Can Myanmar Leapfrog Towards Financial Inclusion?

It was a long time since I had visited Myanmar for work and this trip filled us with optimism. After years of isolation, the country is finally opening itself up as can be seen by the number of international investors stepping at the door.

CGAP was recently invited by the IFC to conduct a joint rapid assessment of the market situation. The starting point for financial inclusion is quite low. Local experts estimate that less than 10 percent of adults have access to a bank account in a population of 60 million people. Most people get loans and domestic remittances from informal sources. The banking sector does not serve the lower end of the market, and went into crisis in 2003-2004. A national electronic payment system is still in the works and there are less than 20 ATMs in the country. The cooperative sector is large, but its reputation has suffered from a partial collapse in the 1980’s. The Myanmar Agriculture Development Bank offers financial services to over 1.7 million farmers but does not operate commercially which will slow down its capacity to expand. Several international NGOs and donor projects provide uncollateralized loans to the poor such as Pact, which has over 500,000 clients thanks to major long term UNDP Microfinance project amounting to over US$ 35 million since 1997.

The government commitment to reform the economy has led to at least thirty new laws being issued or revised. Coming from the highest levels in the country microfinance is seen as one of the keys to developing the country, and is even supported by the president of the country. Last November, the parliament issued a microfinance law for deposit-taking and non-deposit taking MFIs. As of last week, already 51 institutions, mostly local private credit companies, had obtained a license from the newly created Microfinance Supervisory Enterprise. This is good news because the law provides a legal footing for MFIs to operate. On the other hand, the low minimum capital requirements could open the door too wide and the interest rate cap set at 30 percent could keep promising institutions away. The new supervisory body for microfinance could rapidly be overwhelmed if too many small institutions obtain a license, especially if they are allowed to raise deposits. Considering a tiered regulatory framework as was done in Cambodia and other countries might help. Poor people in Myanmar would also benefit from the availability of a broad range of financial services (individual credit, savings, payments, remittances, and insurance), rather than just un-collateralized microcredit.

While the regulatory and supervisory framework will require improvements, I hope that Myanmar can “leapfrog” in three ways.

First, the most promising local emerging institutions could benefit from intensive technical support from regional and international technical providers and adopt global good practices. By using new technologies, gaining efficiency, accessing appropriate funding, they could expand rapidly given the huge unmet demand. Second, by attracting foreign microfinance greenfields that have significant experience in banking the un-banked regionally or globally, Myanmar could expand outreach rapidly, and get many local staff trained in the process. Finally, given the low branch penetration, the under-developed payment system, the high transaction costs, and the high demand for domestic transfers, mobile network operators could play a major role in expanding financial inclusion, especially remittances, as was the case with M-PESA in Kenya. This third option will take some time and it will first require liberalization of the communication sector, improved infrastructure, and investments to build the supervisory capacity.

To seize these opportunities Myanmar will require agile and coordinated support from international donors and investors. The coalition of donors working together under the LIFT program (Livelihoods and Food Security Trust fund) has set a good example. Donors, funders and investors can build on lessons learned on aid effectiveness, particularly on co-ordinating effectively, and on global good practice in microfinance to help Myanmar leap ahead.


10 August 2012 Submitted by Dr Rengarajan (not verified)

Dear Eric Duflos
The supply side factors such as technology, mobile magic, regulatory frame work , president support etc may al help leap frog towards financial inclusion in Myanmar. But can they serve the purpose beyond inclusion at ground level? Are they adequate for making both commercial banks and cooperative system more viable and successful business? In this context what I feel that there is a need to consider demand side realities for making responsible financial inclusion with more purpose oriented beyond inclusion towards development at macro level and upliftment of low income people at micro level. as well. Probably these demand side factors also may explain the cause for prevailing backwardness, unmet demand , exclusion, unviability for financial institution for expansion etc., These demand side challenges therefore need to be looked at on three vital areas viz., human, social, and physical capital. Without making these capital investment adequately , financial inclusion will not work .

In the first, the people in the pyramid with different capability at the bottom need to be healthy and educated to be productive so that the invested amount is productively used

Secondly, there is a need to create substantial degree of trust and functioning of the institutions at local level like social capital (community based organizations ) facilitating financial transactions taking place smoothly after inclusion

Last and not the least, adequate accessibility to physical capital in terms of roads, bridges, canals, transport, ware houses, electric power, telecommunication market yards assume more important for making financial input productive and useful . These forms of capital provides supporting linkages ( forward and backward) for productive functioning economic activities for sustained income generation a vital factor needed for both social mission and financial goals . To illustrate an example. Finance can be made to the poor for livestock farming but without good road and transport both inputs and outputs for running the livelihood would be difficult in remote areas in particular. On similar account marketing of milk and any livestock based products for that matter, may be difficult and eventually leading to loan delinquency and poor recovery and NPAs in the chain effects.
In such a backdrop mere delivering micro credit either branch or branchless mode using mobile network in the supply front , it would not yield expected outcome and also is risky. What is therefore emphasized here is that there is an imperative need to arrange physical capital as explained above, along with finance capital either simultaneously or sequentially contextually depending on region’s geo profile within a country.. This is a real challenge need to be addressed . Probably if these challenges are effectively challenged , it would go long way in creating more opportunity also for more commercial investment benefitting both for the supplying institution and the poor client as well. Financial inclusion would also be a meaningful one In this context state has an important role in this regard in terms of creating adequate infrastructure as indicated above for strengthening the efficiency of micro financing system and productive functioning of micro credit in fighting against poverty and regional economic development as well
in the country.
Thank you for sharing my views
Dr Rengarajan

13 November 2012 Submitted by Dinos Constantinou (not verified)

Dear Dr Rengarajan,

Thank you for sharing your views on Eric's interesting article based on the recent CGAP assessment of the market for financial services in Myanmar.

I was wondering if you might have written any articles or similar pieces on economic context for microfinance in Myanmar.

Any suggestions for further reading on your work or that of others would be most welcome.

Kind regards,


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