Fostering Responsible Finance in Myanmar’s Infant Industry

> Posted by Hema Bansal, India Director, the Smart Campaign

As a child growing up in India, I was always intrigued by stories from Myanmar, but disturbed by conflicts that it had witnessed. Not knowing much about the country, as an adult I still had an innate desire to visit. On May 7th and 8th, I attended the Responsible Finance Seminar, organized by Entrepreneurs du Monde (EDM), held in Myanmar’s city of Yangon. I was completely awed by the mystical peace of the city, I was also impressed by the demonstrations of support at the seminar for instilling client protection in Myanmar’s microfinance industry. It’s a great opportunity for a young market to secure responsible practices from its outset.

Myanmar, the second-largest country in Southeast Asia, remains one of its poorest. Decades of isolation have severely affected its development. In terms of financial inclusion, a large proportion of the population in Myanmar relies on informal lenders. The formal sector only serves about 20 percent of the population, largely because of the existing financial institutions’ limited capability.

In May 2011, President Thein Sein publicly recognized microfinance as a means of development by enabling local and foreign investors to establish fully privately-owned MFIs. Since the rationalization of licensing in Myanmar, around 110 MFIs have been registered. Deposit-taking institutions have been allowed to set-up shop rather easily due to low minimum capital requirements and the absence of separate prudential regulations from non-deposit-taking institutions, such as rules pertaining to reporting standards and portfolio quality management.

While it is encouraging to see MFIs mushrooming in Myanmar, licenses provided without much scrutiny and without sufficient industry regulations or self-regulation are challenges for the development of a responsible microfinance industry. Given this concern, the Responsible Finance Seminar was focused on bringing all industry stakeholders – including microfinance institutions – together to enhance the sector’s understanding of the principles of client protection and social performance management, and to kick start the process of engagement and deliberation for helping the microfinance industry in Myanmar adopt basic principles of responsible finance.

The seminar had about a hundred participants and included representatives of microfinance institutions (ACLEDA, BRAC, LOMC, BDA, CARD, and Dawn, to name a few), funders (including ADB, IFC, and LIFT), technical assistance providers (such as MicroSave and EDA), a regulator from Bangko Sentral ng Pilipinas, and representatives from CGAP, the Smart Campaign, SPTF,  UNCDF, and UNDP.

The seminar, bringing together this range of stakeholders spanning many markets, provided an opportunity to learn from the mistakes in markets like India where the microfinance crisis was partially triggered by unprecedented growth rates and the lack of safeguards in the industry. Frances Sinha, CEO of EDA India, introduced the Banana Skins report series on industry risk, outlining how important it is to identify potential risks in the sector on a continual basis. There needs to be strong prudential regulations established that reflect the respective risks of deposit and non-deposit-taking institutions, presenters at the seminar contended. New regulation can also address the client protection areas of transparency, fair treatment, and complaints resolution processes, noted CGAP’s Eric Duflos, who is co-author of the IFC/CGAP joint report Microfinance in Myanmar: Sector Assessment. In markets like India, clear guidelines on transparency have made microfinance institutions effective in communicating loan pricing and terms to clients.

Other concerns for Myanmar’s industry that were raised included high price caps and its lack of credit bureaus. In Myanmar there is currently a $500 loan cap, which, considering that 70 percent of the people in the country depend on agriculture for their livelihoods, does not serve much purpose. For example, it misses the spirit of the Smart Campaign’s Appropriate Product Design and Delivery principle, which emphasizes keeping clients’ needs in mind and creating value for clients.

The role of global initiations pertaining to responsible finance was also highlighted, with presentations and interactive sessions on the Smart Campaign’s Client Protection Principles and SPTF’s Universal Standards of Social Performance.

For the Smart Campaign, Myanmar is a unique market because unlike other countries with mature microfinance industries where we have worked, Myanmar presents a virtually new market wherein the Campaign will have the opportunity to influence changes in client protection practices from the beginning. In the short term, the Campaign envisions engagement with the industry stakeholders, transferring its knowledge and resources through Smart Assessor Training, and training for institutions on the client protection principles and on the use of Smart Campaign tools and resources. In the longer term, the Campaign will strive to help institutions achieve Client Protection Certification, thereby creating flagship institutions to guide the sector towards the responsible treatment of its clients.

Image credit: rustyproof

Have you read?

Inclusive Activity in Myanmar

Client Protection is Gaining Ground in Indian Microfinance

The Sustainability Approach to Client Protection: Comments on the Mor Committee Report


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