New Delivery Formats In Farm Credit & Insurance

Oct 8th, 2005

New Delhi

Key Issues
Three major issues

Sustainability
“How can the business be sustained in the long term?”

Scalability
“How can successful pilots transform the industry?”

Business approaches
“How should a business model be created that can deliver low cost financial services to a large population?”

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Example One : Partnerships in Farm Credit
The Issue
Leading sugar company from south wants to strengthen relationships with farmers Sugar cane farmers want to increase productivity and hence their livelihood ICICI Bank to participate actively in the farm credit opportunity

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Example One : Partnerships in FarmPartnership Solution Credit The
Provides inputs and agri advise

Farmer

Supplies sugar cane

Sugar Company

Excess over principal and interest paid out to farmers

Provides financing for tractors, farm implements and irrigation equipment

Makes payment thru’ ICICI Bank

ICICI Bank

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Example One : Partnerships in FarmBenefits Credit The
Farmer Gets good agri inputs from corporate / third party that will improve productivity Gets access to easy credit from bank to facilitate productivity improvement Corporate Strengthens relationship with farmer community Improved productivity implies improved capacity utilization and hence reduced costs Bank Reduced administrative costs for delivery of credit and reduced credit losses

Hence SUSTAINABLE
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Example Two : Partnerships in Insurance The Issue
Farmers livelihood at risk owing to vagaries of weather and poor health Hospitals want to reduce per patient costs and reduce administrative costs Banks want to participate in insurance opportunities

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Example Two : Partnerships in Insurance through various initiatives Covered 3 lac lives
Arogya Raksha Yojana in Anekal Taluka of Karnataka
• • • • • • Partnered with Biocon and Narayan Hrudalaya First rural health insurance policy with cashless facility Innovative low cost health cover (Rs. 10 per month) Coverage for all kinds of common and complex surgeries – bypass, hernia, fractures etc. In the first approximately 60,000 residents have been covered So far over 100 claims for surgeries have been pre-authorised

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Example Two : Partnerships in Insurance
Need
• 60% of net sown area rain fed – uncertainty of rainfall the biggest risk faced by farmers • Most irrigation from non-perennial sources; effective irrigated area only 20 % • Farmers don’t have sufficient funds to tide over cyclical losses often pushing them into vicious debt cycle • Insurance against losses due to vagaries of weather • Covers fluctuation rainfall, temperature and humidity

Product

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Example Two : Partnerships in Insurance The Benefits
Farmer Protects himself from the vagaries of weather In case of ill health affecting livelihood, financial comfort about costs Hospital Reduced administrative costs and improved productivity levels leading to reduced cost per patient Bank Reduced administrative costs for delivery of insurance

Hence SUSTAINABLE and SCALABLE

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Example Three : Business Approach The Issue
Farmer
Credit is only one part of the requirement; what about savings? Investments? Insurance?…..

Bank
Delivering credit is only a starting point; how should you offer a range of financial services that are valued by the rural community? And in a cost effective manner?

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Example Three : Business Approach
The Solution
Look at the full farmer life cycle and design products and services that are relevant
Example – Micro-savings

Use technology and partnerships to administrative costs for delivering financial services
Example – Kiosks and rural ATMs

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Example Three : Business Approach
Connectivity
STD/PCO: Enabling voice communication

Internet Kiosk

Multimedia PC with Power
backup

Kiosk Operator:
•Entrepreneur •Provides commercial services

Printer & Other
Accessories : Enabling job work

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Example Three : Business Approach

Rural ATM

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Summary
Partnerships can help Deliver livelihood-enhancing support to farmers Reduce administrative costs and credit losses for a bank And thereby create a win-win-win for all three parties This makes the model scalable and sustainable Technology can help Bring a range of financial services to the farmers doorstep Reduce delivery costs substantially And make the model long-term
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