Estimation of Microfinance Demand and Supply: With Special Reference to Assam

The paper delves to estimate microfinance demand, supply and its mismatch in India in general and Assam in particular. Since exact estimation is a bulky task, it adopts an approximation model based on poverty database, mixmarket database and some complementary reports on microfinance. The study shows that microfinance demand has shown a trend of increasing growth for India as well as Assam and stands its candidature as a potential matured market in future. The supply of microfinance for India as a whole is at low level, which shares only 0.70 per cent of gross domestic product of India. From the regional perspective, southern region dominates the supply of microfinance and Assam shares the least. The study indicates a huge mismatch between demand for and supply of microfinance and considering mixmarket average loan size all the regions of India are deficient in terms microfinance supply. The study further indicates some of the possible reasons for the mismatch.


Introduction
Poverty remains a critical challenge for policymakers and development practitioner as well as academicians and it is not new to us. Understanding the pervasive nature of poverty, United Nations, in the Millennium Development Goals, prioritised eradication of poverty and extreme hunger. A number of development policies have been implemented targeting poverty eradication, but did not meet the expectation. Microfinance as a tool of poverty eradication has emerged in the late 1970s in Bangladesh. The promising role of microfinance in poverty eradication is well discussed by academicians as well as practitioners. Microfinance is a credit plus approach, which provides not only credit but also more financial services such as insurance, transfers, savings, etc. Since the incarnation of modern microfinance in Bangladesh, the global outreach has demonstrated a considerable growth. It has been reported that as of December 2010, 3652 microfinance institutions (MFIs) reached about 205 million clients of which, 66.99 per cent were among the poorest when they took their first loan (Maes and Reed, 2012). However, microfinance outreach is still limited, because a vast majority of the regions in the world cannot access financial services (Beck et al., 2005) although poverty is severe and pervasive (World Bank, 2005). Therefore, emerging concern in the growth of microfinance is the uneven degree of provision of microfinance within countries (Rhyne and Otero, 2006).
In Indian context, microfinance is operating under two broad models -self-help group (SHG) model and MFI model, where MFI model has gained momentum recently, albeit operational for over three decades. The model shares 25.53 per cent of the total microfinance client outreach of 54.87 million as on 2007-08 with an outstanding credit of INR 6124 crore (Srinivasan, 2009(Srinivasan, , 2012. The model has also been operating in Assam, which is a priority state in terms of SHG bank linkage programme (SBLP) for a period of almost two decades with infinitesimal share as compared to national total. The model shares only 0.98 per cent in terms of client outreach and 0.75 per cent in terms of loan portfolio (Srinivasan, 2009). It is thus an indication that there is a scope of increasing outreach and the assertion is justified with the coming up of new players in the market, which have hidden potentiality. Most of the MFIs in India operate in the relatively developed southern regions of the country while, nearly non-existent in its backward regions like North East India (Hume and Thankom, 2009

Methodology
In the present study, microfinance demand is calculated to substantiate the necessity of microfinance in view of

Research Article
entrenched poverty in the state. Appropriate estimation of demand for particular market is really a bulky task, and the problem is more delicate in estimating demand for microfinance. Although some analysts use some hypothetical ways to ballpark figure on microfinance demand in various regions in the globe, the approaches are just an approximation since estimation of an exact microfinance demand is not possible due to appropriateness of secondary data and reliability of some base indicators like population growth rate and poverty ratio. For example, Guangwen (2010)  To arrive at the final microfinance demand, the number of poor is multiplied by the average loan size 1 , which is fixed for all concerned regions. In addition, customary micro loan slab 2 of MFIs operating in Assam is also considered in estimating microfinance demand. The rationale for adoption of such a simple methodology rest on two grounds-first, so far as Indian official data base on poverty is concerned, poverty estimates for 2009-10 is the latest database which was published in the year 2012. Secondly, the theoretical microfinance exerts the notion that microfinance are for poor people. Therefore it implies that since microfinance deals with the poor section of population therefore latest official database seems to appropriate for such estimation.

Geography and Demography of Assam
Assam the gateway of North East India is geographically bounded by latitudes 24 0 08  10  N and 27 0 58  15  N and longitudes 89 0 42  05  E and 96 0 01  14  E ( Baruah and Choudhury, 1999

Demand for Microfinance in the State
Microfinance services are demanded by household, micro enterprises of both formal and informal sector. While household demand for microfinance arises due to consumption smoothening and to cope up other inadvertent situations; microfinance demand is also urged as fresh investment for livelihood in the form of small and micro enterprises at individual level.
Despite the potential role as assumed to be played in the economy of Assam, there is hardly any official estimation on demand and supply of microfinance sector. Based on the methodology an estimation of microfinance demand in Assam and India is made, which is shown in   It is observed that the poverty ratio in Assam has shown a declining trend during the period as compared to Indian scenario. As microfinance clients are generally poor, therefore, microfinance demand will shrink in future. Contrary to this notion, the coverage of microfinance may be broadened by inclusion of people just above the poverty line. Therefore, it seems that as an outcome of government projects and policies, the Below Poverty Line (BPL) section may be upgraded to just above the poverty line and they may be in demand for microfinance for better livelihood and employment opportunities. Therefore, it is clear that although the estimation does not based on in-depth market research, it still provide a scenario of microfinance demand structure in the state.
However, there exists regional dispersion of microfinance demand due to differences in the size of poverty. It is observed form Table 2 that except the negative growth of microfinance demand in Northern and Western regions, all other regions demonstrate a positive growth of microfinance demand for the period.
Although Assam and NER shares infinitesimal to all India microfinance demand in 2009-2010, the growth of microfinance demand for the period is positive for both Assam and NER. Similarly, the share for the regions to all India total has been increased for the reference period. On the other hand, against a high growth of microfinance demand, Northern regions demonstrate a diminishing share to all India total. It is worth mentioning that against a moderate increase in the microfinance demand for Southern regions, it shares a commendable amount to all India total which is next to Eastern region.
Assuming other things constant, it seems from the estimation and discussion that microfinance sector in NER in general and Assam in particular has the potentiality for becoming a matured market in terms of the growth of microfinance demand, which is above the national growth.

Supply of Microfinance in Assam
In Assam, microfinance is operating under two broad models, e.g., SBLP model and MFI model. SBLP is a national microfinance model of India, which is under the supervision of NABARD. The model was initiated in 1992 by NABARD and since then it encompasses vast outreach in terms of client outreach and credit outstanding in all regions of the country. Although SHG approach is quite older practised non-formal version of microfinance in India, the new version of the microfinance approach by rural financial institutions assumed the form of the SBLP. While, in this model a number of commercial banks and government agencies advances credit, the route of delivery is channelized in various forms as such three widely practised models exist in India. This model has worldwide attraction as a possible way of delivery microfinance services to poor that have been difficult to reach directly through banks or other financial institutions. Under the SHG-bank linkage program, NGOs and banks interact with the poor, especially women, to form small homogenous groups not exceeding 20 members. These small groups are encouraged to meet frequently and collect small thrift amounts from their members and are taught simple accounting methods to enable them to maintain their accounts. This is the first step in establishing links with the formal banking system. Groups then, meet often and use the pooled thrift to impart small loans to members for meeting their small emergent needs. Gradually the pooled savings grow and soon they are ready to receive external funds from the rural commercial banks. By aggregating their individual savings into a single deposit, self-help groups minimize the bank's transaction costs and generate an attractive volume of deposits. MFI model on the other hand is a newer model in Assam as well as India. Under this model, finance is provided by a microfinance organisation. Microfinance organisation also forms SHG not exceeding 20 members in the group and Joint Liability Group (JLG) of 3 to 5 members. The creation and formation of such groups are under the discretion of respective branch managers of the MFIs. These MFIs are registered under Societies Registration Act 1860, Section 25 Company and Non-Banking Financial Corporation Act. In Assam, Bosco Reach Out was the first of its kind, which supports SHGs for better livelihoods. In subsequent period another five more prominent professional MFIs were emerged, out of which RGVN (NE) and ASOMI and Bandhan have considerable depth and breadth of outreach. The present analysis is based on the database of MiX Market and Bharat Microfinance Quick Data 2010 from where 7 MFIs from Assam and 439 MFIs from India are considered for estimating supply of microfinance. A recent microfinance supply scenario is portrayed in Table  3, where it is apparent that microfinance supply in terms of total loan outstanding for the concerned period stands at INR 346.2 billion, which is 0.70 per cent of GDP of India. Further, the share of microfinance supply of Assam is the least as compared to all other regions of the country, while southern region captures a lions' share of total microfinance supply of India. The share of microfinance supply under MFI model in southern region is 71.36 per cents. The supply of microfinance is catered by SBLP model, which shares commendably large portion of total microfinance supply in both Assam and India. However, the share of loan outstanding to total loan outstanding of microfinance under MFI modelin Assam is comparatively higher than central and western regions. It is estimated that the supply of microfinance under MFI model is still lower as compared to SBLP model in Indian states as well as Assam.
Since microfinance under MFI model is a nascent delivery mechanism and the issues of equity funding and securitisation emerged as coveted mechanism, therefore, it seems the model could penetrate to the considerable depth of outreach in India and which results in better supply of microfinance via this model. Instantaneously, in Assam there are a few professional MFIs and institution like ASOMI able to receive foreign investment. Similarly, premier MFI like SKS in India shows the way of receiving equity capital from open market.

The Demand Supply Gap
In the previous section the condition of demand for and supply of microfinance are discussed separately. In this section, it is tried to portray the mismatch between the two with the help of Table 4.
It is clear from   Further SBLP is also plagued with a number of problems in catering finance to a considerable number of SHGs; out of which reluctance as expressed by public undertaking commercial banks to offer microfinance in view of the problem growing NPA in microfinance sector is the most prominent one. Even more, there exists still a large rural area as geographically remote in the country and MFIs reluctant to offer the services due to the absence of supportive financial infrastructure and high transaction and operational cost of the services. It therefore appears that both public and private initiative should be constructed in a positive way for the proliferation of the sector in the state.

Conclusion
The above estimation and discussion indicates that except Northern and Western region of India, all other regions have demonstrated increasing growth of microfinance demand. Assam and NER also shows an increasing growth, which is greater than the national growth rate. The demand from microfinance will increase even more since most of the MFIs in India considers person above the poverty line as its client. However, the supply of microfinance is still inadequate and it is highly deficient if the size of loan is higher. The nascent microfinance market like Assam and NER are considerably deficient in terms of microfinance supply. Although in recent times, a number of MFIs have been joined the operation, it is quite insufficient to meet the burgeoning demand. Increasing rural bank branches and opening the avenues of public-private partnership in the sector may temporarily meet some demand. Moreover, in the absence of concrete microfinance regulation, it is quite challenging to attract big MFIs, which may increase supply of microfinance significantly. Therefore, it seems that government should make some sort of credible arrangements to helps microfinance sector and for smoother operation. Such type of initiative may attract foreign investment and thus it will become incentive for larger players. On the whole, although mismatch remain as a future challenge, it may be reduced considerably if formal banking system and microfinance becomes complementary of each other.