Home Insider World Bank at the forefront of financial inclusion initiatives in Myanmar

World Bank at the forefront of financial inclusion initiatives in Myanmar

Financial inclusion is a gov- ernment priority

As Myanmar gradually move out of econom- ic isolation into one of the region’s emerging dynamic economies, the government rec- ognize the need to ensure that the benefits of development will be shared by all. With a big number of unbanked people, espe- cially those in the rural areas, financial in- clusion is definitely one of the main tasks. Without formal financial institutions, there is no means to mobilize unused or surplus resources of the people, nor a source for loans that will respond to the productive and providential needs. Financial inclusion was even proposed by Myanmar to be part of the priorities during the 18th ASEAN Finance Ministers Meeting in Nay Pyi Taw early this microfinance sector is on top of the govern- ment’s priorities.

Interest in providing microfinance services is high if we are to consider the number of organizations who applied for license. Since the operationalization of the Microfinance Law in 2011, a total of 197 licenses to oper- ate were issued to date. Most of the licens- es were issued to local private companies (89 companies), cooperatives (75), local non-government organizations (19), inter- national private companies (8) and inter- national non-government organizations (6), with many more in the process of review. The trend is towards the growth of the mi- crofinance sector as it covers areas that pre- viously have no financial service providers. With financial intermediation as its main service, that is, the provision of loans and the facility that can mobilize savings from the public, regulation becomes a necessity.

Myanmar is no stranger to internal finan- cial crises. Sanctions by western govern- ments may have impact in the stability of local banks, but the banking history of the country is also replete with failed financial institutions. The events are still recent and memories of those who were affected are fresh and not yet forgotten. This contributes to the low level of trust to formal financial in- stitutions which translates to small number of the population patronizing bank services. Currently, the perceived risk is that, if reg- ulators cannot prevent banks from failing, how much more the microfinance service providers.

This risk assumptions and the idea of build- ing confidence in the sector is seen as the basis for the government’s passage of the Microfinance Law that gave birth to the Myanmar Microfinance Supervisory Enter- prise (MMSE). The MMSE was mandated with the functions of becoming the regula- tory agency that will be responsible for the development and supervision of the micro- finance sector. The agency being new, the main concern is the assumption that the personnel lack the basic knowledge about microfinance. With the growth trend in the industry, the MMSE is expected to be famil- iar how it operates and provide the necessary environment for it to grow and contribute to national development. The need for the agency to be equipped with the necessary knowledge, skills and attitudes to regulate the industry is a primary concern.

World Bank supports the gov- ernment initiative

The World Bank saw the need to support the initiative of the government. Together with the Livelihoods and Food Security Trust Fund (LIFT), the World Bank arranged a co-financing program to address the basic concern of equipping the MMSE and en- hancing their capacity to provide regulato- ry and supervisory activities. The program called Financial Inclusion for National De- velopment (FIND) was launched in early 2013, with the main objective of enhancing the capacity of the MMSE to do its job of building the appropriate environment and strengthening supervisory competencies.

It is expected that the MMSE will be able to handle challenges and issues normally relat- ed to microfinance operations such as gov- ernance, quality of management team and over indebtedness among clients. During a workshop conference last June 6, World Bank shared updates on the program. Na- taliya Mylenko, Financial and Private Sector Development officer of World Bank for East Asia and the Pacific region and facilitator of the conference recognized the small strides done by MMSE but with great impact to the microfinance industry in Myanmar.

Building regulatory frame- work and strengthening su- pervisory capacity of MMSE

Myanmar does not have to start from zero because there are models for good regulatory mechanisms in the region. To start with, the Philippines and Cambodia have good regu- latory mechanisms where they can learn les- sons from. The neighboring Bangladesh and India are also good source of models for reg- ulation. Through the FIND, the following ar- eas are being addressed as part of developing the proper microfinance environment: regu- lation and supervision procedures, reporting and management information systems, use of technology and formation of an industry association. World Bank provided assistance in ensuring that the MMSE has a good grasp of the issue related to the creation of a good environment for microfinance industry to flourish.

So far, World Bank through FIND was able to provide inputs in the formulation of en- abling policies and regulations. It has also conducted training activities to equip the MMSE staff on the operational details of a microfinance institution. An exposure trip to Cambodia last May 5-9 was also done to see firsthand how the National Bank of Cambo- dia (NBC) have supported the development of the industry and how they are doing reg- ulation supervision. It has also supported the initiatives towards the implementation of a standard chart of accounts (COA) that will enable reporting and more effective su- pervision.

There are still policy issues to be addressed, among them interest rate, amount cap, pru- dential ratios and indicators to be observed, loan loss provisioning, disclosure, reporting requirements and others. Other than policy issues, procedural guidelines are still to be firmed up so as not to confuse the microfi- nance institutions. As an agency, it has to look also on the source of its direction. Will it remain under a supervisory committee, or will it be under the central bank as most countries in the region are practicing. What- ever the arrangement will be, suffice it to say that through FIND, the MMSE has gained momentum and is poised to address the is- sues as the microfinance industry grows.