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New Technologies for Small and Medium - Size Enterprise Financing
Washington D.C.December 6, 2002
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ICICI Bank - The e-Universal Bank
Assets of US $ 21 bn
Globally held (ADR, FII own 47% stake )
Second largest Bank
in India - Technology
LeaderRated by Moodys above
sovereign rating
First Indian Bank to be
listed on NYSE
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Retail Financial Services Corporate Financial Services
Term Loans
Project Finance
Commercial Bank
Investment Bank
Venture Capital
Genl. Insurance
IT Services
Car Loans
Mortgages
Credit Cards
Personal loans
Deposits
Life Insurance
Mutual funds
A universal banking powerhouse...
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Establishing an international presence
Canada UK
UAE
Singapore
USA China
Phase I : Offices opened/to be opened shortly
Phase II : Geographies under advanced stage of evaluation
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Smart Card
Technology
Universal Banking Theme
Empanelled expert for tax and accounting
advice
Web Trading
Internet Banking Mobile
Banking
Call Centre
B2B SolutionsPortals
e-Commerceinitiatives
Leveraging Technology to enhance delivery capabilities
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SME SectorSME Sector
Higher productivityHigh quality- greater competitivenessSustainable revenue models
Higher productivityHigh quality- greater competitivenessSustainable revenue models
Use of Technology
Use of Technology
Enables virtuous cycle of technology, innovation, competitiveness, openness to market economy and globalisation
Enables virtuous cycle of technology, innovation, competitiveness, openness to market economy and globalisation
Virtuous cycle
Virtuous cycle
Single largest employerFastest to adopt innovationEnsures equitable wealth distribution
Single largest employerFastest to adopt innovationEnsures equitable wealth distribution
Importance of SME Sector in Technology
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Financing options for SME
Upto breakeven
Long
Sustainable
growth
VC / Bank / Debt markets
Bank Finance / Debt/ IPO
Short term
Growth Loan/ Debt/ IPO
Mid Term
Creation PromotersLong Seed capital / Subsidy
SME Lifecycl
e
Suitable type
Duration of financing required
Suitable Channel
Start upVC / Angel investor / Subsidy/
Tax incentive
Long VC / Promoters
Maturity
Public Debt/ Capital Market
Short term
VC / Angel investor / Subsidy/ Tax incentive/
VC/ Angel Investor / Promoters
VC / Bank / Promoters
Capital Market/ Debt
markets
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Financing for SMEs
Financing for SMEs
Unit Level - Standalone Cluster Financing
Unique for
clusterProductis
ed
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Financing intervention for technology
Financing intervention for technology can happen at 2 levels
Unit Level
Direct Finance to SME by
•VC•Equity•Loans•Capital Markets
Cluster & System Level
•Cluster financing•B2B models•Internet payments in closed user groups•Smart cards in closed loops •Technology based financing solutions
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Constraints in Financing SME’s..
Banks perception of SME’s
Lack of transparency of information Low technology Low capitalization / Collaterals Vulnerable to market changes High risk sector Low profitability
Banks perception of SME’s
Lack of transparency of information Low technology Low capitalization / Collaterals Vulnerable to market changes High risk sector Low profitability
SME’s perception of Banks
• No special schemes for technology financing • Inadequate and delayed credit• Cumbersome procedures• Insistence on collaterals and guarantees• High rates of interest
SME’s perception of Banks
• No special schemes for technology financing • Inadequate and delayed credit• Cumbersome procedures• Insistence on collaterals and guarantees• High rates of interest
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SME Financing
Approaches to SME FinancingPrudent SegmentationCash flow based evaluationMultiple channels offerings by leveragingTechnologyMigration to non-branch channels
Approaches to SME FinancingPrudent SegmentationCash flow based evaluationMultiple channels offerings by leveragingTechnologyMigration to non-branch channels
Key aspectsMeasurement of risk and mitigationReduction in cost of transactionsDelivery – cost and reach
Key aspectsMeasurement of risk and mitigationReduction in cost of transactionsDelivery – cost and reach
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Enabling Framework for Technology Financing
Technology Financing
Financing Quality Initiatives
Priority Sector Mandated Lending
Specialised Stock-markets
Competitive pressure to encourage innovation
Protection to nascent technical units
Technical education/ skilled manpower
Fiscal Measures, System and Infrastructure
Cluster Development
VC/ Angel incubators
Institutional framework of nodal agencies for refinance/ guarantees
Industrial extension services
Enabling technology transfer incentives
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BIS 2 Proposals – Advantage SME
Banks free to evolve capital allocation according to internal rating based approachSME’s with turnover less than EUR 50 mn will have explicit lower capital chargeSmall businesses with loan size less than EUR 1 mn with collateral will get beneficial capital allocationRecognition to collaterals, credit derivatives, guarantees for allocating capital
Banks free to evolve capital allocation according to internal rating based approachSME’s with turnover less than EUR 50 mn will have explicit lower capital chargeSmall businesses with loan size less than EUR 1 mn with collateral will get beneficial capital allocationRecognition to collaterals, credit derivatives, guarantees for allocating capital
Risk sensitive capital framework holds promise that the regulatory framework will support SME lending by banks
Risk sensitive capital framework holds promise that the regulatory framework will support SME lending by banks
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ICICI Bank Initiatives
SME Portal - Internet Banking Gateway for B2B sites
SME Portal - Internet Banking Gateway for B2B sites
Supply Chain Financing on B2B loopsSupply Chain Financing on B2B loops
Subsidiary network role in technology financingSubsidiary network role in technology financing
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Case Study I - Supply Chain B2B Solution
Purchase Order
Purchase Order
ERP Interface
ERP Interface
Despatch Invoices
Despatch Invoices
DealerOverdraftAccount
DealerOverdraftAccount
ICICI Bank
SMEDealer
SMEDealer
ABC Ltd
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Case Study II - Smart card solution for FSCs
Bank Account/ Credit History
Output Sale
Collect Money
Farmer Service Center
• Credit• Debit• e-purse
Merchant Store
Input
Online update of Bank accounts
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Innovative Delivery Mechanisms
Innovative Delivery Mechanisms
Sustainable Access for Rural India (SARI)
projectPartners: MIT Media Labs,
Harvard University, I-Gyan, Providing reliable Internet access
through Kiosks using corDECT WiLL
100 kiosks managed by entrepreneurs to be set-
up
Providing e-governance, and
information services Delivering banking
services through Internet kiosks
Innovations in Delivery Channels
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Other initiatives - I
e-banking in ICICI Bank
ICICI Marketsonline FX, Debt,
SME Portal
Corporate Infinityonline transfer/
settlement system
Bill JunctionUtility bill payments
Roaming Current Account
web interfaceICICI Direct and
ICICI Select
Pay Sealelectronic
payment system
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Other Initiatives - II
OTHER INITIATIVESCluster Financing
Fleet card for transporters
Smart card for retailers
Escrow payment services
Facilitating e-Sales Tax/ Octroi payments
Shopping Mall arrangements
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ICICI Eco-Net Internet & Technology Fund
ICICI Infotech Services Limited
ICICI Information Technology Fund
ICICI Web Trade Limited
ICICI OneSource Limited
ICICI Equity Fund
Business process outsourcing
Call Centre Activities
Internet based broking
services
Software consulting development
IT enabled services IT infrastructure
Investment in equity Investment in securities of
medium sized IT companies
Investment in equity Investment in unlisted
internet & technology companies
Investment in equity Investment in medium
sized IT companies
Subsidiary network support technology financing
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Our recommendations
Dedicated InstitutionsDedicated Institutions
Fiscal benefits to attract VC fundsFiscal benefits to attract VC funds
Lifecycle approach to determine which channel to fund SME requirementLifecycle approach to determine which channel to fund SME requirement
Public-private partnershipPublic-private partnership
Banks to be permitted to use non-bank infrastructure to deliver servicesBanks to be permitted to use non-bank infrastructure to deliver services
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Road Ahead
Liberalised norms for tech transfer
JV with foreign VC
Directed lending norms to include all tech
intensive SME
Re-finance , guarantees,
subsidies, VC funds
Tax incentives Infrastructure status
to IT, Bio-tech, telecom
Public - Private Partnership
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Thank You