SPECIAL REPORT: Mekong Financial Inclusion Forum: Overview of the Region

In anticipation of the recently announced Asia-Pacific Financial Inclusion Forum, which will be held in Hanoi, Viet Nam, on March 21 and March 22, 2017, MicroCapital is launching a series of stories from the Banking with the Poor Network‘s Mekong Financial Inclusion Forum, which was held in July 2016. The Foundation for Development Cooperation engaged MicroCapital to assist in documenting the event.

Ms. Banking With the Poor NetworkNina Nayar, Associate of the Foundation for Development Cooperation, opened the session reviewing microfinance products and market segments in the region. She described the evolution from “credit and basic savings” years ago to today’s array of credit, savings, insurance, money transfer and other services for individuals as well as micro, small and medium enterprises (MSMEs). These include “a whole slew of innovations” such as payment cards and automated teller machines. She argued that new products are in demand by many segments of often-excluded people: farmers, people in conflict areas, minorities, youth, urban informal workers, migrants and single mothers. At the same time, fear and lack of confidence often prevent these groups in particular from accessing services.

Ms. Nayar emphasized the importance of the region’s population being mostly rural and young, with a median age under 35 years. Regarding Myanmar, she cited a preference for informal sources of finance, especially for agricultural inputs. Ms. Nayar noted Lao PDR has a nascent market enjoying a broad range of providers and widespread informal insurance for funding ceremonies such as funerals. In Viet Nam, she pointed out the prominence of the government-backed Vietnam Bank for Social Policies and the Vietnam Bank for Agriculture and Rural Development, which serve a combined 82 percent of users of microfinance in the country. The remainder are served by NGOs.

Over-indebtedness is an emerging concern in Cambodia. However, Stephen Higgins, Mekong Strategic Partners’ Managing Partner, said after experiencing loan growth of 125 percent over two years, “we are happy to see it lower this year…. We think around 15 to 20 percent is the goal.”

Regarding Thailand, Ms. Nayar cited strong regulation and a high rate of inclusion, although Ratchada Anantavrasilpa, a Senior Financial Sector Specialist at the World Bank Group, observed that “in the southern provinces there is [thinner coverage] due to political instability.” She also added that because Thailand’s population is aging, the World Bank Group is supporting insurance regulators there to nurture the growth of risk mitigation services. Sanjay Sinha, Managing Director of M-CRIL, said that insurance is practically non-existent in the Mekong region outside Thailand: “I would certainly urge regulators to take a lot more interest than they have so far.” Mr. Higgins predicted it will take “a decade before private industry develops enough to make an impact.”

Rajeev Kumar Gupta, Senior Regional Technical Advisor and Deputy Programme Manager, SHIFT Programme, United Nations Capital Development Fund, outlined four main financial inclusion challenges facing the Mekong region. First is following through with implementation on country financial inclusion strategies, requiring alignment of capacities and resources, and collaboration of stakeholders and coordination of initiatives. Second, is a sound understanding of the needs and drivers of financial inclusion, which vary by country within the region, and an understanding of the differing needs of various excluded segments, such as women, youth and rural communities, and the interventions needed, such as education and how they can be mainstreamed.

Third is the need to lift usage of accounts which is lagging the inclusion gains made from an increasing number of accounts – an issue experienced around the world, not just within the Mekong. “Until the usage issue is addressed, financial inclusion initiatives may not achieve their goals” he said. The fourth challenge in achieving effective development is capacity building, not just by financial services providers, but non-financial services providers as well. The solution involves an ecosystem of suppliers.

Ms. Anantavrasilpa described her organization’s work helping regulators develop supervisory systems including the necessary balance between flexibility to promote inclusivity versus the strength to maintain stability, particularly the safety of savings deposits. Ms. Nayar argued that the use of mobile money is hampered by regulation and that coordination among central banks, insurance regulators and mobile money regulators could be improved. On the other hand, in terms of client protection, she said “this region has low-touch regulation. We don’t want it to become high-touch, so how can we protect consumers without more regulations?” Concurring that minimal regulation is better, Mr. Sinha argued that “rather than preventing problems, you need to let the market develop to know which practices to regulate.” He added that interest rate caps in Myanmar, for example, have proven too restrictive to allow MFIs to meet their potential. And not only prudential regulations can affect MFIs; laws on foreign exchange, for example, also can hamper the industry.

Regarding client protection, Mr. Sinha said “all the networks are trying to do this. We are working with the Myanmar Microfinance Association and [the International Finance Corporation] to train the staff of MFIs on client protection and other topics.” He continued to say “AMK [Angkor Mikroheranhvatho Kampuchea] has done very well integrating responsible finance into their operations and did it quite early in fact. The engagement of investors is extremely important.” Mr. Higgins added that MFIs must work to meet a range of social goals to continue to get funding.

Referring to delivering social services alongside financial services, Mr. Sinha argued that “when MFIs try to do ‘microfinance plus,’ it doesn’t work.” Regarding the role of NGOs, Mr. Higgins said that because “these guys will never have the scale to provide financial services widely…the biggest problem NGOs can address is client education. Fear prevents a lot of people from coming into the system.” Mr Gupta expanded on this saying NGOs are well placed for last mile outreach and they understand communities better – not just financially, but their capacity and social norms as well. “Partnering with NGOs can make financial inclusion more effective and sustainable” he said. Mr. Sinha added that “the problem of credit for agriculture simply has not been resolved. [MFIs’] business models depend on contact more frequently than every three or six months, which is when farmers have income. That’s where I think the opportunity is for MFIs and NGOs to collaborate.”

Additional Resources

Mekong Financial Inclusion Forum Overview, July 2016

Asia-Pacific Financial Inclusion Forum, March 2017

Evolving Regulations Obscure the Future of Microfinance in Myanmar, November 2016

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