Details on LIFT's 2015 - 2018 Financial Inclusion Programme are available here.
Background
The enormous gap in access to financial services remains one of Myanmar’s most pressing development challenges. Improving access to finance for unserved and underserved market segments is critical to expand economic opportunities for rural households, while generating positive social and economic benefits for the Myanmar economy more widely. LIFT's Financial Inclusion strategy is available here.
LIFT's Approach
Why LIFT Invests in Financial Inclusion
The enormous gap in the supply and access to financial services remains one of Myanmar’s most pressing development challenges. Improving access to finance for unserved and underserved market segments is critical to expanding rural households’ economic opportunities, while generating positive social and economic benefits for the country.
LIFT is committed to promoting and developing a rural financial market that is inclusive of all economic strata. Rural finance comprises the full range of services—loans, savings, payment and money transfer services and insurance—and encompasses both agricultural finance and microfinance. LIFT has been investing to expand sustainable access to rural financial services by prioritizing the development of efficient and sustainable financial intermediaries—microfinance providers, cooperatives and commercial banks— and demand-driven financial services that reflect a rural financial market systems approach.
Microfinance has recently come under scrutiny regarding claims that it is a panacea to alleviate poverty. As a result, LIFT has been asked on a number of occasions to justify its investment in microfinance. LIFT recognizes that many borrowers do not invest in small businesses, but use loan funds for non-business purposes. LIFT’s support to microfinance is based on its experience that microfinance does many things that are very important for poor people, helping them to cope with poverty whether or not it helps them escape poverty. The poor have low incomes, and these incomes tend to be uneven and vulnerable to disruptions. The poor value microfinance because it is more reliable and less expensive than moneylenders, even if it is often less flexible. This may be why it appears that microfinance has a positive impact on health and nutrition. The LIFT 2013 Household Survey supports this ‘hypothesis’ in that it shows the proportion of LIFT households using moneylenders declined significantly.
Microfinance Providers
Microfinance remains the largest component of LIFT’s financial inclusion programme. By the end of 2015, LIFT was supporting 41 microfinance partners, which are listed below.
Nine local microfinance organisations (local NGOs): Ar Yone Oo (AYO), Border Development Association (BDO), Ratana Metta Organisation (RMO), Environmental Conservation and Livelihood Outreach Foundation (ECLO), Myanmar Heart Development Organisation (MHDO), Social Vision Service (SVS), YMCA, Wan Lark, and The Sun Institute
24 credit cooperatives supported by the Asian Confederation of Credit Unions under the MicroLead project
Three international microfinance NGOs: Pact Global Microfinance Fund (PGMF), Proximity Designs, GRET (Chin) and GRET (Dry Zone)
Four international microfinance companies: ASA International, Alliance Myanmar Microfinance, Fullerton Myanmar Microfinance, and Vision Fund
In all, these microfinance providers reached nearly 1 million clients from 12,658 villages countrywide. (See Annex 5 for a list of LIFT-funded microfinance partners and details of their achievements.) This comprised 55 per cent of the total microfinance market in terms of numbers of total clients served by all 168 microfinance institutions in Myanmar.
Institutional capacity development for microfinance
Pact Global Microfinance Fund (PGMF) and the International Finance Corporation (IFC) have been contributing to institutional capacity development of microfinance organisations in areas, such as microfinance portfolio management, human resource management, information system management, financial product development, client recruitment, and monitoring of social and economic changes among the clients (borrowers and depositors).
In July 2012, LIFT funded the PGMF project, Myanmar Access to Rural Credit (MARC), which focuses on organisational development of local NGOs’ microfinance business units (MFO). The PGMF MARC team provides institutional capacity development and access to a convertible debt to grant financial instrument to nine local microfinance organisations with a total client base of nearly 53,000 households to access responsible financial services (up 86 per cent from 2014 to 2015). Out of nine MFOs, six are operating in the Dry Zone, two in the Delta, and one in Rakhine State.
In terms of institutional performance, all nine MFOs reached their Operational Self Sustainability Ratio, i.e. their operational costs were fully covered by their income, by the end of 2015. In terms of financial self-sustainability (the status of covering operational costs by income after adjusting for financial costs and inflation), three MFOs were self-sufficient—AYO, BDA, and MHDO—by the end of 2015. With the conversion from an NGO business unit to an independent NGO providing microfinance services, or to a company, their debt will be converted into a grant—the goal is to create a better governance structure through separation of microfinance and the NGOs’ other activities. The grant with LIFT will end by June 2017, and the project target is financial self-sufficiency of all MFOs by then.
There is a shortage of people with microfinance skills and experience in Myanmar. Microfinance institutions (MFIs) have recruited fresh graduates and people with basic skills in financial services and provided them with relevant training. However, providing in-house training remains a costly option. There is a demand for training facilities, but it is unclear if there is an effective demand (i.e. are MFIs willing to pay for the actual cost of training?). LIFT has been supporting the Myanmar Microfinance Association (MMFA) to conduct a series of technical training, such as microfinance concepts and tools, financial management and auditing, risk management, and human resource management through its project implemented by IFC.
IFC delivered a total of nine microfinance training courses during 2015 with the aim of promoting international good practice across the sector. The training was targeted at staff from local and international MFIs, as well as from the Financial Regulation Department of the Ministry of Finance, and were conducted in close collaboration with the MMFA. Training topics included: 1) finance and accounting, 2) risk management, 3) human resources management and 4) internal audits. Each topic was delivered in a comprehensive manner over five full days in Yangon and Mandalay with 212 people attending, of whom 117 (or 55 per cent) were women. Encouraged by the successful delivery of the first courses, the MMFA established its own Microfinance Training Centre in Yangon to serve as a venue for training and to host discussions, seminars and workshops relevant to microfinance in Myanmar. The centre was launched in September 2015 and the remaining IFC training in Yangon was delivered there, raising the MMFA’s profile within the sector, and the venue as a focal point for microfinance in Myanmar. MMFA also receives nominal fees collected from participants, which could then be applied towards the development of a training programme offered by the MMFA if the business plan is favourable.
Providing responsible financial services
According to Consultative Group to Assist the Poor (CGAP), responsible financial services balance the benefits of clients and service providers’ long-term viability where client protection is built into the service design and business at every level. LIFT’s investment in institutional capacity building has contributed to a significant outcome for responsible microfinance in Myanmar—product diversification driven by client demand, leading to a customization of financial services to meet that demand. In addition, LIFT is investing in improved microfinance governance and business organisation (operational and institutional efficiency).
Agricultural loans
Microfinance is generally not thought of as providing agricultural credit. But, approximately 50 per cent of loans disbursed in Myanmar are for short-term agricultural working capital. LIFT microfinance partners provided more than USD 100 million of agricultural loans to more than 370,000 clients in 2015. As a basis of comparison, credit from LIFT microfinance partners for agriculture is nearly 10 per cent of the total Myanmar Agricultural Development Bank (MADB) loans disbursed in 2013-14.
The design of agricultural loans has had to take into consideration that smallholder farmers and small businesses engaged in support services typically face seasonal income and long maturation periods, and are exposed to considerable risks. LIFT’s microfinance partners have started supplying more customized financial services and conditions for agricultural finance during 2015 (e.g. longer repayment and grace periods, less frequent repayments and hire purchase (leasing) products). LIFT’s investment in institutional capacity building has contributed to improved risk management on both the client and institution sides that have enabled microfinance to penetrate the agricultural finance market.
Most agricultural loans in the Delta were for paddy, as it is the largest crop and requires the most labour and agricultural inputs. Although farmers had access to agricultural loans from the MADB at MMK 100,000 per acre for a maximum 10 acres, they had trouble getting the loans because MADB would not disburse new loans until all farmers in a village tract fully repaid their previous loans. Therefore, loans in the Delta, especially for initial working capital at the beginning of the crop cycle, were in high demand. In other geographical areas—the Dry Zone, Uplands, and Rakhine—LIFT microfinance partners experienced high demand for loans for other crops, such as beans and pulses, winter crops (vegetables) and other cash crops and plants (e.g. flowers and betel leaves). Farmers had limited or no access to agricultural loans from MADB for non-paddy crops.
Lenders have also discussed different loan scenarios with clients, such as extensions to the loan period, re-adjustment of collection times and increasing loan size. For example, Proximity Designs extended the agricultural loan period from five months to nine, then to 11 months, according to the crop cycle and market prices. PGMF also did not collect any repayments in the first three months of the loan to betel leaf growers, according to a negotiated loan agreement. These changes helped clients avoid having to repay microfinance loans by borrowing from other sources at a higher interest rate.
Small business loans
Agricultural loans by themselves are not sufficient to support rural development. Microfinance clients, including those from farming households, often request loans for starting small businesses or expanding existing businesses. Small-scale animal husbandry can provide supplemental income to rural households. There are also other rural small businesses, such as making brooms with coconuts leaves, making bamboo baskets and weaving cloth with manual looms. LIFT microfinance partners supported these households with small business loans, ranging from USD 67 to USD 250, charging 2.5 per cent per month. The clients were also able to access higher loan amounts to expand their businesses. In 2015, LIFT microfinance partners provided small business loans worth USD 210 million to nearly 800,000 clients.
Beneficiary welfare funds
Fourteen of the 40 LIFT microfinance partners have introduced a beneficiary welfare fund for clients. The fund is available to clients in case of death or natural disaster. In these cases, the outstanding loan amount is paid off on behalf of the client (and meets their responsibility to the group—joint liability ‘social’ collateral), or the client receives a cash payment. For example, PGMF paid out USD 2.8 million from its beneficiary welfare fund to more than 65,000 of its clients. In a truly innovative financial service, PGMF, from its beneficiary welfare fund, provided a cash transfer of between USD 25-58 to cover the costs of childbirth. During 2015, nearly 40,000 women received cash transfers of USD 1.6 million.
Insurance
Fullerton Myanmar Microfinance contracted a private insurance company to insure their clients against outstanding debt in case of death. The premium is one per cent of the loan.
Credit Cooperatives
Cooperative membership has increased from 800,000 members to 3 million members during the past two years. Growth has been driven by access to a USD 300 million loan from the Export-Import Bank of China (China Exim Bank). LIFT, in partnership with the Canadian Cooperative Association (CCA), is preparing a business plan to implement a ‘model’ credit cooperative project that will serve as a platform for the modernisation of the cooperative movement in Myanmar, which is the second largest provider of microfinance (by membership) in Myanmar. Of particular importance, the model credit cooperatives will need to mobilise new capital once the China Exim Bank loan is repaid.
Saving is not new to people in rural communities (su jay is the Myanmar name for an informal group that operates as a rotating savings and credit association and is typically found in ‘commercial’ rural areas). LIFT partnered with the United Nations Capital Development Fund (UNCDF) to implement the MicroLead project that promotes savings-led financial institutions in Myanmar. One of the project’s partners—the Asian Confederation of Credit Unions (ACCU)—is establishing new village-level cooperatives, taking advantage of existing saving practices, such as su jay, in rural areas. ACCU has targeted only poor households for credit cooperative membership. The amount of savings was decided by the members depending on their capacity to save. Started in 2013, by the end of 2015, 24 cooperatives, with 9,746 members, had total savings of USD 103,075, or USD 11 per member. Fifty-two per cent of the members had taken loans with the total loans outstanding at the end of 2015 at USD 230,509, or an average of USD 46 per person.
Banks
Banking is the largest segment of the financial sector in Myanmar. It contributes 90 per cent of total assets of all financial institutions. However, the number of banks remains small, with only one bank for every 100,000 people.
According to the financial institution law, banks are not allowed to provide loans without collateral. In the rural sector, at least five commercial banks are offering hire-purchase arrangements to allow small businesses to buy agricultural equipment. The general hire-purchase product requires a down payment of between 30-40 per cent and Form 7 (land title) from the lessee, and a 60-70 per cent guarantee from the equipment dealer. The size of the cash down payment and provision of Form 7 is a constraint for many small businesses to be able to access hire-purchase services. LIFT has partnered with Yoma Bank to expand its hire-purchase of agricultural equipment for small businesses. In its partnership with LIFT, Yoma Bank has initially reduced the cash down payment to 10 per cent and does not require Form 7 by the lessee. The project is targeting 19,000 small businesses over three years. In the first three months of 2016, Yoma Bank has financed agricultural equipment valued at USD 3.8 million in partnership with LIFT.
Gender Analysis
The microfinance providers supported by LIFT provide financial services to more than one million clients—92 per cent of whom are women. However, the proportion of female clients on its own is not an adequate measure of the impact of microfinance on gender equality. A better measure would be fairness in access to financial services and to the distribution of development outcomes. LIFT is not yet to provide a complete analysis in this regard, but some progress has been made.
Gender Analysis Indicators
Women
Men
Total
Clients
866,914 (93%)
67,597(7%)
934,511
People trained in financial literacy
834,456 (98%)
22,267 (2%)
856,723
Staff working in microfinance providers
2,540 (60%)
1,690 (40%)
4,230
Financial literacy
LIFT helps its partners improve the quality and appropriateness of financial services to both men and women, but particularly the appropriateness of services for women as they are 92 per cent of the total clients served. In order to achieve equitable outcomes, LIFT partners have designed their financial literacy training for the needs of both women and men. Increased capacity of women to understand and use financial services effectively is measured through the number and proportion of women and men trained in financial services, and the number of implementing partners that conduct financial literacy training in connection with service delivery. In aggregate, 87 per cent of female clients receive financial literacy training as compared to just 31 per cent of men. Financial literacy training includes the rights and obligations of borrowers, interest rates and the types of financial services available.
Leadership and decision making
This is measured through the number and proportion of women who are employed by microfinance providers. Women’s participation and leadership in microfinance operations can lead to changes in perceptions among men as to the benefits of women’s economic empowerment. The high proportion of women in the operations of microfinance providers—60 per cent of LIFT partners’ staff are women—is an indication that women participate equally in decision-making and leadership.
