In an unlicensed pawnshop in Kungyangon, southern Burma, a carrier bag full of empty cassette tape cases sits coated in a thick layer of dust on a top shelf. The cases still have their sleeves, featuring cheesy mug shots of Burmese pop stars from days gone by. These obsolete little artefacts are not forgotten junk, but the collateral for a loan that the borrower has long since defaulted on.
Elsewhere in the shop, which also serves as the owner’s living room, a crumpled old sun hat is kept as surety against a more recent loan – the equivalent of just a few pence. Bundles of river-stained nets spilling onto the floor are testament to the fact that local fishermen have hit rough times recently.
Pawnshops like this, unofficial but largely tolerated, are popular among the poor because they offer small loans and require only low-value everyday items as collateral. With steel lunch boxes, bags of sarongs and even a pair of binoculars, the pawnshop looks more like an overstocked British charity shop than a grey market loan company charging rates of up to 20% a month.
There are some rules, however, on what can be pawned there. “We wouldn’t accept filthy kitchen utensils, or used underwear,” says the owner, who spoke on condition of anonymity because he feared being targeted by police.
For the vast majority of people in impoverished Burma, access to formal loans is not an option. Decades of sanctions and catastrophic economic mismanagement have crippled the banking system.
Private banks cater mostly to the wealthy, and state-run institutions are ill-equipped to reach much of the largely rural population. The result is that around 80% of the south-east Asian nation’s 51 million citizens have had to find other ways to manage their money.
In many villages, like Da Yei Lu in Kungyangon Township, small groups of wealthier residents moonlight as informal moneylenders. In this village, they are mostly farmers with a few acres of lush green paddy field.
Rates vary from 6-20% a month. “It depends on the type of borrower and their background,” says U Mya, a rice farmer and fisherman who started lending on the side eight years ago. A borrower’s creditworthiness depends a lot on reputation, something the lenders are quite blunt about. “I never lend to strangers, or extremely poor and lazy people,” says U Mya.
People come to the lenders for a number of reasons. For Wut Yi Zaw and her husband Lin Lin it was to build their house. Like many of the 660 homes in Da Yei Lu, it is a simple, one-room structure with bamboo walls and roofing made from palm leaves. It sits on low stilts that help circulate air in the hot season and stop the house flooding during monsoons.
By scraping together their earnings as seafood vendors and casual labourers, they managed to save two-thirds of the 150,000 kyats (roughly £95) they needed for the house, but had to turn to a lender for the final 50,000 kyats. At 7% a month, says Wut Yi Zaw, “the rates are really high”.
Despite that, villagers want good relationships with the lenders who are, after all, their neighbours too. “We are poor and they are our main suppliers of loans,” says Daw Tin Gyi, an elderly woman and friend of Wut Yi Zaw and her husband.
Although the loans are unofficial, the lending process follows a number of formalities, U Mya says. “I make an agreement with them on paper with their signature or fingerprint. If someone couldn’t repay the loan, I would sue them in front of the local chieftain. But so far I haven’t had to.” The chieftain is also present as a witness for larger loans, he says, helping to ensure that repayment rates stay surprisingly high.
There is little data for the informal sector, but microfinance lenders operating in the region put the repayment rate for official loans as high as 99.8%. There are a number of factors behind this, but one thing that heavily influences Burmese attitudes towards debt is Buddhism, the country’s majority religion. The concept of samsara debt says those who die owing money will return in the next life as a servant to their debtor, or even their animal.
“I don’t want to be inferior to my lender in the next life,” said one Da Yei Lu villager as she sat beneath a Buddhist shrine laden with bananas and other offerings. She asked not to be named because she was embarrassed about her finances. She borrowed 500,000 kyats from a local teacher to start up a small business making purses. “I won’t feel safe until I’ve paid back the money,” she said.
“We’ve often had clients default on a loan, and then show up again to repay us two years later when they’ve managed to gather the money,” said Jason Meikle, deputy director of the Pact Global Microfinance Fund (PGMF), an NGO offering business loans to rural communities in Burma.
PGMF and other NGOs are one of the few formal avenues through which people in rural communities can save, though their reach nationwide is limited. Many still distrust banks with their money after a run on accounts in 2003, and there is a long history of financial disasters before that. After coming to power in a coup in 1962, General Ne Win nationalised every local and foreign bank in the country in an attempt to create a socialist autarky.
He also wiped out the cash savings of millions of citizens on two occasions during his reign by declaring various denominations of the Kyat illegal. On the last occasion, in 1987, the general withdrew several notes from circulation and issued new 45 and 90 kyat bills. The bizarre denominations, both multiples of nine, were reportedly chosen because an astrologer deemed the number auspicious. For savers the decision was devastating.
Since 2011, when the junta stepped aside for a semi-civilian government, there have been sweeping economic reforms, including a new microfinance law. The new law offers promise, yet with a cap on interest rates at 30% and no foreign funding allowed for domestic lenders, it’s still considered too restrictive. But fixing the damage done to public trust in the Kyat, as well as banks, will be the longest and most challenging process.
“I don’t believe in cash, it’s not safe,” says Soe Paing, a landowner and rice farmer in Hmaw Pe, a village near Da Yei Lu. Instead, he keeps most of his wealth in coarse paddy rice stored in a silo behind his house, about 3,600,000 kyats worth. It keeps for up to a year before he needs to sell.
His family’s financial life revolves around both this staple crop and another tangible asset: gold. He traded in the family’s gold jewellery at an official pawnshop to help fund his daughter’s university education, he says as he sits crossed legged on his hardwood floor, his living room wall lined with portraits of his children in graduation gowns. Gold offers a way to store wealth without keeping cash, and as a means to borrow.
Still, many borrowers appear to prefer the cheaper regulated products even if they’re not yet as versatile as informal ones. U Mya, the informal lender, says he is beginning to feel the pinch as microfinance NGOs make their presence felt in the region. “Money lending only used to cover some of my household expenses,” he says. “Now there’s official money lending here with the support of the government, I doubt I’ll be able to make much more.”
Source: The Guardian