Bringing banks to the poor

Changes need to be made to promote financial inclusion particularly among the poorest, according to a report by a joint team including several United Nations organizations.

Some 15 percent of adults are currently borrowing an estimated US$3.9 billion from unregulated money lenders in Myanmar while less than 5pc of the population have formal bank accounts. Yet promoting financial inclusion will be no easy task.

The report is the result of a process called “Making Access Possible” or MAP, developed jointly by UNCDF, FinMark Trust (FMT) and the Centre for Financial Regulation and Inclusion (Centre) to look at ways of fostering inclusive financial sector growth. Funding comes from UNCDF and the multi-donor LIFT fund.

The purpose of the report is to provide the Myanmar government with accurate information and recommendations as to what their next steps should be to maximise access to finance for Myanmar’s citizens.

Paul Luchtenburg, program specialist for inclusive finance at UNCDF, who helped coordinate the report, said Myanmar citizens often lack alternatives so are forced to borrow money in the informal sector. Unfortunately informal lending can cost 10pc per month. One of the goals for the future is to move people into the formal lending sector – including banks and MFIs – where they will get lower interest rates.

Mr Luchtenburg met with The Myanmar Times on June 18 for an interview on the report, discussing how to promote financial inclusion in one of the world’s most underbanked countries.

What surprised you the most about the findings of the report in terms of how people finance things in Myanmar?

The biggest surprise was the size of the informal sector. We knew it was out there, and that we didn’t know the scale of it, and it’s almost as large as the commercial bank portfolio.

If you look at where Myanmar is coming from and try to guess where it is going, in terms of financial services, would you say this is a moment in time that is full of opportunity?

Yes, I would say that there are enormous opportunities in this country. At the same time, everyone’s expectations of the golden land are extremely high as well. It is not a “get rich quick” country though and investors need to be here for the long haul. When I look at microfinance, it seems that every MFI in Asia wants to come here and set up operations. Anyone coming in needs to realise that this will be a long term engagement as there are many challenges.

Because the MAP report indicates that Myanmar is not only the poorest country in Southeast Asia, but that it is one which is the most thinly served by financial services – and with the majority of the people living in the countryside – do you see an improvement in financial services as perhaps the most effective way to ease the suffering of the rural poor? Why?

People need a variety of services. They need to have financial services and I think it is an essential piece of improving peoples’ lives but they need other services as well. For example, sickness is one of the key ways people become indebted. If we provide more and better financial services it helps to have more of a financial cushion if there is a problem, but they should know how to prevent and deal with health issues.

What creative ways do you see people using to finance their businesses and lives in the absence of a developed financial services system?

We have to appreciate the creativity of the poor, how they are able, on very little money to cover this cost, to borrow a little money here, and use money there. Actually they are very creative. To learn more about the details of how people manage their money we are doing some research called financial diaries to follow clients for a year to look at their inflows and out flows: how people manage their finances and how are they able to live.

One of the fallacies is that we know that a lot of people live under US$2 a day, and we instinctively think that this means they get $2 every day. In reality they get 50 cents one day, a dollar the next, $2.50 the next day and they have to manage the uneven cash flow.

We are doing these financial diaries to learn how they are surviving financially and will help us develop more appropriate projects based on what they need.

How does the presence of a largely unregulated financial services market present challenges to development, and challenges to people who live in Myanmar? And in a broad stroke should it be made easier?

I don’t think of unregulated financiers [money lenders] as bad guys. They are filling a gap for people who don’t have other options and they have extra money and that’s the way to utilise it. They are entrepreneurs meeting a need. What we want to do is help the formal sector meet those needs in a safer, cheaper, more convenient way.

What would be an easy way for the Myanmar government to increase availability of unsecured credit to the population? And what surprised you most about the report?

The regulatory environment is not fully evolved. What we have to take into account is two-and-a-half years ago microfinance was essentially illegal in this country. Since then there have been 197 MFIs licensed. Although this is a huge challenge to supervise this group it does show how quickly things can happen in a country like Myanmar.

One of the things which makes Myanmar such an interesting place to work compared to other countries is the speed with which decisions can be made. If the top makes the decision, you can get vast changes quickly. We do hope that regulations for the microfinance sector will improve as this will also give financial institutions the opportunity to provide a better variety of services in more remote areas.

Currently according to the MAP report 30pc of people do have access to some type of financial services but only 6pc have access to more than one financial product and the services they have tend to be of lower quality.

So, improving regulations would allow MFIs and other providers to provide better services to more people. As the same time we do need to acknowledge the progress which the MMSE [Myanmar Microfinance Supervisory Enterprise] and the Ministry of Finance have made already.


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