By Eric Duflos, Paul Luchtenburg, Li Ren and Li Yan Chen, published by CGAP (Consultative Group to Assist the Poor) and International Finance Corporation, January 2013, 43 pages, available at: http://www1.ifc.org/wps/wcm/connect/d87bf8804e5aba9bad7dadfce4951bf6/Microfinance+in+Myanmar+Sector+Assessment-Final.pdf?MOD=AJPERES
This joint CGAP (Consultative Group to Assist the Poor) and International Finance Corporation (IFC) report reviews the current state of Myanmar’s microfinance sector and the challenges involved with its future development.
The authors begin with an overview of the country’s economy. Myanmar ranks as the poorest and most politically corrupt country in Southeast Asia. Its economic development is complicated by high inflation and a distorted exchange rate system, while outdated banking laws and weak regulatory supervision constrain the financial sector. There is no securities market, and the financial industry consists of a handful of state and private banks; foreign banks are not allowed to operate. About 20 percent of the population has access to formal financial services. Widespread reliance on informal providers of money transfer services and credit, which charge higher rates, contributes to borrower over-indebtedness.
The authors estimate that the unmet demand for microcredit is approximately USD 1 billion. Regulatory constraints and a lack of experience in microfinance hamper private banks, while state-owned banks provide limited services to rural residents on a subsidized basis. Demand for formal savings is more difficult to ascertain due to a lack of research, though it is thought that demand is limited by public distrust in savings products and macroeconomic uncertainty. Due to the underdeveloped state of infrastructure in the country, branchless banking is nearly non-existent. Evidence suggests that 25 percent of the population have access to electricity, five percent to phones and one percent to the internet. The cost of subscriber identity module (SIM) cards for mobile phones, which varies from USD 160 to USD 200, poses an additional barrier to outreach efforts via mobile banking.
Despite the challenges, the authors detect positive signs for Myanmar’s microfinance industry. Since the government’s public endorsement of microfinance in 2011, laws have been enacted conferring legal status on microfinance institutions (MFIs) and allowing foreign investors to establish privately-owned MFIs. Moreover, private banks are now authorized to establish international remittance services. The authors, however, note the risks associated with such rapid change. The microfinance sector cannot absorb large sums of money in its formative stages, while the recent influx of MFIs may overwhelm the capacity of regulatory agencies, which are decentralized.
The authors conclude with a set of policy recommendations. They argue that continued revision of microfinance regulation as the sector becomes larger and more complex is essential. International players can supply technical support and disseminate information on good practices to assist in this process. A stronger regulatory framework is also important to keep microfinance on a sustainable path; incorporating the central bank into the supervisory structure, for example, is a common practice in other nations. Creating a credit bureau, likewise, can reduce over-indebtedness and improve transparency. Increased research on microfinance will also help to guide government policy. Lastly, the authors state that building a payments system is necessary to facilitate technology-based goods and services and other new business models.
By Brendan Millan, Research Associate
About CGAP (Consultative Group to Assist the Poor)
CGAP is a US-based nonprofit policy and research center dedicated to supporting the provision of financial access to poor people worldwide. CGAP is supported by approximately 40 development agencies and private foundations. Its mission is to provide market intelligence, to promote standards and to offer advisory services to governments, microfinance providers, donors and investors. CGAP reports taking in USD 20.9 million in total revenue for the fiscal year ending June 2012. CGAP is co-located with the offices of the World Bank Group in Washington DC.
About International Finance Corporation (IFC)
The International Finance Corporation (IFC), a member of the World Bank Group, offers loans, equity investments, advisory services and technical assistance to private companies with the intent of alleviating poverty and promoting open and competitive markets in developing countries. As of 2012, IFC reported total assets of USD 75.7 billion.
Sources and Resources:
MicroCapital.org story, January 16, 2013, “Government of Myanmar Announces Microfinance to be Key Element of Development Plans”, https://www.microcapital.org/microcapital-brief-government-of-myanmar-announces-microfinance-to-be-key-element-of-development-plans/
MicroCapital.org story, October 3, 2012, “Microfinance and Witch Hunts in India; Poverty Scorecard for Myanmar; Andhra Pradesh Clients Post-Microfinance Crisis”, https://www.microcapital.org/microfinance-publication-round-up-microfinance-and-witch-hunts-in-india-poverty-scorecard-for-myanmar-andhra-pradesh-clients-post-microfinance-crisis/
MicroCapital.org story, November 17, 2011, “Myanmar (Burma) to Spend $333k to Establish Microfinance Programs in Rural Townships”, https://www.microcapital.org/microcapital-brief-myanmar-burma-to-spend-333k-to-establish-microfinance-programs-in-rural-townships/
MicroCapital.org story, July 1, 2011, “Myanmar Plans Microfinance Expansion in Rural Communities”, https://www.microcapital.org/microcapital-brief-myanmar-plans-microfinanc
MicroCapital Universe Profile: CGAP (Consultative Group to Assist the Poor), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=CGAP+%28Consultative+Group+to+Assist+the+Poor%29
MicroCapital Universe Profile: International Finance Corporation (IFC),
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=International+Finance+Corporation+%28IFC%29
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