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

Email: leonela.santana-boado@unctad.org, Web: http://r0.unctad.org/commodities/

11 - 13 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.
 Agri Supply Chain -
Role of Local Banks : India

December 12, 2006

Geneva
 Agenda

Introduction to ICICI Bank and Rural Banking

Indian
IndianAgriculture
AgricultureSupply
SupplyChain
Chain

ICICI
ICICIBank-
Bank-Agriculture
AgricultureSupply
SupplyChain
ChainInitiatives
Initiatives
 Agenda

Introduction to ICICI Bank and Rural Banking

Indian
IndianAgriculture
AgricultureSupply
SupplyChain
Chain

ICICI
ICICIBank-
Bank-Agriculture
AgricultureSupply
SupplyChain
ChainInitiatives
Initiatives
ICICI Bank Today…

Largest Pvt. Sector Bank in India- Rs. 2823 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. 1000 bn retail
portfolio
Over 17 mn customer accounts; 640 branches

Large talent pool & dedicated research team

One stop financial solutions provider

 The vanguard of novel rural financing
63 Bn

42 Bn New generation bank

Harnessing
technology to offer
cost efficient financial
transactions

2003-04
2003-04 2004-05
2004-05

Fast and Timely Payments to Farmers /

Supply Chain Partners
Credit
MFI
Franchisees Branches
Kiosks Correspondent Corporate partners
Rural
Network internet banking ATMs
Option
Through comprehensive financial services

Production
Production
Credit
Credit

Commodity
Commodity Investment
based
based Investment
funding Credit
Credit
funding Farmers

Savings
Savings–– Insurance
MFs, Insurance––
MFs, life
life&&nonnon
bonds,
bonds, life
life
•Co-branded biometric cards
•Tie-up with research institutes/ service providers for
customized information to farmers
 Adopting a multi-pronged rural banking
strategy
Elements of strategy Facilitate Leads to

Mitigation
Integrating
Integratingthe
thesupply
supplychain
chain Value
Valueadded
added products
products
of risks

Creating Increased
Creatingnew
newdelivery
delivery Customer Increased
channels convenience customer
channels customerbase
base

Lower
Lower
Use
Useof
oftechnology
technology Quick TAT
costs
costs

Easy Customer
Customer
Innovating
Innovatingnew
newproducts
products Banking satisfaction
satisfaction
 Agenda

Introduction to ICICI Bank and Rural Banking

Indian Agriculture Supply Chain

ICICI
ICICIBank-
Bank-Agriculture
AgricultureSupply
SupplyChain
ChainInitiatives
Initiatives
 Current status :Broken links in agri chain-
India
Production Supply chain Processing Marketing

z Poor extension z Lack of storage Low processing

z z Poor infrastructure
z Quality inputs z Poor transportation Lack of quality
z z Lack of grading
z Low productivity z High wastages Poor returns
z z No linkages
z Non demand z Multiple Low capacity
z z Non transparency
linked production intermediaries utilization in prices

Each
Eachsegment
segmentworking
workingin
inan
anisolated
isolatedmanner
mannerresulting
resultingin
inmultiple
multiple
losses
lossesacross
acrossthe
thevalue
valuechain
chain
 Need for integrated supply networks
zIn the present era of globalization & privatization
zCompetition no longer between firms but between
supply chains
zEfficiencies of scale and scope the “buzzword”

An integrated supply chain provides access to knowledge,

technology, finance , markets: leading to shared benefits

Input Distribution,
Production & Processing
Retailing &
Infrastructure Harvesting Infrastructure
Export

Market segmentation, consumers demand & low cost strategy -driving factors for supply chain collaboration

Key
Keycharacteristic
characteristicof
ofsuccessful
successfulsupply
supplychain
chain::efficiency,
efficiency,flexibility,
flexibility,
innovation,
innovation,responsiveness
responsiveness
Integrated supply chain- finance perspective

Leads to shift in the risk profile

Credit
Creditrisk
risk Performance
Performancerisk
risk

Shifting
Shiftingof
ofsome
someof
ofthe
therisks
risksto
tothird
thirdparty
party
Provides an alternative viable model not based on borrower’s credit risk
but on the borrower’s position in the supply chain.

zUnknown risks to calculated risks zCollateralof good as it moves

zUse of partner infrastructure for along the chain than at a point
servicing the farmer zStructuring of product around
zAccess to unbanked clientele payment from trader/ company

Efficient
Efficientsupply
supplychain
chainresults
resultsininrisk
riskreduction
reduction&&enhances
enhancescredit
creditflow
flow
Integrated supply chain- farmer perspective
Capital
Capital
Technology
Technology Markets
Markets

Short term and long term benefits to the farmer

Upgrading
Upgradingas
aschain
chain Developing
Developingpartnerships
partnerships/ /
actor
actor ownership
Adding
Addingvalue
valuethrough
through ownership
vertical integration
vertical integration

Associated benefits of integration

zReduction in product losses in transportation & storage
zIncrease in sales
zTracking and tracing to the source
zBetter control on quality
zShared risks among players in the chain
Organized supply chains : critical factors
Selecting the right chain Which products likely to be successful
Products
Productslinked
linkedtoto
Business
Businessmust
mustbe
beviable
viable use
useofofnatural
naturalresources
resources

Potential
Potentialtotoorganize
organizeproducers
producers&& Where
Wheresmall
smallscale
scaleproducers
producershave
have
ensure
ensuretheir
theirindependence
independence some comparative advantages
some comparative advantages

Must
Mustlead
leadtotosocial
socialas
aswell
wellas Products
as Productswith
withhigh
highgrowth
growth
economic potential of market
economicbenefits
benefits potential of market

Not
Notininareas
areasalready
alreadyprofitable Products
profitable Productswith
withlack
lackofofalternative
alternative
which viable models
whichneed
needno
noexternal
externalstimulus
stimulus viable models

Trust and transparency Joint planning and control

Shared leadership Continued value proposition

Each
Eachactor
actormust
mustbe
beefficient
efficientto
tocollaborate
collaborateininthe
thechain
chain
 Agenda

Introduction to ICICI Bank and Rural Banking

Indian
IndianAgriculture
AgricultureSupply
SupplyChain
Chain

ICICI Bank- Agriculture Supply Chain Initiatives

 Value chain analysis : ICICI way

Crop/
Crop/ Allied
Allied
Inputs
Inputs Rural
RuralInfra
Infra
Processing
Processing Activities
Activities

Understanding evolution of
global and domestic industry Opportunities to
penetrate the supply chain

Getting insight into sector

In depth specific characteristics
Sector Product for targeted
Developing thorough SME cluster
Analysis
understanding of supply
chain

Identifying key risks Identification of

and mitigants retail opportunity
Elements of agribusiness strategy: ICICI
Bank

Value addition Customized

solutions

Integration of value
chain

Infrastructure Influencing
Development regulatory &
policy
changes
Our initiatives in agri supply chain
Interlinking
Interlinkingfarmers
farmerswith
withthe
themarkets
markets
z Bringing the partners together for shared gains

Addressing
Addressingsupply
supplychain
chaingaps
gaps
z Raw material / capacity building/ quality/ infrastructure

Creating
Creatingvalue
valuechains
chainswhere
wherenone
noneexists
exists
z Creating markets
z Providing Technological and delivery options
Professional
Professionalintermediation
intermediationat
atkey
keytransaction
transaction
points
points
z Local optimas than global optimas
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

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

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

Intermediation at key transaction points

zEntire supply chain intervention may not be desired by farmers

zIntervening in the entire supply chain not a feasible option in
all locations/all crops
zReal unlocking of values possible through professional intermediation at
key transaction points in the value chain
zEnsures 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

 Reaching Global Scale and Potential
Bullet
Bulletapproach
approachto
toan
an“integrated”
“integrated”approach
approach
Fix Fix chains
Fixcomplete
complete z
chains
chains z Create tailored, end-to-end solutions for crops: from
“farm-gate to consumer-plate”

Production
Productionfocus
focusto
tomarketing
marketingfocus
focus
z Grow what consumers will eat in future (local and export)
Ensure
Ensure
market-linked z Innovate to ensure customer value (not just convenience)
market-linked
changes
changes z States to focus on few chains and have global aspirations

Stand
StandAlone
Aloneto
towebs
websof
ofalliance
alliance
z Farmer-government-private sector collaboration to
optimise resource allocation/risk mitigation
Public
PublicPrivate
Private z Catalyse change by crafting distinct roles for each
Partnership
Partnership stakeholder
Thank You
 Interlinking farmers with markets
Creating
Creatingaaclosed
closedloop
loopof
ofcredit,
credit, extension
extensionservices
services &&output
outputoff-take
off-take

Hariyali Kissan Extension

Loan for pass Kendra service/advice
through to
farmer
Inputs

Produce
Repayment of Procurement
loan with DSCL
interest

Facilitating Farmer- Corporate Tie Ups

 Interlinking farmers with markets

6. Recovery
4. Provide Credit Commitment
M&
M&CCAgent
Agent
Farmer/
Farmer/ 3. Lodge receipt
VLA
VLA
5. Reimbursement of
the loan amount
2. Issue
receipt Bank
Bank
1. Deposits
products

Warehouse/ Commodity
Commodity
Warehouse/ processor
Cold
Coldstorage
storage processor 7. Offtake
guarantee

…through Warehouse Receipt Finance

 Interlinking farmers with markets
Sells Fully Grown Birds
Day 45 - 60 Poultry Feed
Co.
Pays the Balance amount

Repays the loan with interest

Poultry Feed Provides veterinary support
Constant monitoring
Co.
Day 2 - 45

Poultry Feed Sells Day Old Chick, Feed, Medicine

Co.
Corporate
Risk Sharing Credit Assistance
Day 1

… funding allied activities

 Interlinking farmers with markets
Jatropha
Jatropha Oil
Oil OilExpeller
Expeller Oil
cultivation
cultivation OilSeed
Seed Unit
Oil
Unit

Oil
Oil
By
ByProducts
Products refinery
refinery
Money Out Flow

Unit

ow
Unit

Fl
ut
O
ey
ow
t Fl
on
u
yO
M

ne Bio
Mo BioDiesel
Diesel

Receivables
Escrow of Consumer
Consumer
Receivables ss

… through cash trapping mechanisms

Addressing supply chain gaps

ICICI BANK LTD

ILRI/ICRISAT Agri
AgriWatch
Watch
ILRI/ICRISAT

n
io
Godrej
Ex

ns
te

te
Agrovet
ns

Ex
io
n

NGO’s &
Farmers

… through professional extension

 Addressing supply chain gaps
ICICI
ICICIBank
Bankacts
actsas
asaacatalyst
catalystfor
forthe
theintegration
integrationof
ofplayers
players
in
inthe
thevalue
valuechain
chain

Finance facility
Banana (Middle East)
Desai Cold Storage

Exports Mangoes (U.K)

Farmer Infrastructure
- Grading/Packing Vegetables (U.K. /
These
Theseinitiatives
initiativeshave
have Mumbai)
increased
increased
- Ripening
realizations
realizationsby by30%
30% - Cold Storage

… through integration & creation of

value chain infrastructure
 Addressing supply chain gaps

(3) Farmer financing

ICICI
ICICIBank
Bank (5) Pays monthly rentals
(1) Provides
loan
FCI,
(4)

3rd farmers,
3rdparty
party Corp. store
w/house
w/house
(2) Builds produce
w/house

Pays 3rd party after

(6)
deducting loan dues

(5) Pays monthly rentals

… structured funding for small warehouses

 Addressing supply chain gaps
ICICI Bank Ltd Tribal/ Marginal farmer
Group of 5 Farmers
(Inter-se Agreement )

Farmers invest in
plantations and supply
timber to company on
harvesting
To raise plantations
ICICI Bank finances
input costs and labour
costs (support
livelihood) Provides inputs & • • Term
Termloans
loansfor
for55to
to
technical support 77years
years
• • Loans
Loansupto
uptoRs.
Rs.
50,000 Without
50,000 Without
Company repays loan primary
primarysecurity
security
out of payables to
farmer and pays the
balance to farmer
Paper company
… interse arrangement for livelihood financing
 Creating value chains where none
exists
On lending Commodity
Hedging by
farmers through
SEWA
SEWA Farmers
Farmers Funding against
Micro finance commodities
facility
Production credit,Consumption credit
and partly investment credit

Supply Chain Funding Trade Facilitation Center (Retail Chain)

Kiosks Rural Housing

… addressing comprehensive requirements

 Creating value chains where none exists
Market

Invest in finishing/
Packaging capability Collates
Quality mgmt Requirements

Large
LargeScale
Scale
Buyers/
Buyers/
Exporters/
Exporters/
Arrange Finance Retailers
Retailers
Fair terms of trade
For raw material/ for both sides
mechanization

Artisans/ NGOs/
Aggregators

… putting together the handicraft piece

For livelihood promotion
 Creating value chains where none exists
With support from endeavor to… through…

Trusts Build missing market Community mobilization

linkages for livelihood efforts efforts
Venture Capital of poor
Understanding the need &
Citizen sector an appropriate solution
Organizations Demonstrate market based
model
solution for poverty
Financial
Institutions Investing in key
Link the demand for infrastructure
Micro Finance livelihood enhancing
Institutions products and services for the Localized efforts on modern
poor to the scaled economic management
Government
Agencies capacity of the poor
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
 Creating value chains where none exists

Limit set on card on the Tobacco sale proceeds

Tobacco farmer basis of inputs availed by offset against the loan
issued a card farmer & production availed
needs

Farmer has access to Excess funds instantly

funds through cash swept to deposit
dispenser account of farmer

… technology solutions for reducing

transaction time and costs
Intermediation at key transaction points **

Finance
Finance

Speed, Quantum,
Price
Market
Market
Prices, Arrivals,
information Crop size Testing and
information Testing and
Certification
Certification
Commodity
Commodity
Commodity
Speed, Cost

Multi Link
LinkPoints
Multi-Link
Multi Points
Point (CMP)
Farmer, Cooperative,
Trader, Wholesaler, Processors, Exporters,
Importer Consumers, Wholesalers

Seller
Seller Buyer
Buyer

For Creation of accredited Warehouses

performing more than mere storage function
 Intermediation at key transaction points **

Farmer
FarmerAssociations
Associations

VAC
VAC
Electronic Quality
Auctions Terminal
TerminalMarket
Market Incentivisation

Cash
Cashand
andCarry
CarryStores
Stores

Consumer
Consumer

Transparent
TransparentPricing
PricingMechanism-
Mechanism-
Helps
Helps farmers in aligning production with
farmers in aligning production withmarket
marketrequirements
requirements

Incentivisation
Incentivisationfor
forQuality-Grading
Quality-Gradingatatdifferent
differentlevels
levels
Flexibility
Flexibilitytotosell
selltotomultiple
multiplebuyers/
buyers/less
lessdependency
dependency

… helping create private markets

 Intermediation at key transaction points **

D.E.S.I Power
Equity
Local NGO/
MNES Subsidy
Cooperative
Small Biomass Project

s
revenue
an ce
t Fin
jec
Pro

Selling of Co2
Supply Savings
to
Funding distributed
generation Grid Local Industries/
Micro-enterprises

… Fuelling power requirements in rural areas

through funding distributed generation