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End to End Financing in the
Agriculture and Livestock Sector
March 17, 2007
The Unfolding India Story
Rural banking
Financing value
chain
Rural India
India –
The Economy
…a global giant in making
2
The Unfolding India Story
Rural banking
Rural banking
Financing value
chain
Rural India
India –
The Economy
…a global giant in making
3
India
Largest democracy in the world
1 billion strong consumers
Fourth largest economy & tenth most industrialized
projected to grow larger than Italy, France, Germany and
Japan in 30 years
One of the fastest growing economies
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:
third most attractive investment destination
best BPO destination
Sixth largest forex reserves in the world at USD 140 bn
4
Fastest growth among major economies
11% 10.3%
Annual GDP growth rate
10%
9%
8%
7% 6.0%
6%
5%
4% 3.5%
3.1% 2.9% 2.8%
3% 2.5%
1.7% 1.6% 1.5%
2% 1.3%
1%
0%
China US Brazil UK Italy Japan
India Mexico Finland France Germany
Fastest growth among all democracies having GDP > $100 bn
Over 7% growth in 4 years in the 1990s
Source: 2002 World Development Indicators Report (data for 1990-2000,
average annual percentage growth)
5
India - Sectoral share of growth
Sectoral Growth
Growth
Sector share of
2005 (%) Q1 FY06 (%)
GDP(%)
Services 57.9 8.6 9.6
Industry 22.5 8.3 10.1
Agriculture 19.6 1.1 2.0
GDP 6.9 8.1
Source: Central Statistical Organization
6
Agriculture growth has lagged...
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
7
The Unfolding India Story
Rural banking
Rural banking
Financing value
chain
Rural India
India –
The Economy
…a global giant in making
8
The Rural Economy
GDP
(Rs. 28.3 Tn)
Urban Rural
(Rs. 13.9 Tn) (Rs. 14.4 Tn)
Non-Agri Agri
(Rs. 8.4 Tn) (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)
9
Increasing Rural & Agri Credit
Rural
Credit Agri Credit
(O/s)
(O/s) 1580 Bn
1115 Bn
656 Bn
494 Bn
1999-00 2004-05 1999-00 2004-05
Institutional Credit extended in rural India has grown by
19% p.a. (compounded)
Source: RBI
10
The Unfolding India Story
Rural banking
Rural banking
Financing value
chain
Rural India
India –
The Economy
…a global giant in making
11
Rural customer is characterized by …
Socio-economic profile Occupational profile
Farm based
Agriculture
Rich Commodity trade
Dairy / poultry
Middle Income Non-Farm based
Services
Low income Enterprises
Handicrafts
and large variations in financial requirements across the
year
12
Rural lending entails varied risks
Price Risk Yield Risk
Risk
Elements
Crop Risk
Payment Risk Liquidity
Constraints
Other Risks
Diversion of Non Delivery
Funds of Products
13
While identifying the risks we realised that
integrating the value chain...
Commission Sub
Farmer Processors Wholesaler Retailer Consumer
Agent Wholesaler
Intermediaries take 75% of MRP
25% 15% 10% 10% 25% 100%
15%
Opportunistic
Non-transparent High prices
profiteering
pricing Limited choices
Wastage rampant
Limited financial
Quality & hygiene
capability
problems
Primitive grading &
pricing facilities
14
… greatly benefited the farmers…
Farmer Trader Ginner Textile Mill
Farmer
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
15
…and mitigated our risks, hence…
Sells Fully Grown Birds
Day 45 - 60 Poultry Feed
Co.
Pays the Balance amount
Repays the loan with interest
Day 2 - 45 Poultry Feed Provides veterinary support
Co. Constant monitoring
Poultry Feed Sells Day Old Chick, Feed, Medicine
Co.
Corporate
Risk Sharing
Credit Assistance
Day 1
16
…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 Mangoes (U.K)
Farmer Infrastructure
- Grading/Packing Vegetables (U.K. /
Mumbai)
- Ripening
- Cold Storage
These initiatives have increased
realisations by 30%
17
Covering Sectors in Agri Space through Corporate
Loans...
Poultry Seeds Horticulture Rural Infra
Understanding evolution of
global and domestic industry
Getting insight into sector specific
In depth characteristics
Sector
Analysis Developing thorough
understanding of supply chain
Identifying key risks and mitigants
18
...Individual Loans - both Farm and Non-Farm
Farmer Finance
Agriculture Agri Credit Line
(pre-harvest)
Farm Equipment
Agriculture Commodity Finance
(post-harvest)
Irrigation facilities
Agriculture
(infrastructure) Micro Warehouses
Jewel Loans
Non - Farm
Microfinance
19
...And Facilitating Farmer- Corporate Tie Ups
Creating a closed loop of credit, extension services & output off-take
Hariyali Kissan Extension
Loan for pass Kendra service/advice
through to
farmer
Inputs
Produce
Repayment of Procurement
loan with DSCL
interest
20
...Funding along the dairy value chain...
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
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
21
...Financing the entire Gherkin value
chain...
•Crop loan to farmers with buy back arrangement from the
Gherkin farmers company
•Farmer should be registered with the company
•Financing the glass jar manufacturers & traders supplying other
Intermediaries 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)
22
...Structured financing of rural warehouses...
Private Rent payment
Entrepreneurs guarantee
Warehousing
Corporations
Tripartite agreement
on Escrow of
receivables through
Funds -
ICICI Bank
Construction of rural
warehouses
ICICI Bank
23
Complemented by “Risk mitigants”
Life Insurance Non - Life Insurance
Micro insurance – MFIs Weather risk
Cash in transit
Retail products – Individuals
High net worth clients Accident
Theft
Fire
Critical illness
Motor vehicles
Protecting the loan portfolio
24
And redefined rural banking…
Conventiona Branch Manpower Product Single
l banking based intensive driven product
Hybrid Technology Customer Multiple
ICICI Bank products
channels intensive driven
25
Resulting in a holistic approach…
Multiple channels targeting specific
segments of the rural population
Branches
Comprehensive Branches at major agricultural markets
channel strategy Rural branches
Franchisees, internet kiosks, MFI &
corporate partners
Credit: focus on farmer financing, agri-
businesses, commodity-based
Comprehensive
financing and micro-credit
product strategy Savings and investment products
Insurance
26
Thank You
27
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