Myanmar Micro-Lenders Could Help Reshape Rural Economy

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Aug 2012
Myanmar, August, 27 2012 - The first of an expected wave of new micro-lenders plans to begin operating in Myanmar in the next quarter as the country lifts restrictions on a sector that could bring in hundreds of millions of dollars to help kick-start the rural economy.

Germany’s Savings Bank Foundation for International Development (SBFIC) has teamed up with two local non-government organisations, Myanmar Egress and Mingalar Myanmar, with plans to start taking deposits by the end of the year to fund a pilot lending operation.

“We are strengthening the local microfinance institutions there,” said Nicole Brand, SBFIC’s project manager for Southeast Asia, adding the project expected a government licence within a month.

Over decades of military rule and amid Western sanctions, micro-lenders were effectively barred from Myanmar, meaning the rural economy has missed out on millions of dollars in small loans poured into other developing economies such as Cambodia and Laos.

The vacuum has been filled in part by a handful of humanitarian organisations including the United Nations, whose portfolio of just US$50 million accounts for 90% of all micro-lending in the country.

But a microfinance law passed by the new civilian government late last year has prompted a “stream of foreigners” to look into micro-lending, said Akbar Usmani, senior deputy resident representative of the UN Development Program’s Yangon office.

“In terms of the potential market, we are just tiny,” he said of the UN’s microfinance operation in Myanmar.

The country’s appetite for micro-loans is thought to be about $650 million, according to the latest UN estimates, a figure that balloons to $2 billion when small loans are taken into account.

“The domestic banks haven’t really gone out into rural areas in a very big way,” said Usmani.

The UN has dispersed $440 million in Myanmar since it started lending in 1997, offering loans of $100 to $150 to groups of people – mostly women – in the centre of the country, the Irrawaddy Delta and Shan State.

“At the grassroots level people are saying: ‘Look, we have repaid our loans, can we borrow a larger amount?’” said Usmani. “But we are not a microfinance institution.”

Although the new framework affords a legal status to micro-lenders while also permitting non-collateralised loans and deposit-taking for the first time, the central bank has taken the “unusual step” of fixing micro-borrowing and lending rates, said SBFIC’s Brand.

New microfinance lenders cannot charge more than 2.5% per month, a move analysts warn could put off some organisations, given the costs associated with Myanmar’s underdeveloped financial sector.

“This is not enough to allow genuine financial self-sustainability,” said Sean Turnell, an economist at Burma Economic Watch at Macquarie University in Sydney.

In other countries such as Cambodia, microfinance institutions have blossomed, offering savings rates of about 10% per year to lure investors, which in turn has allowed rapid accumulation of funds to lend at high rates of interest, but considerably lower than what informal lenders charge.

In Myanmar, these lenders typically offer cash at about 10% interest per month, while the low level of banking makes transferring money equally expensive.

“Far and away the majority of people in Myanmar have no relationship with a formal bank, or an ability to borrow from them,” said Turnell. “So they are forced into the hands of informal money lenders charging exorbitant rates of interest.”

It also remains to be seen whether micro-lenders will be willing and able to reach some of the areas with the greatest need for loans – the outer-lying ethnic areas which have in many cases have seen fighting between insurgency armies and government forces for decades.



 

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