The relevance of microfinance

Microfinance is considered as the most efficient ways of ensuring financial inclusion in Myanmar. This is in line with the objective of decreasing the number of poor, as the country showed consistent high growth rate since it opened up its economy to the rest of the world. Financial inclusion is the provision of financial services to people who are considered “unbankable” and are excluded from the services of formal financial institutions. With less than 5% of the people having bank accounts, a lot of things has to be done for the financial services industry to be inclusive.

Financial inclusion initiatives in Myanmar started with the right step. The government passed a micro finance law and formed a regulatory agency. International NGOs with micro finance operations helped in generating interest until the private sector gradually took part in the industry resulting to more than 200 registered micro finance service providers. There were areas for improvement to make the industry more inclusive and aligned with the global practices in micro finance, but suffice it to say that the industry has delivered financial services in the rural areas. Some advocates of financial inclusion would like to see Myanmar following the best practices of Southeast Asian countries like Cambodia and the Philippines who were able to develop vibrant micro finance industries.

Some observers however view the present condition as rather slow. More poor people could have been extended services if the regulatory framework is improved, particularly the creation of a demand driven environment, to create interest for more private sector participation. One of the main issues is the restriction for microfinance institutions (MFI) to access loan funds from foreign funding agencies and social investors.

Support from donor agencies

At present, the biggest MFIs in the country are supported by the Livelihood Trust Fund (LIFT), the multငdonor agency supporting rural development. It has supported the de- velopment of the microfinance industry by providing loan funds to MFIs and in the de-

to 40% in 2020, or an increase of 10% in six years. With her advocacy, it is expected that more people will be interested to invest in the industry. The regulatory agency will also work fast in creating a better environment that will facilitate more services to hard-to- reach areas.

One of the opportunities given emphasis by Queen Maxima is the growth of the telecom industry and the proliferation of applications that facilitate mobile or electronic banking. This is a significant development because it can revolutionize the provision of financial services. With cellphones becoming a necessity and most of the poor can acquire a basic unit with talk and text functions, using it as a platform to access financial services offers great potentials.

The challenge of generating more funds

Loan funds remain to be the main concern of MFIs. The current situation is that most MFIs have limited funds and there are no domestic sources that can supply the requirements needed for expansion and scaling up of operations. Current government policies restricted the MFIs’ capacity to borrow. As such, it cannot access from social investors that have financed and helped develop microfinance industries in other parts of the world.

The Myanmar Microfinance Supervisory Enterprise (MMSE) is the regulatory agency for microfinance institutions, but for loans and financial infusion, the authority is with the Central Bank. The main priority of the Central Bank is financial stability which is why it is strict in its implementation of its mandate. Considering that the country has experienced several bank crises in the past, the Central Bank does not want a repeat of those crises. International funding institutions that would provide loans to current microfinance institutions has to pass through a local government bank and channel the funds through it. Since MFIs are treated as for-profit companies, they are required to produce real estate properties as security for the loan, a basic lending requirement. This requirement is what most MFI finds to be limiting and hard to comply.

The other option is to generate internal resources through savings mobilization. However, to have substantial volume, the MFI has to invest in good staff and capacity building, IT and management information system (MIS) and equipment that may be too costly for the MFI to take on. Besides, the past bank crisis that sucked the money of ordinary people are too fresh for them to appreciate depositing their money to financial institutions.

Scaling up to impact poverty reduction

Financial inclusion does not end with the provision of microfinance services. The relationship of the MFI with the borrower client should also result to the enhancement of financial discipline and the management skills of the latter to sustain the livelihood activities. To some, it should also result to the scaling-up of the economic activity to increase the income-generating capacity of the clients. It means expanding the present economic activity or diversifying and engaging in other productive activities that will provide additional income.

Prof. Muhammad Yunus of the Grameen Bank referred this as social entrepreneurship. As he shared during a public forum in Yangon last March, enterprises become viable when a big number of people are involved. The most ideal examples he cited are the cellphone program of the Grameen Bank where women acquired cellphones through loan and offer it as pay-for-service in the village. Another example was the solar power promotion where people outside the grid were able to enjoy power supply through the solar home systems. The volume of these en- terprises allows the Grameen Bank to earn while the people also earn or increase their productivity.

Moving up from livelihood to micro enterprises and later on small enterprises re- quires formalization and other adjustments. These changes ensures that the enterprise will not just be a hole-in-the-wall and fly-by- night operation, but a sustainable business that will increase income and maybe in the future create employment opportunities for others.

Future actions

As the poor people are struggling to make a living and as the MFIs are finding ways to provide the much needed capital, what remains to be done can be shared by all stakeholders. Government agencies can create the right environment for financial services to flourish and provide much needed infusion in the marginalized areas of the country.

As early as this time, MFIs should also focus on scalable enterprises and not only the livelihood-type activities. These scalable enterprises can be aligned with sectors that experience growth, and where the social enterprises can partnered like tourism, agri- culture, environment and other sectors.

Finally, promoting community-owned financial service providers like cooperatives that can help distribute wealth and create a more equitable society. Through these institutions, economic development can thrive with grassroots participation.