E-Financing: How ICICI Took the Risk Out of Rural Banking

"ICICI Bank wanted to step in and reinvent the landscape of commodity-based financing," recalls Pravir Vohra, group CTO, ICICI Bank. There was only one way it could be done. Create a system that could help dissociate risk from the personal credit-worthiness of a farmer and shift the risk to collateral. The system would have to be able to calculate - impartially - how much ICICI Bank could loan a farmer.

To start with, ICICI Bank chose to include commodities that were traded on the National Commodities and Derivatives Exchange (NCDEX), the Multi Commodity Exchange (MCX) and National Multi Commodity Exchange (NMCE), with the exception of gold and silver bullion. The system looks at various parameters including the price of a commodity, the grade of a warehouse, a borrower's track record, etcetera, to compute ICICI Bank's risk level and how much it can lend. It's an impressive algorithm, given the high number of variables and bands within these variables (like how much a commodity is likely to cost across a six month period).

The eCBF marks every market and tracks every accredited warehouse. When the masters are set in the system, every accredited warehouse, its total capacity and the commodities it can store are defined and are given weights that go into the risk calculation algorithm. The eCBF is a web-based system that can be accessed by locally appointed WMAs (warehouse management agents), who interact with farmers on ICICI Bank's behalf. Since they operate from remote locations, WMAs can only access eCBF on narrow-band Internet - sometimes using CDMA-based mobiles a medium. The rural business was launched with skeletal capabilities, and as more processes began to emerge, the bank's IT team - in conjunction with the rural agri-business team - identified new requirements and best ways to add relevant controls. eCBF also helps ICICI Bank provide financial support to corporates in the same way it helps farmers.

By providing prices online to farmers in remote locations, the system also ensures that farmers can get a better price for their produce than they have in the past. It effectively reduces farmer exploitation by intermediaries at local mandis, who withhold information from farmers to force them to sell low. The eCBF system also has various checks and controls built-in. For example, if a warehouse issues receipts beyond the capacity stated on the system, a fraud alert is flagged. The application is also capable of matching profiles against other databases like defaulter lists from RBI or CIBIL (Credit Information Bureau, India).

A newer version of the system is also being planed that would enable a real time updation of files as against the batch file uploading that happens today. "It is fairly a complex system, and we have about 4,000 people using it at any given point of time. I believe it has emerged as a kind of lifeline for what we are trying to do in rural India," says Vohra

The Person Behind It

Pravir Vohra Group CTO

ICICI Bank

Our model is radically different because it uses a combination of automated tools to score credit rather than personally meeting farmers