraging the operational strength of NGO/MFI with the financial strength of ICICI Bank. In the world's largest securitization4 deal, ICICI Bank purchased a portfolio of 42500 loans worth US$ 4.3 million from Share Microfin Limited in 20045...

Background Note

In March 2004, the cumulative disbursements to SHGs stood at Rs.39 billion.6 According to industry experts, the demand for microfinance in India was estimated at about Rs.300 billion . This meant there was a huge unmet gap between demand and supply.

In the past, high demand and low supply of micro-credit was blamed on the limited efforts of major Indian financial institutions to reach the poor. Banks considered small loans as a statutory obligation rather than a business opportunity. Mainstream financial institutions considered these loans as ones that were difficult to recover, unprofitable and involving high transaction costs.

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These loans were perceived to carry high risk as they had high default rates; the borrowers usually did not have any viable income generating opportunities nor did they possess any collateral guarantee.

To fill the huge gap between demand and supply, an environment that was conducive for microfinance providers was required. ICICI Bank was promoted in the year 1994 as the banking division of Industrial Credit and Investment Corporation of India Limited (ICICI). ICICI was a developmental financial institution incorporated in the year 1955, as a joint initiative of Government of India, the World Bank and representatives of the Indian industry.

By the 1990s, ICICI had emerged as a diversified financial group that offered a wide range of financial products through a network of subsidiaries and affiliates. In April 2002, ICICI merged with ICICI Bank...

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4] The process of transformation of financial claims into marketable securities is termed securitization. It was widely employed by firms ranging from housing/mortgage finance companies to insurance companies as an instrument to access capital markets (www.icicisocialinitiatives.org).

5] Society for helping and awakening rural poor through education (SHARE Microfin) is a leading microfinance institution (MFI) that operates in the rural areas of Andhra Pradesh.

6] According to industry estimates, the number of poor households in India in early 2000s was around 75 million with 60 million dwelling in rural areas and 15 million in urban. The demand for microfinance is in the range of Rs. 2000 to Rs. 6000 per household.

 

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