Text and photo by Joshua Carroll
AYE YWAR THIT, Myanmar – In the remote village of Aye Ywar Thit, southern Myanmar, people live in thatched huts that sit in the flickering shade beneath coconut palms. Men scale the trees barefoot to harvest the fruits, which are then piled high along the bank of a river ready to be stripped of their husks and loaded onto small boats. For the largely agricultural community of 715 people, much is the same as it has been in Myanmar for centuries. One recent development, however, is decidedly modern: the arrival of microfinance.
Than Than Win, who owns one of the boats that carry coconuts, is one of the few people in Myanmar with access to formal finance. Her shipments of coconuts are sent to Yangon, the commercial capital, via a network of waterways that run through the lush southern delta region. Business is good, so with the help of a small loan, she plans to expand. “I would like to buy a bigger boat,” she says. Most in Myanmar are not so lucky, and have to depend on loans by informal moneylenders or pawnshops, where rates can be extortionate.
Aye Ywar Thit is the site of one of thousands of projects considered a success by Myanmar’s largest microfinance NGO, the Pact Global Microfinance Fund (PGMF). The group, which has 670,000 customers nationwide, has been lending here since 2013.
Htay Lwin recently borrowed 150,000 kyats (around US$150) from PGMF to invest in her business growing and selling betel leaf, a mild stimulant popular in Myanmar. “I use the profits to pay for my children’s education. I have two daughters who are students right now,” she says during a fortnightly repayment meeting in the village centre, where several other lenders sit on straw mats fanning themselves.
It is hoped scenes like this will become more common as the microfinance industry develops, in turn helping Myanmar’s economy to recover from decades of stagnation and isolation that have deprived around 80% of citizens of access to formal financial services.
But before that can happen there are serious hurdles to overcome. Myanmar has the most primitive financial sector in Southeast Asia, with most relying on friends, family and informal lender for loans. Many keep gold or hide cash as an alternative to savings accounts.
In 2011 the new semi-civilian government, which replaced the former junta, enacted the Microfinance Business Law. A handful of microfinance institutions (including PGMF’s predecessors) have been operating in Myanmar since the 1990s, but the law created a legal framework and encouraged others to enter the sector. By October last year there were 215 microfinance groups, known as MFIs, licensed to operate.
But the microfinance sector is ambivalent about the new law, which many say is too restrictive. There are signs that the government may be open to change. After objections from the industry, lawmakers raised the limit on loan sizes from the equivalent of US$500 to $5,000.
But lenders say that isn’t enough. “Basically, everything comes back to the regulatory regime,” says Jason Meikle, PGMF’s deputy director. The two major issues with the law, he says, are a requirement to pay at least 15% interest on clients’ saving deposits, and restrictions that prevent MFIs from borrowing to fund their operations.
PGMF funds more than a quarter of its loans with money from its clients’ savings accounts (all borrowers are obliged to deposit a small amount to their savings each fortnight). The 15% minimum interest rate keeps costs up, while at the same time a ban on charging borrowers more than 30% a year means MFIs can’t raise their margins to compensate.
Meikle adds: “We are not allowed to attract savings from non-borrowers, so the amount we can fund through savings is limited to the amount our borrowers wish to save.”
Other ways to fund loans are also restricted by the authorities. The new law allows for MFIs to borrow from banks, “but in reality” says Meikle, “there cannot really be any borrowing.”
For domestic MFIs, the issue is they are restricted to borrowing from the Myanmar Economic Bank, which isn’t lending to them. And international groups like PGMF are unable to find loans from abroad that the Central Bank deems cheap enough. The result is that it will be difficult to build a self-sustaining microfinance industry under the current rules. At the moment, MFIs often need donor money to be able to cover the costs of reaching out to Myanmar’s rural communities.
Htay Lwin, the betel leaf grower from Aye Ywar Thit, is also responsible for organising other lenders in the village. As skinny chickens scratch in the earth nearby, she insists everyone is happy with the project: “We don’t get any complaints.”
In the more remote communities of Myanmar, success stories like this are less common because the costs involved in setting up offices are higher. If villages throughout the country are going to benefit from official loans, micro-lenders would argue, the government will have to relax the rules.
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