Micro lenders eye growth paths

World Vision is attempting to become the first NGO to obtain a commercial licence for its Microfinance Institution (MFI) arm in Myanmar, as the industry increasingly professionalises, more commercial players enter and rules governing the sector are established.

Myanmar’s MFIs – which often have government or NGO roots – are looking at ways to borrow larger amounts of capital, receive equity investment and turn profits as large, often foreign-funded commercial MFIs begin setting up shop in the country.

World Vision’s MFI arm currently operates as an NGO, but its managing director Neal Youngquist said it is the first NGO operating domestically to pursue a transformation to a commercial licence. “The finance sector in Myanmar is evolving and emerging at the moment,” he said.

“You have to be flexible, as World Vision is doing when it contributes perspective and advice.”

World Vision aims for its MFI branches to operate as a separate entity under a commercial licence, as it allows for improved internal governance and access to international wholesale lenders, he said.

There is no restriction on NGO-licensed MFIs turning a profit, but some insiders say it is more acceptable for image reasons to show profits as a commercially-licensed institution. A commercial licence also clears the way for potential equity investment, while outside support to NGOs is often limited to technical assistance.

Myanmar has about 2.8 million MFI clients borrowing some K236 billion (US$242 million), according to a January International Finance Corporation report on the industry.

State-owned Myanmar Agricultural Development Bank has the largest domestic small-scale loan portfolio of K84 billion (US$86 million) according to the report, while the UNDP’s microfinance arm PACT is the largest NGO player with loans of $29.5 million according to its website.

A number of other MFIs operate on NGO licences, including those run by World Vision, Proximity Design, Save the Children and French NGO Gret.

One official at an NGO MFI who declined to be named said World Vision’s move is being closely followed by the others, who are keen to take part in the advantages the commercial licence brings but do not yet know how the process will unfold.

Although transition to a commercial licence has not yet been undertaken by a Myanmar NGO, Mr Youngquist said it has been a common process in much of the world since the 1990s.

U Win Aung, general manager at supervisory committee Myanmar Microfinance States Enterprise (MMSE), said that no NGO has yet formally applied for a commercial licence, though it is aware World Vision is interested.

He added a total of 166 firms have been given microfinance licences following the passing of the Microfinance Law in November 2011. He declined to estimate a time frame for allow World Vision to obtain a commercial licence.

Mr Youngquist said World Vision initially had asked to switch its licence from NGO to commercial, but was told this is not possible and it should apply for a new commercial licence. It aims to have this process completed in six months, he said.

Although most of the established players in Myanmar are linked to government or NGO entities, a number of foreign firms have recently set up shop. Large Bangladeshi MFI and bank BRAC has begun applying for a licence according to U Win Aung, while Acleda, which is the biggest MFI and among the largest banks in Cambodia, has opened in Yangon.

Acleda Myanmar CEO Kim Bunsocheat said it is waiting for Central Bank clarification to also obtain a commercial banking licence along with its current MFI licence, and for other rules to be promulgated on paper as many regulations currently come from word of mouth.

“We will gradually expand our presence here,” he said.

Others point to a number of barriers that are currently being addressed by the MMSE regulatory committee.

A source said MMSE held a meeting on September 23 with the Ministry of Finance discussing whether to allow domestic MFIs to borrow money from domestic and international lenders, which would allow the MFIs to increase the size of their loan portfolios. MMSE officials could not be reached to confirm the meeting.

Sean Turnell, an economics professor at Macquarie University, said prudential regulations are necessary for the microfinance sector and the financial industry as a whole, adding the trick is to get the balance right between regulation that discourages imprudent lending and excessive indebtedness this creates, while not restricting the sector’s capabilities.

“Such a balance is especially difficult to arrive at in Myanmar at this time, since there has been something of a ‘rush’ of microfinance firms,” he said.

“Historically, and in other countries, dramatic expansions of microfinance have fueled ‘boom and bust’ episodes that have been greatly destructive of confidence.”

Mr Turnell also said he is “sanguine about the entry of foreign MFIs, and [worries] more about local moneylending operators and the like taking up MFI licences.”

MFI Industry Snapshot

2.8 million Borrowers

2293 Branches and outlets

K236 billion Total loan portfolio

K84 billion State-owned MADB’s portfolio – the largest small-scale lender in Myanmar

K119,763 Average outstanding loan size

2.6 million Depositors

K122 billion Total savings at MFIs

source: The Myanmar Times
http://www.mmtimes.com/index.php/business/8269-micro-lenders-eye-growth-paths.html