Sherpa Hossainy's Blog

IFC estimates Myanmar’s microcredit demand at $1b

Posted in Banking, Finance, Microfinance, Myanmar, Yangon by Sherpa Hossainy on July 9, 2013

Published in Myanmar Business Today (Vol 1, Issue 4) on February 14, 2013

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Demand for microfinance in Myanmar exceeds supply four times as the country’s economy expands following decades of isolation, highlighting the need to build up sustainable microfinance institutions, a study finds.

The study estimates that the total of outstanding loans in Myanmar currently stands at around $283 million whereas demand for microcredit is estimated at $1 billion.

The report, entitled “Microfinance in Myanmar – Sector Assessment,” released on January 29 by IFC, a member of the World Bank Group, and CGAP, a policy and research, said the demand is particularly high among farmers in Myanmar’s rural areas where more than two-thirds of the population lives.

“Myanmar’s microfinance law of November 2011 allowed the development of a nascent microfinance industry. Now there is an opportunity to support existing institutions and bring in new organisations to build a commercially sustainable microfinance network that improves access to finance for small and medium entrepreneurs and rural clients,” said Paul Luchtenburg, IFC’s Microfinance Program Manager in East Asia Pacific and one of the report’s co-authors.

The joint IFC/CGAP report is the first comprehensive publicly available assessment of the microfinance landscape in Myanmar since the enactment of country’s microfinance law in late 2011.

It highlights that the financial sector is underdeveloped compared to the rest of the East Asia Pacific region. Myanmar is one of the poorest countries in the region and increased access to financial services would greatly benefit its population and help the nascent small and medium enterprises, which form the backbone of Myanmar’s economy, grow and create jobs.

The report finds that Myanmar’s banking sector so far has found it commercially challenging to extend financial access to the poor. As a result, fewer than 20 people out of 100 have access to formal financial services, with most people relying on family savings or costly alternatives such as informal money lenders. At the same time, the market among Myanmar’s total population of around 60 million is large enough to attract domestic and international banks that could significantly improve outreach and contribute to innovation in the sector.

“With Myanmar’s breathtaking speed of change, government authorities and regulators are faced with the challenge of quickly bringing policies and regulations in line with the growing economic activity in the country,” said Eric Duflos, CGAP’s Regional Representative for East Asia Pacific and one of the report’s co-authors.

“The current microfinance law clearly signals government commitment to financial inclusion. We recommend that Myanmar’s financial regulators and supervisors adopt international good practices for microfinance as quickly as possible.”

The IFC last month announced that it had ventured into the microfinance sector by lending $2 million to Cambodia-based Acleda Bank for its microfinance project in Myanmar.

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