Agri Supply Chain: The Role of Local Banks

Transcription

1 UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT UNCTAD Expert Meeting "Enabling small commodity producers in developing countries to reach global markets" Organized by UNCTAD Commodities Branch Web: December 2006 Agri Supply Chain: The Role of Local Banks by Mr. Brahmanand Hegde Head of Products & Credit, Rural Banking Group ICICI Bank The views expressed are those of the author and do not necessarily reflect the views of the UNCTAD Secretariat, nor do they imply the expression of any opinion whatsoever on the part of the secretariat of UNCTAD concerning the legal status of any country, territory, city or area, or of this authorities or concerning the definition of its frontiers or boundaries.

2 Agri Supply Chain - Role of Local Banks : India December 12, 2006 Geneva

3 Agenda Introduction to ICICI Bank and Rural Banking Indian Agriculture Supply Chain ICICI Bank- Agriculture Supply Chain Initiatives

4 Agenda Introduction to ICICI Bank and Rural Banking Indian Agriculture Supply Chain ICICI Bank- Agriculture Supply Chain Initiatives

5 ICICI Bank Today Largest Pvt. Sector Bank in India- Rs bn asset size Large capital base- Rs. 334 bn; market cap of Rs. 507 bn Presence in 17 countries; first Indian bank on NYSE Largest consumer credit lender - Rs bn retail portfolio Over 17 mn customer accounts; 640 branches Large talent pool & dedicated research team One stop financial solutions provider

6 The vanguard of novel rural financing 63 Bn 42 Bn New generation bank Harnessing technology to offer cost efficient financial transactions Credit Franchisees Fast and Timely Payments to Farmers / Supply Chain Partners Branches Kiosks Correspondent Network Corporate internet banking Option Rural ATMs MFI partners

7 Through comprehensive financial services Production Credit Credit Commodity based based funding Farmers Investment Credit Credit Savings MFs, MFs, bonds, bonds, Insurance life life & non non life life Co-branded biometric cards Tie-up with research institutes/ service providers for customized information to farmers

8 Adopting a multi-pronged rural banking strategy Elements of strategy Facilitate Leads to Integrating the the supply supply chain chain Mitigation of risks Value Value added added products Creating new new delivery channels Customer convenience Increased customer base base Use Use of of technology Quick TAT Lower Lower costs costs Innovating new new products Easy Banking Customer satisfaction

9 Agenda Introduction to ICICI Bank and Rural Banking Indian Agriculture Supply Chain ICICI Bank- Agriculture Supply Chain Initiatives

10 Current status :Broken links in agri chain- India roduction Supply chain Processing Marketing Poor extension Quality inputs Low productivity Non demand linked production Lack of storage Poor transportation High wastages Multiple intermediaries Low processing Lack of quality Poor returns Low capacity utilization Poor infrastructure Lack of grading No linkages Non transparency in prices Each segment working in in an an isolated manner resulting in in multiple losses across the the value chain

11 Need for integrated supply networks In the present era of globalization & privatization Competition no longer between firms but between supply chains Efficiencies of scale and scope the buzzword An integrated supply chain provides access to knowledge, technology, finance, markets: leading to shared benefits Input Infrastructure Production & Harvesting Processing Infrastructure Distribution, Retailing & Export Market segmentation, consumers demand & low cost strategy -driving factors for supply chain collaboration Key Key characteristic of of successful supply chain :: efficiency, flexibility, innovation, responsiveness

12 Integrated supply chain- finance perspective Leads to shift in the risk profile Credit Credit risk risk Performance Performance risk risk Shifting Shifting of of some some of of the the risks risks to to third third party party Provides an alternative viable model not based on borrower s credit risk but on the borrower s position in the supply chain. Unknown risks to calculated risks Use of partner infrastructure for servicing the farmer Access to unbanked clientele Collateral of good as it moves along the chain than at a point Structuring of product around payment from trader/ company Efficient supply supply chain chain results results in in risk risk reduction & enhances credit credit flow flow

13 Integrated supply chain- farmer perspective Technology Technology Capital Capital Markets Markets Short term and long term benefits to the farmer Upgrading Upgrading as as chain chain Developing actor Developing partnerships partnerships / / actor Adding ownership Adding value value through through ownership vertical vertical integration integration Associated benefits of integration Reduction in product losses in transportation & storage Increase in sales Tracking and tracing to the source Better control on quality Shared risks among players in the chain

14 Organized supply chains : critical factors Selecting the right chain Business Business must must be be viable viable Potential Potential to to organize organize producers producers & ensure ensure their their independence independence Must Must lead lead to to social social as as well well as as economic economic benefits benefits Not Not in in areas areas already already profitable profitable which which need need no no external external stimulus stimulus Trust and transparency Which products likely to be successful Products Products linked linked to to use use of of natural natural resources resources Where Where small small scale scale producers producers have have some some comparative comparative advantages advantages Products Products with with high high growth growth potential potential of of market market Products Products with with lack lack of of alternative alternative viable viable models models Joint planning and control Shared leadership Continued value proposition Each actor must be be efficient to to collaborate in in the the chain

15 Agenda Introduction to ICICI Bank and Rural Banking Indian Agriculture Supply Chain ICICI Bank- Agriculture Supply Chain Initiatives

16 Value chain analysis : ICICI way Inputs Crop/ Processing Allied Activities Rural Infra In depth Sector Analysis Understanding evolution of global and domestic industry Getting insight into sector specific characteristics Developing thorough understanding of supply chain Opportunities to penetrate the supply chain Product for targeted SME cluster Identifying key risks and mitigants Identification of retail opportunity

17 Elements of agribusiness strategy: ICICI Bank Value addition Customized solutions Integration of value chain Infrastructure Development Influencing regulatory & policy changes

18 Our initiatives in agri supply chain Interlinking farmers with the markets Bringing the partners together for shared gains Addressing supply chain gaps Raw material / capacity building/ quality/ infrastructure Creating value chains where none exists Creating markets Providing Technological and delivery options Professional intermediation at at key transaction points Local optimas than global optimas

19 Interlinking farmers with markets Up gradation within the chain - Ensure basic assets to improve production, processing & marketing - Improve farm management skills - Improve understanding of markets, chain, competition & demands - Promote & Strengthen farmer s organization Facilitating corporate tie ups- DSCL/HKK Commodity based funding Partnering in the value chain Poultry Trapping the cash flows Jatropha

20 Addressing supply chain gaps Strengthening weak links in the chain - Investment in R& D/ Extension, value added facilities - Improving information systems - Instilling professional management and operations Facilitating extension Agriwatch/ICRISAT Funding for creation of facilities- cold storages Funding for creation of warehouses Impacting livelihoods: Interse agreements

21 Creating value chains where none exists Make business partnership model for farmer - Continuous learning and innovation - Empowerment; facilitate chain cooperation - Innovating on products and delivery mechanisms Comprehensive coverage from scratch SEWA Building livelihood for producers- Sandhi Network companies for untouched areas Technology for payments card based

22 Intermediation at key transaction points Entire supply chain intervention may not be desired by farmers Intervening in the entire supply chain not a feasible option in all locations/all crops Real unlocking of values possible through professional intermediation at key transaction points in the value chain Ensures higher output value with greater sharing of benefits by the farmers ( pays only for what he desires ; no common costs) Leveraging corporate linkages- NCDEX/NCMSL Intermediation for price discovery Safal Funding for distributed generation Desi power

23 Reaching Global Scale and Potential Fix Fix complete chains Ensure market-linked changes Public Private Partnership Bullet Bullet approach to to an an integrated approach Fix chains Create tailored, end-to-end solutions for crops: from farm-gate to consumer-plate Production focus focus to to marketing focus focus Grow what consumers will eat in future (local and export) Innovate to ensure customer value (not just convenience) States to focus on few chains and have global aspirations Stand Stand Alone Alone to to webs webs of of alliance Farmer-government-private sector collaboration to optimise resource allocation/risk mitigation Catalyse change by crafting distinct roles for each stakeholder

24 Thank You

25 Interlinking farmers with markets Creating a closed closed loop loop of of credit, credit, extension services & output output off-take Loan for pass through to farmer Inputs Hariyali Kissan Kendra Extension service/advice Repayment of loan with interest DSCL Produce Procurement Facilitating Farmer- Corporate Tie Ups

26 Interlinking farmers with markets 2. Issue receipt Farmer/ Farmer/ VLA VLA 4. Provide Credit 3. Lodge receipt 1. Deposits products M& M& C Agent Agent 5. Reimbursement of the loan amount 6. Recovery Commitment Bank Bank Warehouse/ Cold Warehouse/ Cold storage storage Commodity Commodity processor processor 7. Offtake guarantee through Warehouse Receipt Finance

27 Interlinking farmers with markets Day Sells Fully Grown Birds Pays the Balance amount Poultry Feed Co. Poultry Feed Co. Provides veterinary support Constant monitoring Repays the loan with interest Day 2-45 Poultry Feed Co. Sells Day Old Chick, Feed, Medicine Day 1 Corporate Risk Sharing Credit Assistance funding allied activities

28 Interlinking farmers with markets Jatropha cultivation Oil Oil Seed Seed Oil Oil Expeller Unit Unit Oil Oil Money Out Flow Money Out Flow Money Out Flow By By Products Products Oil Oil refinery Unit Unit Bio Bio Diesel Diesel Escrow of Receivables Receivables Consumer s through cash trapping mechanisms

29 Addressing supply chain gaps ILRI/ICRISAT ICICI BANK LTD Agri Watch Extension Godrej Agrovet Extension NGO s & Farmers through professional extension

30 Addressing supply chain gaps ICICI Bank acts acts as as a catalyst for for the the integration of of players in in the the value chain Finance facility Desai Cold Storage Exports Banana (Middle East) Mangoes (U.K) Farmer These These initiatives initiatives have have increased increased realizations realizations by by 30% 30% Infrastructure - Grading/Packing - Ripening - Cold Storage Vegetables (U.K. / Mumbai) through integration & creation of value chain infrastructure

31 Addressing supply chain gaps ICICI Bank (3) Farmer financing (5) Pays monthly rentals 3rd 3rd party w/house (1) Provides loan (2) Builds w/house (4) FCI, farmers, Corp. store produce (6) Pays 3 rd party after deducting loan dues (5) Pays monthly rentals structured funding for small warehouses

32 Addressing supply chain gaps ICICI Bank Ltd Tribal/ Marginal farmer Group of 5 Farmers (Inter-se Agreement ) To raise plantations ICICI Bank finances input costs and labour costs (support livelihood) Company repays loan out of payables to farmer and pays the balance to farmer Provides inputs & technical support Paper company interse arrangement for livelihood financing Farmers invest in plantations and supply timber to company on harvesting Term Term loans loans for for 5 5 to to 7 7 years years Loans Loans upto upto Rs. Rs. 50,000 50,000 Without Without primary primary security security

33 Creating value chains where none exists SEWA Micro finance facility On lending Farmers Production credit,consumption credit and partly investment credit Funding against commodities Commodity Hedging by farmers through Supply Chain Funding Kiosks Trade Facilitation Center (Retail Chain) Rural Housing addressing comprehensive requirements

34 Creating value chains where none exists Market Invest in finishing/ Packaging capability Quality mgmt Collates Requirements Arrange Finance For raw material/ mechanization Fair terms of trade for both sides Large Large Scale Scale Buyers/ Buyers/ Exporters/ Exporters/ Retailers Retailers Artisans/ NGOs/ Aggregators putting together the handicraft piece For livelihood promotion

35 Creating value chains where none exists With support from endeavor to through Trusts Venture Capital Citizen sector Organizations Financial Institutions Micro Finance Institutions Government Agencies Build missing market linkages for livelihood efforts of poor Demonstrate market based solution for poverty Link the demand for livelihood enhancing products and services for the poor to the scaled economic capacity of the poor Community mobilization efforts Understanding the need & an appropriate solution model Investing in key infrastructure Localized efforts on modern management Fair terms of trade for both sides With the focus on Well being & Wellness of India s Poor network companies in areas of high potential but currently low banking

36 Creating value chains where none exists Tobacco farmer issued a card Limit set on card on the basis of inputs availed by farmer & production needs Tobacco sale proceeds offset against the loan availed Farmer has access to funds through cash dispenser Excess funds instantly swept to deposit account of farmer technology solutions for reducing transaction time and costs

37 Intermediation at key transaction points * * Market Market information information Prices, Arrivals, Crop size Farmer, Cooperative, Trader, Wholesaler, Importer Finance Finance Commodity Multi-Link Point (CMP) Speed, Quantum, Price Commodity Commodity Multi Multi Link Link Points Points Speed, Cost Testing Testing and and Certification Certification Processors, Exporters, Consumers, Wholesalers Seller Seller Buyer Buyer For Creation of accredited Warehouses performing more than mere storage function

38 Intermediation at key transaction points * * Electronic Auctions Farmer Farmer Associations Associations VAC VAC Terminal Terminal Market Market Cash Cash and and Carry Carry Stores Stores Consumer Consumer Quality Incentivisation Transparent Transparent Pricing Pricing Mechanism- Mechanism- Helps Helps farmers farmers in in aligning aligning production production with with market market requirements requirements Incentivisation Incentivisation for for Quality-Grading Quality-Grading at at different different levels levels Flexibility Flexibility to to sell sell to to multiple multiple buyers/ buyers/ less less dependency dependency helping create private markets

39 Intermediation at key transaction points * * D.E.S.I Power Local NGO/ Cooperative Equity MNES Subsidy Project Finance Small Biomass Project revenue s Funding distributed generation Supply to Grid Selling of Co2 Savings Local Industries/ Micro-enterprises Fuelling power requirements in rural areas through funding distributed generation