Myanmar’s rural inhabitants are being left without access to financial services because the weak regulatory infrastructure in the country is creating a gap between microfinance firms and institutions’ local capacity, according to speakers at European Microfinance Week, which took place in Luxembourg last week.
The conference on 16 and 17 November drew in microfinance institutions, non-governmental organisations (NGOs), development finance institutions (DFIs) and government representatives to explore the challenges in developing access to basic financial services for the world’s underprivileged.
Paul Luchtenburg, programme specialist for inclusive finance at the United Nations Capital Development Fund (UNCDF), said Myanmar’s underdeveloped financial infrastructure, compounded with its macro-economic instability and inflationary pressures, continues to hold back the country’s poorest.
“Regulators are not enabling but rather, constraining financing outreach to rural areas,” he said.
Myanmar is the second largest country in Southeast Asia and two-thirds of Myanmar’s 62 million people live in rural areas. Of the total adult population, around 70 percent are financially excluded, with only 5 percent active holders of bank accounts. Just 12 percent of young people aged 18 to 24 meanwhile are properly banked. U Kyaw Win, Myanmar’s minister of finance, has emphasised the need to assist the country’s poorest inhabitants, calling financial inclusion a cause of “revolution, not evolution”.
And growing demand versus a lack of supply of microfinance from urban-focused private banks, most of which lend at interest rates above 10 percent, raises a systemic barrier to development in Myanmar.
Sanjay Sinha, managing director at Micro-Credit Ratings International (MCRIL) said the internal strucuture of banks in Myanmar places microfinance on the lower rungs of institutional governance.
“The people who are supposed to know about microfinance are not the people who make the decisions,” he said
According to UN data, around 9 million adults in Myanmar source loans from informal providers, the total outstanding value of which is about US$3.6 billion.
“There is a gap in the provision of loan sizes. MFIs average about US$120 for loans and banks US$70,000. Between these two amounts, is a large gap of unserved clients,” Luchtenburg explained. He added that the total outstanding loan activity for microfinance in Myanmar is US$223 million, while local companies make up the vast proportion of microfinance activity, followed by foreign firms and NGOs.
The panel however agreed that Myanmar’s government is eager to reform policies that have direct impact on the financial sector. Sinha said visible efforts to build local capacity, including programmes to train people in regulatory and supervisory skills, are short-term fixes that translate unreliably to better-run institutions.
“We’re aware that skills are being imparted, but not quite aware how those skills are being used,” he added.