The microfinance sector is a key pillar in furthering financial inclusion in Myanmar and the sector has experienced rapid growth, growing 260% over the five years to 2019 according to a July 2019 UN Capital Development statement. Myanmar now has 193 licensed microfinance institutions (MFIs) serving 3.4 million clients across the country.

Fintech has been a catalyst to this growth, with the high mobile phone penetration rates providing a foundation for the provision of digital financial services, which the United Nations expects to be in active use by at least 25% of the population by 2023.

However the sector has been particularly hard hit by the COVID-19 pandemic. Government response included the suspension of loan repayments from 6 April to 15 May, at the same time ongoing operating costs, withdrawals and financing obligations are posing a pressing cash liquidity crisis. Lending disruptions may impact food security this year and beyond.

Microfinance

As we all know, microfinance is a method of providing banking services to those who do not have access to traditional financial resources (or indeed any financial services), for example the unemployed and low-income individuals and groups. Low levels of financial inclusion are particularly prevalent in developing countries where many are unbanked, and so microfinance provides opportunities to become more self-sufficient and offer the possibility of taking on reasonable small business loans.

Microfinance in Myanmar Currently 

With the introduction of a modern regulatory system, Myanmar’s microfinance sector has seen rapid growth, with a number of new MFIs launched and donor support to the sector expanded.  According to the Myanmar Microfinance Association’s (MMFA) most recent information as of mid-2019, 180 licensed MFIs served 3.4 million clients and had a total loan portfolio of K350 billion. These could be split into 3 main groups:

  • 18 MFIs had assets in excess of K10 billion making up over 80% of total MFI assets;
  • 38 MFIs had assets of K1 to 10 billion accounting for 16% of total MFI assets; and
  • 124 MFIs had assets of less than K1 billion and accounted for 3-4% of total MFI assets.

As for the geographical picture, MFIs operate across 15 states and regions in Myanmar and in 252 of 330 townships,[1] and the sector includes local, foreign, NGOs, INGOs and JV MFIs.

Local MFIs dominate in terms of numbers of licensed MFIs (totalling 112 as of July 2019), with foreign MFIs following in second (totalling 53). In terms of portfolios and clients, the sector is dominated by big international MFIs such as PGMF, Vision Fund, Sathapana and Dawn Microfinance.

Global Picture

Looking at microfinance in the context of the global picture of financial inclusivity, 1.7 billion adults globally didn’t have a bank account based on 2017 data. Virtually all of these live in developing countries and 56% of them are women. Asia hosts a huge proportion of the unbanked population.[2]

The picture does of course vary in the region, with for example Singapore and Malaysia seeing high rates of financial inclusion, as compared to developing countries such as Cambodia, Laos and of course Myanmar,[3] where in 2018, 52% of the adult population were financially excluded or only informally served.[4] The Myanmar Financial Inclusion Roadmap aims to have 60% of Myanmar’s adult population using formal financial services by 2023.

Reasons for Financial Exclusion Generally

Globally, factors behind this lack of financial inclusion vary, however the most common reason is simply a lack of resources. Over 60% of adults without a bank account cited a lack of money as a reason for not having a bank account, with 1 in 5 citing this as the sole reason.[5] Cost is also a crucial factor, with 26% citing this reason.

Reasons for Financial Exclusion in Myanmar

The reasons for financial exclusion in Myanmar are similar and include lack of funds, accounts being expensive and absence of need. Other factors specific to Myanmar include:

  1. Cash economy – The fact that Myanmar has a largely cash dependent economy, with cash remaining the preferred method of payment for many.[6]

  2. Lack of trust –a lack of public trust in the banking sector has dissuaded many from setting up bank accounts, resulting in banks lacking funds to lend to individuals and small businesses and impeding economic growthThe situation is though steadily improving, particularly with the increasing penetration of smartphones, which will be discussed later.

  3. Difficulty accessing credit – The Oxford Business Group’s 2020 survey reported that 82% of respondents in Myanmar described access to credit as difficult or very difficult, the most negative sentiment among ASEAN countries.

Microfinance in Myanmar – Development

The latest available figures from mid-2019 estimate that MFIs serve just over 3 million people and reach around 15 million people, indicating there is still a large pool of untapped potential for investors.

Prior to 2011, only four NGOs were allowed to offer microfinance services as part of their charitable activities, for example Save the Children’s Dawn Microfinance program which in 2002 started  to provide small loans to pregnant women with no access to the traditional financial sector.[7]

In 2011, the microfinance industry was formalised with the enactment of the Microfinance Law (Microfinance Law) by the former Microfinance Supervisory Enterprise (MMSE), currently the Financial Regulatory Department (FRD).

Microfinance is defined by Section 2 of the Microfinance Law to include extending micro-credit to the grass roots population, accepting deposits from them, conducting remittances, carrying on insurance business, and borrowing money locally and from overseas.

And a Microfinance Institution is defined as a local or foreign institution, partnership, company, co-operative society, bank or nonbanking financial institution, formed and registered under applicable law, which is funded by capital, charity or grant, and is licensed in Myanmar to operate microfinance business for the reduction of poverty of the grass roots population and improvement of their socio-economic life.

Any entity incorporated under a number of statutes such as the Myanmar Companies Law, the Cooperative Society Act and the Law relating to Formation of Associations can be licensed.

There are two types of licensed microfinance institutions: deposit-taking institutions and non-deposit-taking institutions.

  • Deposit-taking institutions are full financial intermediary institutions which use their clients’ deposits to finance loans.
  • Non-deposit-taking institutions provide loans from their own funds.

To be licensed as a Microfinance Institution, an entity must deposit:

  • K300 million if they are a deposit-taking institution
  • K100 million if they are a non-deposit-taking institution

Solvency Ratio for deposit taking Microfinance Institutions: deposit-taking MFIs have to maintain a minimum solvency ratio of 12% at all times, calculated in accordance with a formula.

Liquidity Ratio for deposit-taking Microfinance Institutions: deposit-taking MFIs must also maintain a minimum Liquidity Ratio of 25% at all times.

This is calculated by dividing the total amount of current cash in hand and cash in bank by the total voluntary deposits outstanding.

Restrictions on Loans

  • Maximum loan size: according to Directive No.1/2017, the maximum loan size is 10 million Kyats,. Generally, SMEs can borrow. Certain terms and conditions apply to lending.
  1. No mortgaged properties or collateral are allowed for any businesses,
  2. Whether or not the loans are spent as per the objective stated when borrowing the loan must be monitored;
  • The businesses financial situation must be assessed;
  1. The loan period, repayment dates and repayment amount must be negotiated and stipulated;

Repayment disputes are to be settled in accordance with the directives issued by the Microfinance Business Supervisory Committee and Financial Regulatory Department;

In 2016, the FRD issued several new directives relating to microfinance after the Myanmar Microfinance Association submitted a policy reform paper with recommendations. The reform to the law included Greater flexibility for MFIs to carry out microfinance activities in rural and urban areas based on their business models. Previously, at least 50% of an MFI’s loan portfolio and members had to be in rural areas. But, MFIs are still encouraged to lend to rural populations where the demand for credit is high and other relaxations.

In June 2019, the MicroFinance Business Supervisory Committee issued Directive 1/2019 reducing the maximum microfinance interest rate from 30% to 28%.[8] The revision impacted both institutions and borrowers. For borrowers, it was good news, but for institutions, it meant quickly drafting new business plans given that management, capital, loans and profits were based on the basis of the revised rate. The Government however allowed until 2019/2020 for institutions to follow the directive.  Total fees and charges on MFI loans are subject to a limit of 2% of the total amount of the loan. 

The MicroFinance Business Supervisory Committee also cut the minimum interest rate MFIs are required to pay on compulsory savings from 15% to 14%, while the minimum rate payable on voluntary savings remained at 10%.

New Microfinance Law

A new Microfinance Law to replace the existing Microfinance Institutions Law is currently before Myanmar’s Parliament, having passed through the Lower House in February 2020.

Changes in the new law will include:

  1. Strengthening privacy provisions;
  2. Requirements to observe client protection principles issued by the MFI’s management committee;
  • Measures to reduce unlawful lending business;
  1. Financial awareness education for members;
  2. An objective of facilitating financial inclusion.

The Myanmar Microfinance Association expects the new law to adopt the following changes (although these changes are not included in the current bill):

  1. microfinance institutions will be allowed to take collateral for loans greater than K3 million;
  2. the enterprise loan limit will be doubled from K10 million to K20 million;
  • importantly, mobile financial services will be established for microfinance institutions;
  1. microfinance institutions will not be limited by the current regulations governing digital financial services;
  2. an information system will verify borrowers’ information; and
  3. clauses on insurance will be expanded, and certain procedures will be relaxed, for example seeking approval for an address change.

The bill also stipulates maximum fines of K150 million for engaging in microfinance activities without a valid licence, K50 million for microfinance institutions and their personnel (or K10 million for personnel of committees formed under the law) for illegally disclosing information. Imprisonment can also be imposed for such violations under the bill and existing law.

Microfinance in Myanmar Going Forward

Going forward, there remains room for growth and reform in Myanmar’s microfinance sector. The following are key areas for focus:

  1. Lack of credit or financial history – It was announced in February 2020 that Myanmar’s credit bureau was to commence operations in April this year, however the Central Bank of Myanmar has indicated that this has been postponed due to COVID-19. There is thus no concrete date for it to commence operations. Once established, it is likely to take at least one year to collect sufficient and meaningful data to enable banks to make better loan decisions.[9] Presently, a lack of available credit or financial history for borrowers continues to hamper the industry, with many borrowing from multiple microfinance firms to cover loans owed to other providers. A lack of a functioning credit bureau and therefore a lack of data enables these practices to continue.[10]
  1. Regulatory Environment – The regulatory environment in Myanmar is steadily improving but remains weak and is constraining the market through capital constraints, insufficient products, services allowed and interest rate caps.
  1. Capacity Building – There is a strong need for building capacity not only at the level of MFIs but also of the regulator as there is limited technical and supervisory capacity at both national and regional levels.

The focus in these areas is key to further development of microfinance in Myanmar and will assist in attracting further investment.

The sector, and financial services in general, have already attracted considerable interest from local and foreign investors (according to Early Dawn Microfinance CEO, Gonzalo Gonzalez).

For example, International Finance Corporation (IFC), a private sector arm of the World Bank Group, has invested US$23.5 million (about Bt 736 million) in four MFIs in Myanmar, and is keen to invest morethis year,[11] with IFC’s head of financial institutions advisory services for the Mekong Region stating that they are looking to invest in three to four more MFIs by the end of the year.[12]

Fintech

Moving now to fintech and its interplay with microfinance in Myanmar. As we  know, is the combination of technology and financial services / applications and is used widely. Some examples of how fintech is being used include:

  • Mobile payment apps like Paypal and Venmo
  • Crowdfunding platforms like Patreon and GoFundMe, platforms which allow users to send and receive money in support of a cause, project or company
  • Blockchain and cryptocurrency
  • Robo-advising and stock-trading apps (such as Wealthfront and Betterment)
  • Insurance (or insurtech), which is becoming increasingly popular (with an example being BIMA, the Sweden-based leading insurtech player which has around 26 million customers across 14 countries).

Fintech and Microfinance in Myanmar

Fintech is not however limited to developed countries.

While the human aspect of financial services remains important and is often necessary owing to weak digital infrastructure (in some cases), Fintech is increasingly being deployed to reach the unbanked and underbanked populations in developing countries.

There are a number of reasons for this, including:

  1. Supply Frictions – Fintech aids in mitigating supply frictions such as the often large geographic distances between borrowers and the nearest bank branch – rural people may need to borrow from informal sources such as friends and family, wealthy farmers, pawn shops and moneylenders
  1. Remittance Services – in particular the remittance to Myanmar from overseas workers.

The rapid increase in mobile phone penetration rates and the advancement in telecoms over the past five years have created the prime environment for fintech services in Myanmar.

Mobile Phone Usage

Mobile phone usage in Myanmar has grown exponentially over the last few years thanks to the liberalisation of the market in 2013/2014 and state-owned Myanmar Posts and Telecommunications (MPT) then going into partnership with Norway’s Telenor and Qatar-based Ooredo. This led to a fall in prices and put mobile internet access and voice communications within reach of the masses in Myanmar.[13]

As of 2018, the smartphone penetration rate had risen to around 80%.

Active mobile phone usage has primed the foundation for digital financial services, enabling Myanmar to effectively leapfrog bricksand-mortar microfinance and achieve large-scale inclusion with the aid of smartphones.[14]

Mobile Financial Services Licence

Under Myanmar’s Regulation on Mobile Financial Services, 2016, a company set up solely for the purposes of carrying out mobile financial services (applicant), can apply to the Central Bank for a registration certificate to provide mobile financial services.

There are currently 5 licensed mobile financial services providers:

  • Digital Money Myanmar Limited (known as Wave Money)
  • Ooredoo Myanmar Fintech Limited
  • Internet Wallet Myanmar Limited (known as OK$)
  • Mytel Wallet International Myanmar Company Limited (known as My Money)
  • MPT Money Company Limited (known as MPT Money).[15]

Requirements for Application

The applicant must:

  • have a minimum capital of K3 billion;

submit certain prescribed documents and information to apply for a registration certificate to the Central Bank:

Permitted Mobile Financial Services Transactions

A Mobile Financial Services Provider (MFSP) is allowed to offer the following services:

  1. Opening and maintaining MFS accounts;
  1. Cash-in/cash-out transactions to/from MFS accounts;
  • Money transfer between MFS Accounts;
  1. Domestic payments between individuals;
  1. Domestic payments between government and individuals;
  1. Domestic payments between business and individuals;
  • Domestic payments between businesses; and
  • Any other transactions as the Central Bank may authorise from time to time.

Transaction Limits and Know Your Customer and Customer Due Diligence (KYC/CDD)

Requirements

As you can see, certain KYC/CDD requirements and conditions must be met for account opening and balances and MFS transactions (transaction limits and KYC documents)

Tier

KYC/CDD

Cumulative Transaction Limits Per

Cumulative Transaction Limits Per Month

Maximum Balance Limit

Level 1

(individuals only)

presentation of ID (the national ID is first priority, driving license is second priority or passport) is required if and when necessary

50,000 Kyat

1.25 million Kyat

200,000 Kyat

Level 2

(individuals only)

SIM registration or (the national ID is first priority, driving license is second priority or passport) is required to submit

500,000 Kyat

12.5 million Kyat

1 million Kyat

Level 3

(for registered businesses only)

Business registration certificate, identification requirements for opening bank accounts

1 million Kyat

25 million Kyat

10 million Kyat

Turning now to MFIs providing mobile payment systems. They must comply with a number of terms and conditions:

  • To introduce a Mobile Payment System, MFIs have to first apply to the Central Bank and the Ministry of Communications and Information Technology.
  • MFIs have to follow Directive 4/2013 relating to Mobile Banking issued by the Central Bank of Myanmar.
  • The Microfinance Law, including its procedures and directives, must be followed.
  • MFIs must have a plan for dealing with clients’ enquiries relating to the Mobile Payment System.
  • Directives related to mobile payment systems, occasionally issued by the Microfinance Supervisory Committee, Private Micro-credit and Savings Development Supportive Committee and Financial Regulatory Department must be followed and information on mobile payment systems may be requested and monitored.[16]

Examples of Fintech Services in Myanmar

People in Myanmar now have a variety of options for conducting financial activities and the country is increasingly moving towards a less cash dependent society.

Digital financial services in use in Myanmar include:

  • Wave Money (a joint venture between Telenor, FMI and Yoma bank), provides financial services through an app and over 457,000 Wave shops or agents nationwide).[17] In 2019, the company handled US$4.3 billion (K6.4 trillion) in transfer volume, equal to about 6% of Myanmar’s GDP and triple its transfer volume in 2018. A key growth driver for Wave Money was its new mobile wallet app, WavePay, which includes the option to send money and pay merchants by QR code. According to Wave Money, the most common use for the QR feature is the payment of taxi fares.

It is also worth noting that Ant Financial Services Group, a Fintech affiliate of China’s Alibaba which runs Alipay, announced plans in May 2020 to invest US$73.5 million in Wave Money by taking a minority stake in the company.[18] This will be Ant’s 10th mobile wallet partnership outside China and will allow Wave Pay to tap into the experience of Alipay to promote financial inclusion and better serve the unbanked, underbanked and SMEs in Myanmar. The deal also fits nicely with Myanmar’s push to digitalisation, which has been accelerated by COVID-19, with employers, businesses and individuals forced to move online. The deal may therefore boost Wave Money’s capabilities to support these trends, while also consolidating their market position.

  • Ongo (a B2B digital payment service provider (backed by Myanmar Oriental Bank) which operates in 73 cities, provides digital payment services to over 140 corporate clients, 26,000 merchants and 850,000 consumers). Ongo has formed a partnership with microfinance lender, Advans MFI Myanmar, to facilitate loan repayment via mobile app. Advans MFI offers virtual banking to clients in rural areas as well as small group lending products and individual loans in urban areas. Ongo also partnered with Easy Microfinance which currently operates in seven states through 22 branches and serves over 155,000 active clients in Myanmar. The partnership enables Easy Microfinance loan borrowers to use Ongo’s loan repayment services.[19]
  • Mobile wallets such as KBZPay and MPT Money. MPT is the most recent recipient of a Mobile Financial Services Licence from the Central Bank, and now has agents operating in 278 townships nationwide.[20] The Central Bank introduced the Mobile Services Licence under the Mobile Financial Services Regulations in 2016. Comparatively, some, depending on their business model, may choose to partner with a bank and operate under the Mobile Banking Licence (i.e. as Ongo and others have done).

KBZPay was developed in partnership with Huawei and is backed by KBZ Bank (Myanmar’s largest privately-owned bank). The app launched in late 2018, gaining more than 4.5 million customers by 2020, and allows people to store, transfer and spend money directly from their smartphone.[21]

Insurtechs – as for insurtechs, it is anticipated that they will disrupt the traditional insurance industry in Myanmar. At the micro level, we have already seen big players in the telecom sector, strongly established local banks and their subsidiaries beginning to tap into new collaborations, such as Telenor which recently launched a new micro insurance product called “SateChaLife” in partnership with CB Insurance. The aim was, in view of the high mobile penetration rate, to increase insurance access by making it simple and affordable.

Impact of COVID-19 on Microfinance and Fintech

Response of MFIs

With Myanmar’s first official case of COVID-19 confirmed on 23 March 2020, MFIs began responded by voluntarily suspending loan repayments in late March and implementing response plans.

The Financial Regulatory Department of the Ministry of Planning, Finance and Industry then officially suspended loan repayments and also suspended the taking on of new clients and accepting savings balances from 6 April to 30 April, and subsequently to 15 May 2020 (as of 16 May, MFIs resumed operations). MFIs were also instructed that they could only disburse new loans for “emergency” or “essential” purposes. MFIs could however still accept voluntary repayments.

This was a significant measure given that many workers had lost their jobs (as of late April, 60,000 in the formal sector) and would be unable to make repayments. The directive was also criticised for providing limited benefit to borrowers. Most companies would have collected March payments prior to the announcement and borrowers would thus have had only two extra weeks to make their April payments.[22]

Furthermore, the directive was not widely circulated, meaning that many borrowers were unaware that they could defer payment and by the time they found out, they had already made the next repayment.[23]

Notably, the directive did not apply to the 29 non-bank financial institutions licensed by the CBM to provide credit (such as Excellent Fortune Finance and Mother Finance) companies which provide financing for specific purchases (i.e. cars and homes) but in practice, are mostly similar to MFIs, with the main difference being that they are allowed to charge interest up to 36%. While some of these companies have allowed borrowers who cannot pay the opportunity to negotiate, others have insisted on payment.[24]

Knock on Effects – Private Banks

In view of MFIs suspending loan repayments, there are also consequences for Myanmar’s private banks. Many MFIs have borrowed from private banks, and relent at higher interest rates to their clients. Accordingly, if borrowers fail to repay, the stress on private banks will be increased, many of whom are already dealing with their own bad debts.[25]

Knock on Effects – Cash Flow Crisis

The directive effectively froze incoming sources of cash for MFIs (loan repayments and savings deposits), which is coupled with the likelihood of customers seeking to withdraw savings balances. Meanwhile, MFIs continue to shoulder operating costs, mainly staff salaries, and operating expenses such as rent and utilities, therefore posing a serious cash liquidity crisis.

Knock on Effects – Agriculture and Food Security

These pressing issues come at a significant time – monsoon lending season (April – June). Prior to the pandemic, MFIs had been building reserves for the monsoon lending season, however repayment suspensions, ongoing operating costs, withdrawals of savings deposits and financing obligations indicate that MFIs will be forced to cut back significantly on monsoon lending.[26]

This drop in monsoon lending will therefore reduce smallholder farmers’ abilities to invest in farm production, disrupt agricultural input supply chains, reduce the food produced, increase food prices and ultimately threaten food security for 2020 and beyond.[27]

Knock on Effects – Emergency Loans and Moneylenders

Many MFIs were reportedly planning to issue emergency loans to clients unable to make their repayment deadlines, seeing the current situation as an opportunity to issue more loans. From the loans they of course make profit, and so many issue loans very readily.

The problem however is assessing the borrowers’ ability to repay loans. Hence lending to borrowers who are unlikely to be able to repay will likely increase MFIs’ indebtedness.

The alternative to emergency loans is that borrowers will be forced to borrow from illegal moneylenders who charge up to 20% interest per month.[28]

Government Relief Measures

The Myanmar Government has responded given the likely significant impact of the disruption to lending and repayment on the sector and the economy as a whole. Steps taken by the Government include:

Financial Support Package 18 March 2020

On 18 March, the Government of Myanmar announced a financial support package (valued at 0.1% of GDP or US$71.6m), which included loan support for SMEs. Sectors prioritised for state assistance could apply for loans (at an interest rate of 1% and a loan period of one year) from 30 March to 9 April.

COVID-19 Comprehensive Economic Relief Plan

The Ministry of Planning, Finance and Industry then issued a comprehensive economic stimulus plan on 27 April 2020, covering a broad range of fiscal and monetary measures combined with a set of policy responses. It is estimated the Myanmar Government is allocating up to 10% of its 2019/2020 budget to finance its efforts against COVID-19.[29]

Goal two of the economic stimulus plan is to “ease the impact on the private sector through improvements to investment, trade and banking sectors”, which would be achieved through, inter alia, ensuring MFIs’ access to low-cost funding. Meanwhile, Goal 5 is to “promote innovative products and platforms”, with proposals to promote the use of mobile payment services, bank transfers or card payments for e-commerce sales.

While practical plans have yet to be implemented, a recent launch of Onepay’s new mobile interbank platform in early May is a welcome development supporting the Government’s emphasis on promoting e-commerce, as noted in Goal 5.

Onepay’s platform allows users to simply, securely and conveniently transfer money between seven local banks (Asia Green Development Bank (AGD), Ayeyarwady Bank, CB Bank, KBZ Bank, Myanma Apex Bank, UAB Bank and Yoma Bank). The app has been developed in conjunction with Onepay’s banking partner, AGD, who will manage the interbank transactions of Onepay users. Users can simply add funds to their Onepay wallets (through a cash-in service through Onepay appointed agents, through an AGD bank account or Visa/Mastercard) and subsequently transfer the money between banks. Prior to confirming the transaction, the user will be notified of the transfer rate and cost, with any remittance costs set by each respective bank, with settlement taking up to two working days.

Meanwhile, MFIs have been urging further action, with calls for authorities to:

  • Speed up approvals on MFI investment and borrowing applications;
  • Relax key ratio requirements (i.e. the debt-to-equity ratio);
  • Relax the liquidity ratio from 25% to 20% to increase on-going lending; and
  • Temporarily eliminate required approvals for changes to conditions of loans for existing borrowings.[30]

It has also been suggested that regulatory measures should encourage MFIs to use digital channels for loan collection and disbursement, and allow MFIs to use other digital products such as self-account opening, digital savings, and digital transfers.

COVID-19, Poverty and Microfinance Demand in Myanmar

Microfinance has grown to become an important sector of financial service providers targeting the low income population excluded from the regular financial system and is a crucial means to reduce poverty.[31]

Continued access to microfinance is therefore crucial and this is especially true for rural communities. Maha Agriculture Finance (Maha), an MFI primarily serving smallholder famers in Myanmar, recently emphasised the concerns of a farmer located in the Mandalay region who has been a client of Maha since 2015. The farmer is not only struggling to purchase agricultural inputs due to movement restrictions, but also fears not being able to access credit, without which he will struggle to meet farming costs for the impending monsoon season.[32] A lack of access to credit, will also lead to delays in cultivating crops, making it generally harder for farmers to deal with and recover from the economic shock.[33]

As for farmers generally, lockdown restrictions have been the biggest concern, leaving many farmers with no avenue to sell their crops (due to the fact that they cannot leave their villages) and likewise, brokers are unable to enter the villages to buy the crops. [34]

A similar picture can be seen in urban areas. The busiest bazaar in a town in Shan State (which is ordinarily held once every five days) remained closed as of April, thereby preventing vegetable venders (who are often MFI borrowers) from selling their stock before it goes bad, and many endured a period of no income for over 20 days.[35]

MFIs therefore remain crucial to combatting a rise in poverty in both urban and rural communities and it is anticipated that demand for microfinance will increase, with many borrowers (according to Maha) indicating that they are looking to continue borrowing, particularly given that borrowing from informal sources, such as moneylenders, is not a preferable option, with interest rates often twice as high as those offered by  MFIs. [36]

These issues are also coupled with declines in remittances due to COVID-19, which ordinarily are an important income source for poor and low-income rural households in Myanmar.[37]

It is estimated that international remittances have declined by 50%, with domestic remittances declining by 30%.[38]

Remittances are one of the most important income sources for poor and low income households. And declining volumes will see an estimated 200,000 households fall below the poverty line.

Financial support will therefore be essential, however accessing microfinance is (and will continue to be) a challenge in the current climate. This is owing to the fact that microfinance is generally a high-contact industry, with loans often being initiated and collected in person. A push to digital initiatives that support social distancing (whilst remaining connected with clients) is therefore crucial and Myanmar provides a uniquely accommodating environment for this thanks to the widespread use of smartphones and mobile apps.[39]

A development of note is the draft Credit Guarantee Corporation Law which is being prepared by the Financial Regulatory Department under the Ministry of Planning, Finance and Industry. The law was first drafted in 2018 and once completed, will be submitted to the Myanmar Parliament.

The draft law aims to support the provision of financing for micro, small and medium enterprises (MSMEs) by establishing a Credit Guarantee Corporation to guarantee credit provided to these enterprises. It will also allow participating financial institutions to spread the credit risk and provide loans without collateral. In return from providing guarantees for borrowers’ loans to lenders, borrowers will pay a specified premium rate to the Credit Guarantee Corporation.

This will be of benefit to many MSMEs, however the additional cost of the guarantee will raise the total cost of credit and therefore only be affordable to those with high growth expectations – Gazelles  (a company with a young fast-growing enterprise with base revenues of at least usd$1 million and four years of sustained revenue growth); SHBs (small businesses with more than 20% growth in annual turnover);  and SGBs (commercially viable businesses with five to 250 employees that have significant potential, and ambition, for growth).

Taking a look at the picture in India and Pakistan as a comparison, we can see that microfinance has similarly been impacted by COVID-19.

In Pakistan, a survey of 200 microfinance loan officers in Pakistan found that the average repayment rate was 98% in February 2020, 81% in March 2020 (following the lockdown in the third week of March), and anticipated a further drop to 34% in April 2020. Further, in the same report, 70% of regular borrowers surveyed stated that they were not able to make the scheduled monthly loan repayment due the following month.

And plunging loan repayment volumes are indicative of the larger crisis in Pakistan – namely the threat that COVID-19 poses to the 7.3 million low-income Pakistani households that rely on MFIs for access to capital and other financial services that they cannot otherwise access.[40]

From the perspective of MFIs, they have reportedly seen a 90% decline in weekly microenterprise sales on average, which is seriously threatening their survival. And this impact is compounded by the fact that around 80% of Pakistan’s urban workforce is employed by MSMEs that either rely on informal credit or credit through MFIs.[41]

Meanwhile, there has been a lack of support from the Government for the microfinance sector, other than regulatory relaxation. Given the sector employs millions of people, this lack of support is highly concerning.[42]

As for India, which has more than 100 million microfinance accounts, COVID-19 and prolonged shutdown is putting the world’s largest microfinance industry at risk, not to mention that the 170 districts most negatively impacted by COVID-19, also account for 80% of the total bank credit, and it follows that these districts also represent a high proportion of microfinance loans.[43]

While the Reserve Bank of India (RBI) announced MFIs and banks may offer a moratorium of 3 months, enabling borrowers to postpone their repayment instalments, MFIs remain liable to repay their maturing debt obligations to wholesale funders, which is of serious concern. While the inflows of cash from repayments cease, the outflows in terms of liabilities will have to be kept up, causing a serious liquidity crunch.[44]

When the moratorium ends, borrowers will then be looking to access additional credit to restart business activities, however MFIs (given their ongoing liabilities) may not be in a position to provide this crucial credit.[45]

[1] According to the Financial Regulatory Department of the Ministry of Planning, Finance, and Industry (FRD-MoPFI), which regulates non-bank financial institutions. 
[2] https://globalfindex.worldbank.org/sites/globalfindex/files/chapters/2017%20Findex%20full%20report_chapter2.pdf
[3] http://www.oecd.org/finance/Financial-inclusion-and-consumer-empowerment-in-Southeast-Asia.pdf
[4] https://myanmarmfa.com/en/financial-inclusion-myanmar
[5] https://globalfindex.worldbank.org/sites/globalfindex/files/chapters/2017%20Findex%20full%20report_chapter2.pdf
[6] For example, in 2018, there were only 14,000 point-of-sale card devices nationwide, as compared to Indonesia, which had 1 million.[6] Myanmar has however been pushing forward with e-payment solutions.[6]
[7] https://www.accion.org/growth-disruption-microfinance-myanmar
[8] The MADB offers some larger mechanisation loans, but the vast majority of borrowers receive seasonal or short-term crop loans. 
[9] https://consult-myanmar.com/2020/02/25/myanmar-credit-bureau-to-commence-operations-in-april/
[10] https://www.mmtimes.com/news/growth-potential-seen-microfinance-sector.html

[12] Ibid.
[13] https://www.dw.com/en/plunging-prices-bring-connectivity-to-the-masses-in-myanmar/a-48200452
[14] https://www.accion.org/fintech-in-myanmar-leapfrogging-to-mobile-money
[15] https://www.cbm.gov.mm/content/2653
[16] Directive 3/2014 of Microfinance Business Supervisory Committee
[17] https://www.telenor.com/wave-money-launched-in-myanmar/
[18] https://www.mmtimes.com/news/chinas-ant-financial-buys-stake-fintech-wave-money.html
[19] https://ongo.com.mm/september-2019-easy-microfinance-loan-borrowers-lives-made-even-easier-with-ongo-e-money-services/
[20] https://www.mpt.com.mm/en/mpt-contributes-to-financial-inclusion-in-myanmar-with-the-launch-of-mpt-money/
[21] https://www.kbzpay.com/en/about/
[22] https://frontiermyanmar.net/en/limited-relief-for-microfinance-borrowers-as-the-clock-ticks-on-debt-payments
[23] https://frontiermyanmar.net/en/limited-relief-for-microfinance-borrowers-as-the-clock-ticks-on-debt-payments
[24] https://frontiermyanmar.net/en/limited-relief-for-microfinance-borrowers-as-the-clock-ticks-on-debt-payments
[25] https://frontiermyanmar.net/en/limited-relief-for-microfinance-borrowers-as-the-clock-ticks-on-debt-payments
[26] https://ebrary.ifpri.org/digital/collection/p15738coll2/id/133695
[27] https://ebrary.ifpri.org/digital/collection/p15738coll2/id/133695
[28] https://frontiermyanmar.net/en/limited-relief-for-microfinance-borrowers-as-the-clock-ticks-on-debt-payments
[29] https://www.bclplaw.com/en-GB/insights/myanmar-myanmar-government-introduces-its-covid-19-economic-relief-plan.html
[30] https://consult-myanmar.com/2020/05/28/microfinance-institutions-in-myanmar-face-covid-19-cash-flow-crisis/
[31] https://myanmarmfa.com/en/financial-inclusion-myanmar
[32] https://mahamfi.com/about-us/
[33] https://www.centerforfinancialinclusion.org/diary-of-a-myanmar-based-agri-focused-fsp-responding-to-the-covid-19-crisis
[34] https://www.centerforfinancialinclusion.org/diary-of-a-myanmar-based-agri-focused-fsp-responding-to-the-covid-19-crisis
[35] https://www.centerforfinancialinclusion.org/diary-of-a-myanmar-based-agri-focused-fsp-responding-to-the-covid-19-crisis
[36] https://www.centerforfinancialinclusion.org/diary-of-a-myanmar-based-agri-focused-fsp-responding-to-the-covid-19-crisis
[37] https://myanmar.ifpri.info/2020/06/08/assessing-the-impact-of-declines-in-remittances-due-to-covid-19-on-household-incomes-and-poverty/
[38] https://myanmar.ifpri.info/2020/06/08/assessing-the-impact-of-declines-in-remittances-due-to-covid-19-on-household-incomes-and-poverty/
[39] https://modusbox.com/4-digital-essentials-for-microfinance-to-survive-the-economic-rainy-season/
[40] https://www.findevgateway.org/findev-webinar/microfinance-and-covid-19-pakistan-what-happens-after-lockdown
[41] http://www.technologyreview.pk/microfinance-registers-90-plunge-in-pakistan-during-covid-19-lockdown/
[42] http://www.technologyreview.pk/microfinance-registers-90-plunge-in-pakistan-during-covid-19-lockdown/
[43] https://www.covid-finclusion.org/post/what-next-in-india-covid-19-and-the-future-of-the-indian-microfinance-sector
[44] https://www.covid-finclusion.org/post/what-next-in-india-covid-19-and-the-future-of-the-indian-microfinance-sector
[45] https://www.covid-finclusion.org/post/what-next-in-india-covid-19-and-the-future-of-the-indian-microfinance-sector

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