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New Technologies for Small and Medium - Size Enterprise Financing

New Technologies for Small and Medium - Size Enterprise Financing. Washington D.C. December 6, 2002. ICICI Bank - The e-Universal Bank. Assets of US $ 21 bn. Globally held (ADR, FII own 47% stake ). Second largest Bank in India - Technology Leader. Rated by Moodys above sovereign rating.

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New Technologies for Small and Medium - Size Enterprise Financing

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  1. New Technologies for Small and Medium - Size Enterprise Financing Washington D.C.December 6, 2002

  2. ICICI Bank - The e-Universal Bank Assets of US $ 21 bn Globally held (ADR, FII own 47% stake ) Second largest Bank in India - Technology Leader Rated by Moodys above sovereign rating First Indian Bank to be listed on NYSE

  3. A universal banking powerhouse... Corporate Financial Services Retail Financial Services Car Loans Term Loans Mortgages Project Finance Credit Cards Commercial Bank Personal loans Investment Bank Deposits Venture Capital Life Insurance Genl. Insurance Mutual funds IT Services

  4. Establishing an international presence UK Canada USA China UAE Singapore Phase I : Offices opened/to be opened shortly Phase II : Geographies under advanced stage of evaluation

  5. Universal Banking Theme Leveraging Technology to enhance delivery capabilities B2B Solutions Empanelled expert for tax and accounting advice Portals Smart Card Technology e-Commerce initiatives Web Trading Call Centre Internet Banking Mobile Banking

  6. Importance of SME Sector in Technology SME Sector Single largest employer Fastest to adopt innovation Ensures equitable wealth distribution Use of Technology Higher productivity High quality- greater competitiveness Sustainable revenue models Virtuous cycle Enables virtuous cycle of technology, innovation, competitiveness, openness to market economy and globalisation

  7. Duration of financing required SME Lifecycle Suitable type Suitable Channel Seed capital / Subsidy Long Creation Promoters VC / Angel investor / Subsidy/ Tax incentive VC / Promoters Start up Long VC/ Angel Investor / Promoters VC / Angel investor / Subsidy/ Tax incentive/ Upto breakeven Long VC / Bank / Promoters Mid Term Growth Loan/ Debt/ IPO Short term Bank Finance / Debt/ IPO VC / Bank / Debt markets Sustainable growth Capital Market/ Debt markets Maturity Short term Public Debt/ Capital Market Financing options for SME

  8. Financing for SMEs Financing for SMEs • Unit Level - Standalone Cluster Financing • Unique for cluster • Productised

  9. 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

  10. 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 Constraints in Financing SME’s..

  11. SME Financing Approaches to SME Financing Prudent Segmentation Cash flow based evaluation Multiple channels offerings by leveraging Technology Migration to non-branch channels Key aspects Measurement of risk and mitigation Reduction in cost of transactions Delivery – cost and reach

  12. Financing Quality Initiatives Enabling technology transfer incentives Technical education/ skilled manpower Priority Sector Mandated Lending Fiscal Measures, System and Infrastructure Technology Financing Cluster Development Specialised Stock-markets VC/ Angel incubators Competitive pressure to encourage innovation Institutional framework of nodal agencies for refinance/ guarantees Industrial extension services Protection to nascent technical units Enabling Framework for Technology Financing

  13. BIS 2 Proposals – Advantage SME • Banks free to evolve capital allocation according to internal rating based approach • SME’s with turnover less than EUR 50 mn will have explicit lower capital charge • Small businesses with loan size less than EUR 1 mn with collateral will get beneficial capital allocation • Recognition to collaterals, credit derivatives, guarantees for allocating capital Risk sensitive capital framework holds promise that the regulatory framework will support SME lending by banks

  14. ICICI Bank Initiatives SME Portal - Internet Banking Gateway for B2B sites Supply Chain Financing on B2B loops Subsidiary network role in technology financing

  15. Case Study I - Supply Chain B2B Solution ABC Ltd ICICI Bank Purchase Order Dealer Overdraft Account SME Dealer ERP Interface Despatch Invoices

  16. Input Merchant Store • Credit • Debit • e-purse Farmer Service Center Collect Money Online update of Bank accounts Case Study II - Smart card solution for FSCs Bank Account/ Credit History Output Sale

  17. Sustainable Access for Rural India (SARI) project Partners: 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 Innovative Delivery Mechanisms

  18. Other initiatives - I Bill Junction Utility bill payments Pay Seal electronic payment system Corporate Infinity online transfer/ settlement system e-banking in ICICI Bank ICICI Markets online FX, Debt, SME Portal ICICI Direct and ICICI Select Roaming Current Account web interface

  19. Other Initiatives - II Fleet card for transporters OTHER INITIATIVES Smart card for retailers Escrow payment services Cluster Financing Facilitating e-Sales Tax/ Octroi payments Shopping Mall arrangements

  20. Subsidiary network support technology financing • Software consulting development • IT enabled services • IT infrastructure ICICI Infotech Services Limited ICICI Web Trade Limited • Internet based broking services ICICI OneSource Limited • Business process outsourcing • Call Centre Activities ICICI Information Technology Fund • Investment in equity • Investment in medium sized IT companies ICICI Equity Fund • Investment in equity • Investment in securities of medium sized IT companies ICICI Eco-Net Internet & Technology Fund • Investment in equity • Investment in unlisted internet & technology companies

  21. Our recommendations • Lifecycle approach to determine which channel to fund SME requirement • Fiscal benefits to attract VC funds • Dedicated Institutions • Public-private partnership • Banks to be permitted to use non-bank infrastructure to deliver services

  22. Road Ahead Directed lending norms to include all tech intensive SME Public - Private Partnership Tax incentives Infrastructure status to IT, Bio-tech, telecom Re-finance , guarantees, subsidies, VC funds Liberalised norms for tech transfer JV with foreign VC

  23. Thank You

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