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Why ICICI's rural foray thrived
Rajendra Palande & Preeti R Iyer
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April 14, 2006

How many people join a non-profit organisation after graduating from the money-showering portals of IIM-Ahmedabad? How many go on to join a bank - and then make the best of their learning experiences?

Intrigued? You may want to have a chat with Nachiket Mor of ICICI Bank [Get Quote]. His developmental instincts took him to an NGO. His sense of pragmatism on what tools work best for development took him to banking (ICICI, the financial institution that was merged with its retail banking offshoot).

And now as executive director -- in charge of wholesale and rural banking at ICICI Bank -- he finally has a challenge to satisfy him. And this should please the bank's chief K V Kamath, who is devoting attention to the creation of a profitable rural lending structure in a country that has a long legacy of directed 'priority sector' lending and the associated cynicism on returns.

Soon after the merger, Mor was given a clear mandate: to build a sustainable rural business model that meets the mandatory requirements (ICICI Bank's priority sector target: 40 per cent of lending).

And the results?

Since late 2004, ICICI Bank has built a robust agricultural loans portfolio of Rs 10,000 crore (Rs 100 billion). But the bank's other initiative is the one that is getting talked about: micro-finance. Here, Mor sought to avoid direct lending to self-help groups.

"We realised that the model wherein banks lend directly to SHGs was not viable for us, and we felt that we must work with community-based organisations who are more aware of the needs of customers."

And so ICICI Bank signed up micro-finance institutions as intermediaries for micro lending. Their key strength "is not their ability to manage capital and assume risk, but their intricate knowledge of clients and the geography in which to operate", says Mor, convinced that such a twin-tier structure is the way ahead.

The MFIs, needless to add, suddenly have huge sums under their charge. Take Spandana, for example, which has seen its disbursements soar from Rs 3 crore (Rs 30 million) in 1998 to Rs 300 crore (Rs 3 billion) last year. It has 8,00,000 customers.

Or take Cashpor, which saw its loan portfolio grow from Rs 26.3 lakh (Rs 2.6 million) in March 1999 to Rs 50.8 crore (Rs 5.08 million) in March 2006, even as its client base swelled from 2,500 to 1,24,000.

This way, Mor is assured that this is business, not a handout. Likewise, for other development projects, his emphasis is on rural roads, renewable energy projects and other initiatives that are actually bankable.

ICICI Bank recently lent Rs 175 crore (Rs 1.75 billion) for a rural roads project in Madhya Pradesh, for example, and the big beneficiary is the local mandi (so the loan is serviced by the mandi cess, collected in an escrow account).

"The mandi will now tell us which road to build," says Mor, with satisfaction. This way, the money goes where it generates value - and returns.

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