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10 Things to know about Microfinance in Myanmar

T here is an increasing interest in business in Myanmar as the coun-try opens up its economy to the rest of the world. One of these is financial ser-vices, particularly ‘microfinance’ which has evolved from informal moneylenders and stereotyped “loan sharks” into a billion-dol-lar global industry with commercial inves-tors participating, stock market listing and regulation by government agencies. With the establishment of the Grameen Bank in the early 80s, microfinance has since become an instrument in poverty alleviation, and in stimulating rural economies.

The potential for microfinance in Myanmar is huge. A large part of the country is still in-accessible and remote areas have no formal financial service providers. In most areas where financial service providers are pres-ent, many entrepreneurs are still not able to access the financial services necessary for ex-pansion. Emerging enterprises are also left to scavenge working capital from informal sources that are expensive and unreliable. Recent emphasis on ‘financial inclusion’ and the proof that there is indeed wealth at the “bottom of the pyramid” has attracted com-mercial investors to venture into the micro-finance industry. Traditionally this was the turf of non-government development organ-isations. For those interested in venturing into microfinance operations, these basic facts are important.

Opportunities in the microfi-nance industry abound In November 2011, the Myanmar Microfi-nance Law was passed outlining the frame-work for the operations of microfinance activities in the country. It defines microfi-nance in the context of the country’s finan-cial system and provides for the licensing and supervision of microfinance service providers. Microfinance institutions can provide the following financial services to its clients:

  1. Credit
  2. Savings deposits
  3. Remittance services
  4.  Insurance services
  5. Borrow locally and from abroad
  6. Other financial service

There are two types of licensed microfinance institutions: deposit-taking institutions and non-deposit-taking institutions.

  • Deposit-taking institutions are full financial intermediary institutions utilizing deposits from its clients to finance lending operations.
  • Non-deposit-taking institutions provide loans from their own funds. In simple words, microfi-nance service providers operating like a bank.

Microfinance is a regulated in-dustry in Myanmar Myanmar is no stranger to financial crises resulting from bank failures.

As such, regula-tion was among the primary concerns of the government when microfinance was allowed to operate in the country. It is necessary to ensure that ordinary people utilizing finan-cial service providers are protected. The regulation of microfinance institutions was placed under the Myanmar Microfinance Supervisory Enterprise (MMSE) a newly formed agency, previously tasked with the management of pawnshop operations of the government. This is the agency that issues licenses to operate, monitor and supervise microfinance institutions. It is expected that there will be a harmonization of operations since the previous function of the agency was to manage pawnshops, while microfinance primarily requires the provision of non-col-lateralized loans. Compared to neighboring countries with vibrant microfinance indus-tries like Cambodia, Vietnam and the Phil-ippines, regulatory functions are vested with their respective central banks.