"When foreign investors are coming we do not see you as our enemy but we would treat you as guest. This is our duty to guard you from any harm." U Min Sein, U Min Sein Law Firm
"Financial services play a critical role in enabling poor people to sustain livelihoods and improve living conditions by helping to stretch small, irregular and uncertain incomes to pay for expenses and secure investment opportunities. Given this central role, the long term prize in Myanmar is achieving financial inclusion, which is universal access to a wide range of financial services, at a reasonable cost, for everyone needing them, provided by a diversity of sound and sustainable institutions operating in a competitive market environment." Feisal Hussain UNCDF
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On the second year anniversary of the passage of the microfinance law UNCDF co-hosted an investor conference with TCX and LIFT on the issues around funding for financial inclusion in Myanmar. The conference included investors, regulators, implementers and other service providers such as lawyers, financial advisors and experts.
A primary objective of the conference was to bring together key stakeholders to discuss issues in order to result in a better understanding of the various challenges they face, But each of them have different objectives. For Investors it was to get a better understanding of the conditions for operating and investing in Myanmar. For the investees - banks and MFI's - the objective was to offer exposure to potential investors and the opportunity to give an introduction of their business activities as well as sharing their experience and knowledge of the local market. For the regulator and government officials it was an opportunity to hear some of the concerns from investors and other issues constraining the inflow of funds into the country and to reassure them.
Since the passage of the microfinance law the number of licensed MFIs has increased at breathtaking speed and there are now 183 licensed MFIs operating in the country. Despite this, demand for microfinance in Myanmar still exceeds supply by four times. The need is most acute for farmers in Myanmar's rural areas where more than two-thirds of the population lives.
The Microfinance sector in Myanmar is still undeveloped compared to many of its SE Asian neighbors but is none the less steadily moving out of its infancy stage. One of the key barriers will be the lack of a sustainable source of capital to support the development and expansion of the sector. Funding for the microfinance Sector may require some revisions in current regulations along with targeted loans to professionalize the sector combined with technical support.
The conference highlighted a number of key issues:
- Microfinance is one of the government's priorities for the poverty reduction.
- The informal sector is a primary provider of financing but this comes with a cost (10-20% per month)
- There is low capacity of all institutions at the retail level compared with rest of the region.
- There is a lack of working capital and liquidity to finance the expected expansion of microfinance lending operations in Myanmar.
- There is no APEX institution. Commercial banks cannot offer refinancing because of regulatory restrictions. There are no private investment vehicles or public institutions that normally provide equity investments and refinancing.
- The current microfinance regulations have some areas which make growth for the sector more challenging.
- MFIs are not allowed to borrow funds
- Deposits for MFIs can only come from clients and at 15% interest
- Though some commercial banks are growing quickly the overall capacity of banks is low.
- Commercial banks are not providing services to micro clients.
- The microfinance sector is growing with currently steadily under established organizations INGOs PACT, World Vision, Proximity, Save the Children, and GRET.
- There is interest of several international MFIs and investors to enter the market. ASA international, BASICS and ACCU have come as a part of the UNCDF MicroLead programme.
- Lenders have interest in providing funding if they can find a way to reduce their risks
- Currency risk is one of the key risk that holding back a lot of investors from coming in. So regulators need to be able to figure out how we can monetize that risk and ensure investors trust in the economy of the country.
- Myanmar's regulators are really extremely open and very constructive, the country is willing to listen to any option.
Conference co-hosts:
TCX is a Currency Exchange Fund is a unique financial institution that provides currency derivatives in emerging & frontier markets to its shareholders and their clients. Its shareholders include most major development finance institutions in the world and a number of specialized microfinance investors. Their long term objective in Myanmar is to facilitate the support inflows in local currency so that organizations are not burdened with currency risk.
LIFT The Livelihoods and Food Security Trust Fund) is a multi-donor fund established in Myanmar in 2009. The donors are Australia, Denmark, the European Union, the Netherlands, New Zealand, Sweden, Switzerland and the United Kingdom. The donors contracted UNOPS as fund manager, to administer funds and provide monitoring and oversight for LIFT.
The overall objective of LIFT is to make progress towards the achievement of Millennium Development Goal 1 in Myanmar, to eradicate extreme poverty and hunger. LIFT's purpose is to increase food availability and incomes for two million people. LIFT is expected to continue operations until at least the end of 2016.
UNCDF plays a key role in promoting financial inclusion in Myanmar. They are implementing a number of programs; the MAP research program which did a nationwide supply and demand survey which will be used by the government to develop the financial inclusion road map. MicroLead which is supporting leading Financial Service Providers (FSPs) with savings-led methodologies to expand their operations/services in Myanmar (ASA, BASICS and ACCU) and the financial diaries project which will give detailed information about the financial activity of clients.
source: 4-Traders
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