Expanding financial inclusion in Myanmar
History and political situation
Myanmar’s history dates back 13,000 years to when people first settled in the valley of the Irrawaddy River. Throughout its long history, Myanmar has experienced many dynasties and kingdoms. After British rule from 1886 to 1942 and a short period of occupation by the Japanese during the Second World War, Myanmar became independent in 1948. A military coup in 1962 drove the country into international isolation. During this period, Myanmar became the poorest country in Southeast Asia. In 2011, Myanmar regained a civilian government. However, even though the country now has a fully democratic government, the military still controls many of the country’s major assets as well as holding important political positions.
Following the 2015 elections, Myanmar finds itself within the first phase of a transition towards modern democracy. This is applauded by the Dutch government as well as the EU in general. However, the country did receive widespread criticism due to the ongoing conflict with the Muslim Rohingya minority ethnic group in the Rakhine state. Like the Dutch government and the EU, FMO condemns the actions of the Myanmar government in this context. To avoid any harm, FMO makes sure that no projects are initiated in the affected region.
The need for financial inclusion in Myanmar
Market demand for financial services in Myanmar is very high. A survey conducted by UNCDF in 2014 identified approximately 15 mln adults with no access to financial services. It is estimated that 60% of Myanmar’s economic activity is informal and all of this activity stems from micro and small enterprises. Of the approximately 7.5 mln enterprises, only 600k have access to financial services from regulated financial service providers. Overall, the unmet demand for credit is roughly USD 1bn, whereas the current aggregate supply of microfinance services in the formal sector is around USD 300 mln.
Current financial inclusion status in Myanmar
Various other parties (government banks, co-operatives, local and foreign NGOs) currently serve the microfinance sector in Myanmar, but most of them are small and young (<5 years). Moreover, the microfinance sector in Myanmar is highly concentrated with the 15 largest MFIs accounting for the majority of assets. At this stage, most MFIs operate close to urban centres to keep costs under control and become financially sustainable and attractive to investors. MASSIF’s investments in the microfinance sector in Myanmar are therefore making a crucial contribution to the country’s path towards financial inclusion.
Why we use local currency for investments
All of MASSIF’s loans to MFIs in Myanmar are made in local currency. This is beneficial to an MFI and to the end-beneficiary, because it eliminates the MFI’s potentially costly risk exposure to volatile exchange rate fluctuations. MFI’s could pass on additional costs by charging higher interest rates, for example. The ability to pay back debts in local currency means that MFIs do not need to worry about the debt suddenly increasing if the value of the local currency depreciates.