"Agreement for Wholesaler of Medicine India"
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