SPECIAL REPORT: Evolving Regulations Obscure the Future of Microfinance in Myanmar

Paul European Microfinance PlatformLuchtenburg, who serves as coordinator for the UN Capital Development Fund in Myanmar, described several of the contrasts in the microfinance industry in Myanmar at European Microfinance Week Thursday. Five years into civilian rule, Mr Luchtenburg says “I’ve never seen a government work so hard. You go to a meeting and the results go up the leadership chain that night…. There’s this rapid push for development.” To accept deposits, institutions must pay at least 10 percent per year and be deemed “sustainable” by the government. However, lending rates are capped at 2.5 percent per month, a level that all of the panelists agreed was too low, especially for serving rural areas. Rommel Caringal, the CEO of the local unit of US-based VisionFund, said, “The inconsistency is causing big problems, but the government is making adjustments.” Mr Luchtenburg agreed that regulators are more open to new ideas than their peers in other countries.

The government-owned Myanma Agricultural Development Bank serves 2 million people, but Mr Luchtenburg says that its loans tend to be too small and are often delayed past the time farmers need to plant their crops. Moneylenders serve 9 million people, charging roughly 100 percent annual interest. As a result, many microfinance providers are showing interest in entering the market or expanding. Sanjay Sinha of India’s Micro-Credit Ratings International Limited (M-CRIL) said, “We have a series of institutions that are offering plain vanilla microfinance products, smaller group loans for six to 12 months. Our client surveys indicate this doesn’t meet the need. Larger loans for enterprise are individual, harder to underwrite.” Part of this challenge is a shortage of workers that are trained in financial services. Mr Caringal said that “to grow, we need staff who are capable and experienced; the population is very bright and trainable…but unfortunately they don’t have that experience. We need very heavy investment in capacity building.” His organization has arranged to bring existing staff to visit microfinance institutions (MFIs) in other countries and the experience “made people say, ‘Wow, this is how it’s done!’ And now they are pushing for more learning.”

The panelists agreed that mobile financial services were likely to grow in importance, although the burgeoning mobile phone industry in Myanmar remains in flux. One factor, according to Mr Luchtenburg, is that 80 percent of new phones sold in the country are smart phones. Mr Caringal said VisionFund Myanmar is “in the early stages of talking to four mobile payment platforms about mobile banking. The trick is to know which will have good agent networks.”

Similarly, the microfinance market remains fluid, with well over 100 institutions in operation. Mr Sinha said, “I don’t see a lot of consolidation [on the horizon] or the need for consolidation.” However, Mr Caringal argued, “I think the sector would benefit from having fewer players that are more serious.”

In closing, Mr Sinha said that for the microfinance industry, Myanmar is “definitely a golden land in the long-term – not if you want to make a quick buck in two years…. If you have patient capital, you can make a profit in 10 years.” Mr Caringal agreed that it is a “long-term play.” He said investors must be willing to wait until the government liberalizes the rules: “There’s a multitude of challenges in operations and funding but…there is a very high level of optimism.”

This story is part of a sponsored series on European Microfinance Week, which was held from November 16 through November 18 by the European Microfinance Platform (e-MFP), a 124-member network located in Luxembourg. MicroCapital was engaged to cover the event on-site.

Additional Resources

MicroCapital Coverage of European Microfinance Week
https://www.microcapital.org/category/european-microfinance-week/

The Myanmar Financial Inclusion Roadmap from the UN Capital Development Fund
http://www.uncdf.org/sites/default/files/Documents/myanmar_fi_roadmap.pdf

Overview of the Mekong Financial Inclusion Forum
http://bwtp.org/wp-content/uploads/2016/02/2016-Mekong-Financial-Inclusion-Forum-Overview.pdf

Kashf Foundation of Pakistan Wins $106k European Microfinance Award for Supporting “Low-cost” Private Schools
https://www.microcapital.org/kashf-foundation-of-pakistan-wins-european-microfinance-award/

Uniting Refugees, Locals via Lending Groups: European Microfinance Week Opens in Luxembourg
https://www.microcapital.org/special-report-uniting-refugees-locals-via-lending-groups-european-microfinance-week-opens-luxembourg-emw2016/

Overcoming Fears at European Microfinance Week: Farmers Eschew Microinsurance to Prevent Drought, MFIs Wary of Group Purchases of MIS Software
https://www.microcapital.org/special-report-overcoming-fears-european-microfinance-week-farmers-eschew-microinsurance-prevent-drought-mfis-wary-group-purchases-mis-software/

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