ABOUT MAP AND ITS IMPLEMENTING PARTNERS

Making Access Possible (MAP) is a multi-country initiative to support financial inclusion through a
process of evidence-based country diagnostic and stakeholder dialogue, leading to the development of
national financial inclusion roadmaps that identify key drivers of financial inclusion and recommended
action. Through its design, MAP seeks to strengthen and focus the domestic development dialogue on
financial inclusion. The global project seeks to engage with various other international platforms and
entities impacting on financial inclusion, using the evidence gathered at the country level.

The map methodology and process has been developed jointly by UNCDF, FinMark
Trust (FMT) and the Centre for Financial Regulation and Inclusion (Cenfri) to foster
inclusive financial sector growth.

PARTNERING FOR A COMMON PURPOSE

At country level, the core MAP partners, collaborate with Government, other key stakeholders and donors to
ensure an inclusive, holistic process. MAP Myanmar represents a partnership UNCDF, UNDP, LIFT, Cenfri
and FinMark Trust for the Development of a Strategic Framework for Financial Inclusion in Myanmar.
In Myanmar, MAP was jointly funded by UNCDF and the Livelihoods and Food Security Trust Fund (LIFT).
Globally, MAP also receives funds from the Partnerships Framework on Inclusive Growth and Sustainable
Development (PFIS), a partnerships framework agreement with the Swedish International Development
Cooperation Agency (Sida)

THIS REPORT WAS PRODUCED BY THE CENTRE FOR FINANCIAL

REGULATION AND INCLUSION (CENFRI) WITH SUPPORT FROM BANKABLE
FRONTIER ASSOCIATES (BFA).
AUTHORS
Doubell Chamberlain, Hennie Bester, Herman Smit, Christiaan Loots, Shirley Mburu, Ahmed Dermish
(Bankable Frontier Associates) and Lara Gidvani (Bankable Frontier Associates)
Editorial support: David Saunders

ACKNOWLEDGEMENTS
The authors of this report would like to thank those who reviewed the report and provided invaluable
comments: Tillman Bruett (UNCDF), Eric Duflos (CGAP), Thomas Foerch (GiZ), Anthony Githiari,
Myint Kyaw (LIFT), Paul Luchtenburg (UNCDF), Kammy Naidoo (UNCDF), Gillian Pattison
(Proximity), Heinz William (UNDP), Neal Youngquist (World Vision) and the members of the MAP
Myanmar Steering Committee.
A special mention and further gratitude is required for our local guide, U Thein Myint, and to the
various translators who provided us with a unique window of insight into the Myanmar people. Lastly,
we would like to thank the 178 individuals from government, donor agencies, financial services
providers, industry bodies, technology providers, telecommunications operators and academia for your
inputs into this research process and your efforts to extend financial services to the excluded.

ii

Table of Contents
List of Abbreviations and Acronyms .......................................................................................... ix
USD/Kyat exchange rate ............................................................................................................. x
Executive Summary ................................................................................................................. xiii
1. Project scope and objectives ..............................................................................................1
1.1. About MAP .................................................................................................................1

2.

1.2.

MAP Myanmar............................................................................................................1

1.3.

About this document ..................................................................................................1

Public Policy Objectives for Access to Finance ...................................................................5

2.1. Overview of financial sector interventions in Myanmar ............................................5
2.2.

3.

4.

5.

6.

7.

Public policy objectives...............................................................................................8

Macro drivers for market development .......................................................................... 10

3.1. Impact upon the demand for and nature of financial services ............................... 10
3.2.

Impact upon the delivery of financial services ........................................................ 12

3.3.

Impact upon the regulation and supervision of financial services .......................... 13

Demand for financial services ......................................................................................... 14

4.1. Demographic and income information ................................................................... 14
4.2.

Segmenting the market ........................................................................................... 18

4.3.

Take-up and usage of financial services .................................................................. 21

4.3.1.

General take-up and attitudes towards financial services .............................. 25

4.3.2.

Qualitative findings on take-up of financial services....................................... 30

4.3.3.

Summary of economic groupings .................................................................... 31

Regulatory framework to promote access to financial services ..................................... 39

5.1. Policy........................................................................................................................ 39
5.2.

State structures ....................................................................................................... 41

5.3.

Categorisation of financial providers ...................................................................... 41

5.4.

Banks ....................................................................................................................... 42

5.5.

State-owned Financial Institutions .......................................................................... 43

5.6.

Non-bank financial institutions ............................................................................... 44

5.7.

Mobile banking providers........................................................................................ 44

5.8.

Microfinance Institutions ........................................................................................ 45

5.9.

Co-operatives .......................................................................................................... 46

5.10.

Pawnshops and money lenders ........................................................................... 47

5.11.

Other legislation .................................................................................................. 47

Financial Sector Overview ............................................................................................... 48

6.1. Financial sector providers........................................................................................ 48
6.2.

Alternative distribution opportunities .................................................................... 51

6.3.

Supporting financial sector infrastructure .............................................................. 53

Market for Credit ............................................................................................................. 54

7.1. Credit landscape and take-up .................................................................................. 54
7.2.

Use cases ................................................................................................................. 57

7.3.

Providers .................................................................................................................. 58

7.3.1.

Overview of credit landscape .......................................................................... 58

iii

7.3.2.

Commercial banks ........................................................................................... 64

7.3.3.

SFIs ................................................................................................................... 67

7.3.4.

MFIs ................................................................................................................. 70

7.3.5.

Co-operatives................................................................................................... 74

7.3.6.

Pawnshops ....................................................................................................... 76

7.3.7.

Rice specialised companies ............................................................................. 76

7.3.8.

Agricultural input providers............................................................................. 77

7.3.9.

Unregulated money lenders ............................................................................ 78

7.3.10.

Other unregulated providers ........................................................................... 78

7.4.

Distribution .............................................................................................................. 78

7.5.

Products and take up............................................................................................... 79

7.5.1.

Agricultural credit ............................................................................................ 79

7.5.2.

Business loans.................................................................................................. 83

7.5.3.

Asset-based finance......................................................................................... 85

7.5.4.

Personal loans.................................................................................................. 86

7.6.

8.

9.

Demand for credit and levels of indebtedness ....................................................... 87

7.6.1.

Demand for credit ........................................................................................... 88

7.6.2.

Debt burden..................................................................................................... 88

7.7.

Regulatory constraints and enablers ....................................................................... 93

7.8.

Gaps and opportunities ........................................................................................... 94

Market for Savings ......................................................................................................... 100

8.1. Savings landscape and take-up.............................................................................. 100
8.2.

Use cases ............................................................................................................... 103

8.3.

Providers ................................................................................................................ 105

8.3.1.

Commercial banks ......................................................................................... 107

8.3.2.

State Financial Institutions ............................................................................ 108

8.3.3.

Co-operatives................................................................................................. 109

8.3.4.

Microfinance Institutions .............................................................................. 109

8.4.

Distribution ............................................................................................................ 110

8.5.

Products ................................................................................................................. 113

8.6.

Regulatory constraints and enablers ..................................................................... 117

8.7.

Gaps and Opportunities ........................................................................................ 118

Market for payments ..................................................................................................... 122

9.1. Payments landscape and take-up.......................................................................... 122
9.2.

Use case for payments .......................................................................................... 123

9.3.

Providers in Myanmar ........................................................................................... 125

9.4.

Products ................................................................................................................. 134

9.5.

Regulatory constraints and enablers ..................................................................... 137

9.6.

Gaps and opportunities ......................................................................................... 140

10.
Market for Insurance ................................................................................................. 142
10.1.
Insurance landscape and take-up ...................................................................... 142
10.2.

Use cases ........................................................................................................... 145

iv

10.3.

Providers ............................................................................................................ 146

10.4.

Distribution ........................................................................................................ 153

10.5.

Products ............................................................................................................. 153

10.5.1.

Myanma Insurance ........................................................................................ 153

10.5.2.

PACT............................................................................................................... 154

10.5.3.

World Vision .................................................................................................. 155

10.5.4.

CCS ................................................................................................................. 155

10.5.5.

Unregulated providers................................................................................... 156

10.6.

Attitudes and awareness of the target market towards insurance .................. 157

10.7.

Regulatory constraints and enablers ................................................................. 157

10.8.

Gaps and opportunities ..................................................................................... 159

11.
Market findings by theme ......................................................................................... 161
11.1.
Myanmar population is thinly-served by financial services .............................. 161
11.2.

High levels of informality throughout economy ............................................... 163

11.3.

Capital constrained regulated retail financial sector ........................................ 165

11.4.

Limited infrastructure constraining business model and product offering ...... 167

11.5.

Constrained product offerings undermines value to customers ...................... 170

11.6.
Current regulatory environment not enabling expansion of rural provision and
discouraging delivery to urban poor ................................................................................. 174
12.
Opportunities to increase access to financial services .............................................. 175
12.1.
Dramatically increase the supply and availability of electronic payments ....... 175
12.2.

Provide low-cost savings vehicles for short term savings ................................. 176

12.3.

Extend the availability of account-based savings options ................................. 177

12.4.

Improve quantity, terms and risk profile of agricultural input credit ............... 178

12.5.

Increase availability of unsecured credit ........................................................... 180

12.6.

Grow insurance product portfolio to meet risk mitigation needs of households

182

12.7.
Develop insurance products to provide security for credit extension and
protection for consumers, particularly for agriculture ..................................................... 183
13.
Bibliography ............................................................................................................... 185
14.
Annex A: Credit products........................................................................................... 191
14.1.
Agricultural credit and providers ....................................................................... 191
14.1.1.

MADB ............................................................................................................. 195

14.1.2.

INGOs ............................................................................................................. 196

14.1.3.

Agricultural co-operatives ............................................................................. 197

14.1.4.

Rice specialised companies ........................................................................... 198

14.1.5.

Agricultural input providers........................................................................... 199

14.2.

Business loans and providers ............................................................................ 199

14.2.1.

Private Banks ................................................................................................. 199

14.2.2.

SFIs ................................................................................................................. 201

14.2.3.

INGOs ............................................................................................................. 205

14.2.4.

Co-operatives................................................................................................. 206

14.2.5.

Money lenders ............................................................................................... 206

v

14.3.

Asset-based finance and providers ................................................................... 206

14.4.

Personal loans and providers ............................................................................ 208

14.4.1.

Private Banks ................................................................................................. 210

14.4.2.

INGOs ............................................................................................................. 210

14.4.3.

Unregulated providers................................................................................... 211

14.5.
Overview of agricultural activities of all adults whose household are involved in
farming 212
15.

Annex B: Meeting list................................................................................................. 215

List of tables
Table 1: Farming groups .......................................................................................................... 17
Table 2: Key parameters of economic groups and target groups ........................................... 20
Table 3: Breakdown of regulated financial services usage ..................................................... 27
Table 4: Financial sector overview .......................................................................................... 49
Table 5: Banking Infrastructure ............................................................................................... 50
Table 6: Usage of credit by target group ................................................................................. 56
Table 7: Number of adults and estimated outstanding loan book of unregulated loan
providers.................................................................................................................................. 59
Table 8: Overview of the credit provision landscape in Myanmar (regulated and unregulated)
................................................................................................................................................. 60
Table 9: Interest rates charged by institutional category ....................................................... 63
Table 10: Total loans outstanding by institution. .................................................................... 64
Table 11: Selected performance indicators for total banking sector (Private banks and SFIs
but excluding MADB). .............................................................................................................. 65
Table 12: Selected performance ratios for private commercial banks ................................... 66
Table 13: Growth in the volume of loans and deposits of 3 largest private banks (2012 to
2013)........................................................................................................................................ 66
Table 14: Overview of MFI categories ..................................................................................... 71
Table 15: Infrastructure of co-operatives that provide financial services .............................. 74
Table 16: Credit take up over groups involved in farming ...................................................... 80
Table 17: Demand for credit.................................................................................................... 88
Table 18: Repayment affordability of indebted adults ........................................................... 90
Table 19: Revenue estimates by farm size .............................................................................. 92
Table 20: Debt to revenue ratios based for indebted farmers over farm size and yield range
................................................................................................................................................. 92
Table 21: Comparison of credit providers excluding commercial banks ................................ 95
Table 22: Comparison of regulated credit providers excluding commercial banks and
pawnshops............................................................................................................................... 96
Table 23: Savings by economic group. .................................................................................. 103
Table 24: Number of deposit accounts by provider type ...................................................... 106
Table 25: Savings Products by Provider................................................................................. 114
Table 26: Interest rates on bank deposits. ............................................................................ 115
Table 27: Payment Grid- Providers of payments in Myanmar. ............................................. 130
Table 28: Payment Service Fees. ........................................................................................... 136
Table 29: Payment Grid- Payment Products in Myanmar. .................................................... 137
Table 30: Payments regulatory constraints ........................................................................... 140
Table 31. Take-up of insurance by target group ................................................................... 145
Table 32: New private insurance licenses granted in 2013 ................................................... 147

vi

Table 33: Unregulated groups/mitigation mechanisms that emerged from qualitative

research. ................................................................................................................................ 156
Table 34. Overview of agricultural loans ............................................................................... 194
Table 35: Increase in financing rate per acre ........................................................................ 196
Table 36: Finance provision by Gold Delta 2009 to 2013 ...................................................... 199
Table 37: Business loans product table ................................................................................. 204
Table 38: Personal loan products .......................................................................................... 209
Table 39: Meeting list for February country visit .................................................................. 216
Table 40: Meeting list for country visit May 2013................................................................. 221

List of figures
Figure 1: Timeline of the evolution of government-led financial sector interventions .............6
Figure 2: Demographic breakdown by religion, ethnicity, age and rural vs. urban. ............... 15
Figure 3: Income distribution .................................................................................................. 16
Figure 4: Comparative profile of economic groups ................................................................. 21
Figure 5: Financial services usage by source of provision ....................................................... 25
Figure 6: Nature of financial services usage ............................................................................ 26
Figure 7: Total take-up of financial services from regulated and unregulated providers. ...... 28
Figure 8: Take-up of regulated products across income ......................................................... 29
Figure 9: Proximity to a bank branch versus commercial bank, MEB and MADB clients ....... 30
Figure 10: Comparison of economic groups by income, credit usage and region .................. 31
Figure 11: Comparison of economic groups by income, rural and savings usage from
regulated and unregulated institutions................................................................................... 32
Figure 12: Comparison of economic groups by income, rural and transactional usage from
regulated and unregulated institutions................................................................................... 33
Figure 13: Usage of financial services by Farmers................................................................... 34
Figure 14: Usage of financial services by Formal enterprises ................................................. 35
Figure 15: Usage of financial services by Informal enterprises ............................................... 35
Figure 16: Usage of financial services by the Formal consumer market ................................. 36
Figure 17: Usage of financial service by Informal consumer market. ..................................... 38
Figure 18: Percentage of adults that live within 30 minutes of access point. ........................ 51
Figure 19: Credit usage by source of provision ....................................................................... 54
Figure 20: Average amount outstanding for all adults who currently owe money (from any
source) ..................................................................................................................................... 55
Figure 21: Number of sources for borrowing .......................................................................... 57
Figure 22: Credit provision landscape (loans outstanding). ................................................... 60
Figure 23: Take-up by institutions ordered by average income of clients .............................. 62
Figure 24: Overlaps between different categories of credit providers. .................................. 62
Figure 25: Total banking sector (excl. MADB) loan and deposit growth 2009 to 2012. ......... 66
Figure 26: Outstanding debt to income ratio across income distribution .............................. 89
Figure 27: Use of savings by source of provision .................................................................. 101
Figure 28: Average total savings by region............................................................................ 101
Figure 29: Usage of regulated savings products ................................................................... 106
Figure 30: Average monthly income by savings groups. ....................................................... 107
Figure 31: Private bank deposits ........................................................................................... 108
Figure 32: Interest Rate Spread of Selected ASEAN Countries, 2000-2010 (%) .................... 116
Figure 33: Channels used to send and receive remittances .................................................. 122
Figure 34: Proportion of target groups sending remittances................................................ 123
Figure 35: Payment Grid-Categories of payments in Myanmar ............................................ 124
Figure 36: Overview of the payment landscape in Myanmar ............................................... 127
vii

Figure 37: Role of Non-Bank PSPs and Payment Processors in the payment ecosystem. ... 130
Figure 38: Pentration of payment touchpoints in Myanmar ................................................ 131
Figure 39: Mobile phone growth in Myanmar ...................................................................... 132
Figure 40: Usage of insurance by source of provision........................................................... 142
Figure 41: Take-up of regulated, unregulated and total insurance by urban/rural areas .... 143
Figure 42: Largest insurable risks experienced versus risk mitigation response .................. 144
Figure 43: Insurance penetration comparison (Premiums as % of GDP) .............................. 148
Figure 44: Myanma Insurance premium income .................................................................. 149
Figure 45: Contribution of product lines to total Myanma Insurance premiums ................. 150
Figure 46. Premium and claims performance for selected product lines ............................. 151
Figure 47. Comparison of Myanma Insurance life business and "welfare" funds ................ 152
Figure 48: Nature of financial services usage ........................................................................ 162
Figure 49: Unregulated credit activity by number of loans and outstanding loan stock ...... 164
Figure 50: The most commonly reported insurable risks experienced versus risk mitigation
responses............................................................................................................................... 171
Figure 51: Involvement in crops, livestock and fishery ......................................................... 212
Figure 52: Number of crops involved in ................................................................................ 212
Figure 53: Overlaps between three main crops .................................................................... 213
Figure 54: Land size over income distribution for adults who are involved in farming ........ 214
Figure 55: Distribution of land size for farmers earning less than USD 5 per day ................ 214

List of boxes
Box 1: Primary quantitative and qualitative research used in MAP Myanmar ..........................2
Box 2: Categorisation of financial institutions and the revised access strand ........................ 22
Box 3: Opportunities to leverage traditional stores for financial services .............................. 51
Box 4: MADB ............................................................................................................................ 69
Box 5: PACT.............................................................................................................................. 71
Box 6: Reasons why NPL ratios may be underreported .......................................................... 91
Box 7: Role of MFIs in payment services ............................................................................... 127
Box 8: Myanmar Payment Union: Role and significance to NPS development .................... 133
Box 9: Collateral accepted under Central Bank of Myanmar regulations ............................. 200
Box 10: Product details of hire purchase loans offered by banks ......................................... 207

viii

List of Abbreviations and Acronyms

ACH
ADB
AGD
AML
ASEAN
ATM
AWP
BFA
B2B
CARAM
CBM
CBO
CCS
Cenfri
CSO
DANIDA
DFID
FATA
FMT
FGD
FinScope
FSS
FESR
GDP
GRET
G2P
G-20
HV
IBSB
IFAD
IHCLA
INGO
JICA
KBZ
KII
LIFT
MADB
MAP
MAPCO
MSC
MEB
MFI
MIS
MIC
MICB
MMSE
MNO
MOU

Automated Clearing House

Asian Development Bank
Asian Green Development Bank
Anti-Money Laundering
Association of Southeast Asian Nations
Automatic Teller Machine
Annual work plan
Bankable Frontiers Associates
Business to Business
The Coordination of Action Research on AIDS and Mobility Cambodia
Central bank of Myanmar
Community-based organization
Central Co-operatives Society
Centre for Financial Regulation and Inclusion
Central Statistical Organization
Danish International Development Agency
Department for International Development
Financial Action Task Force
FinMark Trust
Focus Group Discussions
Myanmar FinScope Survey 2013
Financial Self-Sufficiency
Framework for Economic and Social Reform
Gross Domestic Product
Groupe de recherche et dchanges technologiques
Government to Person
Group of Twenty Finance Ministers and Central Bank Governors
Home Visits
Insurance Business Supervisory Board
International Fund for Agricultural Development
Integrated Household Living Conditions Assessment
International Non-governmental Organization
Japan International Cooperation Agency
Kanbawza Bank
Key Informant Interviews
Livelihoods and Food Security Trust Fund
Myanmar Agricultural Development Bank
Making Access to Financial Services Possible
Myanmar Agribusiness Public Corporation
Microfinance Supervisory Committee
Myanmar Economic Bank
Microfinance Institution
Management Information Systems
Myanma Insurance Company
Myanmar Investment and Commercial Bank
Myanma Microfinance Supervisory Enterprise
Mobile Network Operator
Memoranda of Agreement
ix

MPT
MPU
MSLE
NER
NESC
NGO
NPL
NPS
OLC
OSS
PACT
PGMF
POS
P2P
P2B
RSC
RTGS
SC
SFI
SME
SMIBD
SPMB
UAB
UNCDF
UNDP
USAID
VLSA
WV
YSE

Myanmar Post and Telecommunications

Myanmar Payments Union
Myanmar Small Loans Enterprise
Net Enrolment Ratio
National Economic and Social Advisory Council
Non-governmental Organization
Non-Performing Loan
National Payment System
Oriental Leasing Company Limited
Operating Self-Sufficiency
Private Agencies Collaborating Together
pact global microfinance fund
Point of Sale
Person to Person
Person to Business
Rice Specialisation Company
Real Time Gross Settlement System
Steering Committee
State Financial Institution
Small and Medium Enterprises
Small and Medium Industrial Development Bank
State Pawnshop Management Board
United Amara Bank
United Nations Capital Development Fund
United Nations Development Programme
United States Agency for International Development
Village Level Savings Association
World Vision
Yangon Stock Exchange

USD/Kyat exchange rate

Foreign exchange. The local currency in Myanmar is the Myanmar Kyat (K). USD equivalent
shown throughout this document was calculated using a six month average exchange rate
(between 1 April to 30 September 2013) of Kyat 946 /USD.

The government objective is to reduce

poverty from 26% to 16% by 2015
Key drivers
Myanmar is the poorest
country in Southeast Asia

Myanmars population 24th

largest in the world

$3.50 per day average

income

60.9 million people, 39.8

million adults

7% of adults have higher

education

7 out of 10 adults are rural

400 000 new jobs will be

needed in the financial
sector by 2030

Urban average income twice

that of rural

Government Policy Objectives

to improve financial access in
Myanmar
Task 1, to increase agricultural output
...19 million adults in Myanmar reported to be involved in
farming

Task 2, to increase rural productivity and establish

cottage industries
7.2 million adults in Myanmar reported to be selfemployed, 65% of which are informal

Task 3, the development of micro saving and credit

enterprises
189 microfinance institutions have been registered
since December 2011

Task 4, the to strengthen cooperative outreach

7 490 co-operatives offer financial services in
Myanmar

xi

Overview of Financial Access

in Myanmar
30%

of adults reported to use at least one financial service from a

regulated financial service provider.
..

33%

6% make use of more than one regulated financial product class

of adults make use of unregulated financial services

21%

of adults make use of unregulated services only

Breakdown of Financial Access in

Myanmar by Product Market
19 % of adults borrow from a regulated institution
5.9 million adults borrow from unregulated money-lenders with total
outstanding debt of

$3.9

billion

3% of adults have insurance from a regulated institution

34% of adults respond to risk events using credit or savings

10% of adults make payments through a regulated service provider

1.9

million adults make payments through an informal network of

payment brokers

6% of adults save with a regulated financial service provider

26% of adults report saving, but do not save with a
regulated or unregulated service provider
..6% make use of more than one regulated financial product class

32.6%

of adults make use of unregulated financial services

21.1%

of adults make use of unregulated services only

xii

Executive Summary
As Myanmar modernises its financial sector to better serve its economy and people, a
growing opportunity to extend financial services to the majority of its people has opened up.
MAP found that 30% of the 39 million adults use regulated financial services, but only 6%
use more than one service. Fewer than 5% of adults have bank accounts. The majority of
citizens rely on unregulated providers or family and friends to meet their need for financial
services. The cost of services provided by unregulated providers is usually substantially
higher than those offered by regulated providers. MAP also found that rural areas are
slightly better served than urban areas. This is the result of targeted credit provision to rural
areas by state financial institutions coupled with a nascent commercial banking sector.
Microfinance institutions, operating under a legal framework since 2011, have made some
headway and currently serve 700 000 clients.
As part of MAP a comprehensive household study on the demand for financial services was
undertaken. Based on this study and qualitative demand-side research, MAP could segment
the adult population into five target groups, each with distinctive patterns of financial usage
and financial needs. The largest target group is Farmers (12 million). This group is the largest
user of regulated credit thanks to rural loans disbursed by Myanmar Agricultural
Development Bank and Microfinance Institutions. Formal enterprises (2.5 million adults) had
the highest average income of all target groups. The bulk of this group (75%) live in urban
areas. However, they have the lowest use of regulated credit, suggesting a major
opportunity to improve growth and employment creation if regulated credit to this target
group can be extended. Adults receiving their income from Informal enterprises (4.7 million)
use more credit, both regulated and unregulated, than their compatriots with Formal
enterprises.
The smallest target group is Formal consumers (1.7 million), being persons employed by the
state and private companies. They form the kernel of the emerging consumer class, yet less
than a quarter of them make payments through regulated institutions. Informal consumers
(7.5 million) have an average income about half that of Formal consumers and are the most
excluded target group from a financial access point of view. It is also the group with the
lowest mobile phone ownership at 11%.
The MAP analysis of the retail financial services market found key trends in the overall usage
and supply of financial services. Firstly, that the usage of both regulated and unregulated
financial services by households is quite thin, i.e. very few households use a broad spectrum
of financial services. Where persons do have long-standing relationships with financial
institutions, these are usually state-owned financial institutions and the relationship is
driven by consecutive loans. Relationships built around deposit accounts are rare.
The high level of informality in the broader Myanmar economy is mirrored in the financial
sector. MAP revealed 9.2 million adults who have a loan from an unregulated provider with
a total outstanding debt as high as K5.4 trillion (USD5.7 billion). Nearly all transactions in
Myanmar are conducted in cash. Focus Group Discussions revealed positive perceptions
about using financial services offered by unregulated providers such as money lenders
because consumers felt that they were more convenient and that the requirements set by
regulated providers excluded low-income earners.

xiii

The regulated retail credit market is restricted by limited capital for on-lending. This is
particularly acute for MFIs who are not permitted to raise voluntary deposits and experience
difficulties in bringing foreign capital into the country. Only commercial banks and the MEB
have proven able to attract voluntary deposits. MADB relies on wholesale funding from MEB
to fund its loans.
The Myanmar financial sector experiences serious infrastructure weaknesses, which
constrain the business models and product offering of financial institutions. Most providers
do not have electronic or automated management information systems and the footprint of
the electronic payment system is very limited. A national switch for ATMs only started
operating in 2012 and a real time gross settlement system is still under development. The
absence of a capital market impacts funding possibilities. The branch infrastructure for
especially commercial banks remains very limited. The mobile networks being developed
offer the possibility of real time connectivity and a potential platform for electronic
payments.
The product offering available to customers is limited, undermining the value that clients
receive from financial services. In the first instance, customers are forced to use inefficient
financial services types simply because the more efficient services are not available. For
example, they have to use credit and savings to manage risks in the absences of insurance
products. Secondly, many products have features that do not meet the needs of clients. For
example, only short term credit is available which is unsuitable for investment purposes.
There are particular problems around the timing and repayment schedules for MADB loans.
MAP also found that the current regulatory environment does not enable the expansion of
rural financial services, to the extent that is possible, and further inhibits certain urban
delivery opportunities. The differential treatment of urban and rural areas is determined by
the governments strong poverty reduction focus on rural areas. The level at which interest
rates are set, loan size restrictions and capital controls and the higher cost of rural provision
has resulted in the withdrawal of certain MFIs from rural areas and has deters these
institutions to serve, predominantly urban, MSMEs. At the same time the ongoing regulatory
reforms are opening up new opportunities especially for commercial banks and the provision
of mobile banking services.
MAP identified seven priority opportunities to extend financial access to the people of
Myanmar:

Dramatically increase the supply and availability of electronic payments. This can be
delivered through mobile payments platforms and also through electronic payments
networks developed by commercial banks.
Provide low-cost savings vehicles for short term saving. Emerging retail payments
networks and agents can be leveraged to enable convenient store of value services.
Extend the availability of account-based savings options. This will require an
improvement in transaction functionality and proximity to entice savings into the
regulated sector. While there is an urban opportunity for bank-based deposits, the
modernisation of MEBs systems offers a major opportunity to strengthen its role as
savings mobiliser in both urban and rural areas.
Improve the quantity, terms and risk profile of agricultural input credit. MADB will play a
leading role here, but there is also opportunity for agricultural input providers and MFIs.
xiv

Increase the availability of unsecured credit. There are opportunities to increase the
lending of providers permitted to extend loans without collateral, such as MFIs and cooperatives. There is also the option to relax the collateral requirement for personal loans
once a credit bureau is in place.
Grow the insurance product portfolio to meet the risk mitigation needs. There is a large
opportunity to provide regulated insurance for especially health and life, mostly funeral,
risks. This will require regulatory adjustments to allow both MIC and new private
insurers to offer such products.
Develop insurance products to provide security for credit extension and protection of
consumers, particularly for agriculture. Insurance can take the place of collateral for
credit extension, especially for agricultural input credit. This will require the
development of appropriate products.

xv

1.

Project scope and objectives

1.1.

About MAP

Making Access Possible (MAP) is a multi-country initiative to support financial inclusion

through a process of evidence-based country diagnostic and stakeholder dialogue, leading to
the development of national financial inclusion roadmaps that identify key drivers of
financial inclusion and recommended action. Through its design, MAP seeks to strengthen
and focus the domestic development dialogue on financial inclusion. The initiative aims to:

Identify opportunities to expand financial inclusion and the obstacles to doing so for
individuals as well as micro and small enterprises;
Provide an integrated view of financial services covering demand, supply and
regulation across savings, payment, insurance and credit;
Identify the drivers of market development in order to enable stakeholders to
manage changing environments and systems in transition;
Focus on improving welfare through financial services that offer value to consumers
and not just extending the coverage of financial products; and
Engage a wider set of stakeholders (including some not traditionally involved in the
delivery of financial services) in the stakeholder process to encourage market
development.

The global project seeks to engage with various other international platforms and entities
impacting on financial inclusion, using the evidence gathered at the country level.
The MAP framework has been developed by UNCDF in partnership with FinMark Trust and
Cenfri and is intended to become a public good that can advance the global financial
inclusion agenda. The partnership leverages the partners experience in financial inclusion
development, aligning their respective strengths in implementation, primary demand-side
research and diagnostic composition.

1.2.

MAP Myanmar

Preparation for MAP Myanmar was approved by the President of the Union of Myanmar in
January 2013. The programme has been developed by United Nations Capital Development
Fund (UNCDF) in close cooperation with the United Nations Development Programme
(UNDP) office in Myanmar and is embedded in the UNDP Country Programme and Action
Plan (CPAP), which has subsequently been approved by the Government of Myanmar. MAP
Myanmar is funded by the UNCDF and Livelihoods and Food Securities Trust Fund (LIFT). The
project is governed by a Steering Committee chaired by U Htein Linn, Manager Director of
the Myanma Microfinance Supervisory Enterprise (MSE) and consisting of 10 members
representing government and project sponsors.

1.3.

About this document

This diagnostic document presents the comprehensive findings of the demand, supply and
regulatory analysis. Additional outputs from the study include a synthesis note, agricultural
note, policy and regulatory note, qualitative demand side report, quantitative dataset (see
Box 1) with summary findings and country roadmap.
1

The supply-side analysis was informed through in-country consultation with industry, local
expert consultants and desktop research. The bulk of the data and information was collected
during two missions conducted in 2013 between February 4 and 12 and May 20 and 31. The
consultation process included a wide variety of players including the private sector (both
regulated and unregulated financial services providers), government, community
organisations, donor community and technical experts (see Annex B: Meeting list for a
comprehensive meeting list). The demand-side analysis draws from quantitative data
provided by the Myanmar FinScope Survey 2013 (henceforth referred to as FinScope) and
qualitative research. For more information on the research methodologies and scope of the
quantitative and qualitative research conducted, please see Box 1 below.
The remainder of the document is broken up into 10 sections:

Section 2 provides background to financial access in Myanmar and describes the

deliberate policies of the government of Myanmar to extend access to financial services,
as well as the policy objectives to which financial inclusion contributes.
Section 3 list the key macroeconomic drivers that have influenced and will in the future
increasingly shape the nature of financial provision for low income households in
Myanmar
Section 4 identifies the target groups for which improved access to appropriately
designed financial services has the greatest potential livelihood and welfare impact; and
evaluates the demand for financial products and services.
Section 5 describes the relevant policy and regulation intended to promote access to
financial services for the target market as identified by the Government of Myanmar or
that has a substantial impact on such provision, as well as the supervisory framework for
entities that provide financial services to the target groups, including regulated and
unregulated financial services providers.
Section 6 provides a brief overview of financial sector infrastructure as well as other
networks that could be used to distribute financial services.
Sections 7-10 provides details on the four product markets for credit, savings, payments
and insurance.
Sections 11 and 12 summarises the overall conclusions and highlights potential actions
relating to the identified target groups.

Box 1: Primary quantitative and qualitative research used in MAP Myanmar

Quantitative research
FinScope, developed and administered by the FinMark Trust, is a nationally representative
study of consumers' perceptions on financial services and issues, which creates insight to
how consumers source their income and manage their financial lives. The sample covers the
entire adult population, rich and poor, urban and rural and looks at financial services usage
across formality and regulatory status. Since FinScope is a perceptual study, it also
encompasses attitudes, behaviours, quality of life factors and consumption patterns. To
date, FinScope surveys have been conducted in 18 countries in Africa and Asia.
FinScope was conducted in Myanmar in August 2013 to benchmark the state of financial
access and usage. In brief, the sample methodology for the FinScope survey in Myanmar was
as follows:

Target area: Nationally representative for both urban and rural areas
Age group: population 18 years and older
Sample size = 5 100
Number of sample townships: 51
Number of sample wards: 153
Number of sample villages: 480
Total number of sample areas (wards and villages): 633
Sample allocation per township: 100 (5100/51)
Average sample allocation per sample area (ward /village) or Enumeration Area (EA): 8
(5100/633)
Urban sample (total number of interviews in wards): 1 246 (24% of sample)
Rural sample (total number of interviews in villages) : 3 854 (76% of sample)

The population can therefore be segmented by urban and rural based on the classification
of the ward or village (ward: urban, village: rural). Urban can be further split into
Metropolitan, Semi Urban and Towns. Metropolitan only includes adults from Yangon and
Mandalay city areas, while Semi Urban includes adults from chief cities in Ayeyarwady and
Magway. Towns and rural villages include adults from all states and regions.
A listing was performed in each of the sampled wards/townships/villages in order to up-date
the population estimates due to the lack of current census data. Eight households were
selected in each of the selected sample areas. One individual was randomly selected within
the household using the Kish Grid methodology.
It should be noted that the last official census in Myanmar was conducted on 31 March
1983. All population figures and survey weighting is based on the latest 2012/2013
demographic estimates provided by the Central Statistics Office (CSO). The CSO estimated a
total adult population of 39 777 041 at the time of the 2013 FinScope Survey.
A summary report and presentation on FinScope Myanmar is available as a separate
deliverable to the MAP Myanmar country diagnostic and the FinScope dataset is available on
request for future research.
Qualitative research
Primary qualitative research was commissioned specifically as part of the demand-side
research component of MAP Myanmar. Myanmar Survey Research (MSR) was commissioned
to do the fieldwork, conducted between 11 and 21 March 2013, and to produce a qualitative
research report. In-country field visits to inform and guide the qualitative research process
were conducted between 11 and 22 March 2013. The qualitative research report is available
as a separate deliverable to the MAP Myanmar country diagnostic. The qualitative research
process was based on the MAP demand-side methodology and used a mix of FGDs, HVs and
KIIs to engage with the target market:
1. Ten (10) FGDs were conducted and participants were selected based on gender, age,
usage of formal financial products and geographical areas;
2. Thirty four (34) HVs individual interviews were conducted in respondents own homes,
split according to gender, age and usage of formal financial products; and
3. Sixteen (16) KIIs were conducted with money lenders, brokers, dealers, shop owners,

pawnshop owners etc.

Age for FGDs and HVs was split between 22 to 30 and 30 to 50 years of age.
Geographical areas for FGDs were split between: the Dry area (Pakokku town and
surrounding villages) and the Delta area (Phyapone town and surrounding villages).
The recruiting criteria used for determining financial product usage were the following:
1. To qualify as using regulated products, respondents had to use a range (two or more) of
regulated financial products (these could be credit, remittance, saving or insurance
products); they could use informal products as well;
2. To qualify as using some regulated products, respondents had to use only one regulated
product, but mainly rely on unregulated mechanisms as well (e.g. group saving, group
funeral, lottery, etc.); and
3. To qualify as using no regulated products, respondents had to rely only on unregulated
financial products.

2.

Public Policy Objectives for Access to Finance

Financial inclusion, as defined by the G-20, refers to a state in which all working adults,
including those currently excluded by the financial sector, have effective access to the
following financial services provided by formal1 institutions: credit, savings (defined broadly
to include current accounts), payments, and insurance. Effective access involves
convenient and responsible service delivery, which is at a cost affordable to the customer
and sustainable for the provider, with the result that financially excluded customers who use
formal financial services rather than existing informal options (GPFI 2011).
Myanmar experiences moderate levels of access to regulated financial services, with take-up
driven largely by regulated credit extended through government-led initiatives. There is
however very limited usage of regulated savings, insurance and electronic payment services
(see Section 4.3). Although increasing access is not an end in itself, the Government of the
Union of Myanmar seeks to achieve the higher order policy objectives of poverty reduction,
rural and social development through improved access to appropriate financial services (see
Section 2.1).

2.1.

Overview of financial sector interventions in Myanmar

Government-led interventions to promote financial access in Myanmar started at the

community-level, with interventions to provide alternative sources of credit for Burmese
citizens who relied on foreign money lenders who charged exorbitant interest rates. The first
intervention was in 1904, when British colonial authorities introduced co-operatives under
the Indian Co-operatives Society Act. Co-operatives would have a mixed history in Myanmar
but would remain a tool of the state going forward. Following the countrys independence in
1948, the government positioned co-operatives as a means to promote socialism and
prosperity. The focus on providing alternatives to money lenders was extended beyond cooperatives in 1949 with the introduction of regulated state pawnshops2. The regulated
pawnshops were initially under the Co-operative Ministry, but in 1955 management passed
to the State Pawnshop Management Board (SPMB). The Government authorised the SPMB
to assume the licences of all private pawnshops as they expired, taking ownership away
from private owners (the majority of which were Chinese foreigners) and bringing it under
the control of the state.
Figure 1 below shows how the government-led financial sector interventions have evolved
over that past century.

For the purpose of this report, formal institutions are referred to as regulated financial services providers. Please see Box 1 for
further details.
2
Pawnshops fill the needs of low-income households who needed to borrow small amounts to meet their day-to-day needs.

President U Thein Sein

outlines 8 tasks for
poverty alleviation
(2011)

Peoples bank
reorganized as four SFIs
(1975)
New
government
under the
Military
(1962)

Regulated state
pawnshops
introduced
(1949)

Cooperative Minister
announces plans to
extend cooperative
credit institutions to
each of Myanmar's
60 000 villages
(2013)

1st

Socialist Union of
Burma comes
into being
(1974)

Myanmar
independence
(1948)

Cooperatives
introduced under
British Colonial
rule (1904)

Central Bank
of Myanmar
Law
(2013)

MFI
PACT enters
Myanmar
(1997)

Financial
Institutions Law
of Myanmar
Central Bank of
Myanmar Law
(1990)

MIC and
Peoples Bank of
Burma
established
(1963)

12 New
insurance
licences issued
(2012)

First private
bank since mass
nationalization
(1992)

Constitution
of the
Republic of
Myanmar
(2008)

Microfinance
Law
(2011)

New
Insurance
regulation
forthcoming
(2014)

Mobile
banking
directive
enacted
(2013)

2003
Banking
crisis

1904

1948

1962

1975

1962 - 1988

Mass nationalisation and period

of demonetisation
1988 - 2003

1988

2003

2010

2013

Market
revival
2003 - 2008

State
control
2008 -

Opening up of political and

economic system

Figure 1: Timeline of the evolution of government-led financial sector interventions

Source: Various

In 1962, the new military government came into power and played an increasing role in the
national economy. In 1963 the nationalization of the economy, including the financial sector
commenced. Twenty-four banks (fifteen foreign and ten local) were nationalized and
merged into the Peoples Bank of Burma and seventy-eight foreign insurers were merged
into the state-owned Myanma Insurance (MIC). There would be no private banks under the
state-economy from 1963 to 1992 and no private insurers for 50 years. The following year,
1964, Myanmars government began the period of demonetisation that would proceed into
the late 1980s. It was during this period that the government phased out larger bank notes
from being legal tender, meaning that they were no longer redeemable. The demonetisation
resulted in reduced confidence in holding the Kyat (K). A second and a third demonetisation
followed in 1985 and 1987 respectively. The later resulted in the famous 8888
demonstrations where Aung San Suu Kyi emerged as spokesperson for democracy.
In 1970, the remaining state-owned banks, including the SPMB were merged with the
Peoples Bank of Burma to form one monolith bank. The reach of the state expanded to the
community-level with the Co-operative Law of 1970 which took away autonomy from many
of the co-operatives by having government officials or sympathisers placed in executive
positions within the co-operatives.
In 1974 the Socialist Republic of the Union of Burma came into being and formal political
power was transferred from the military. This saw the restructuring of the Peoples Bank of
Burma into four state-owned banks in 1975. These included the Myanmar Economic Bank
(MEB), the Union of Burma Bank, the Myanma Foreign Trade Bank and the Myanmar
Agriculture Bank. The latter subsequently changed twice; first to the Myanmar Agricultural
and Rural Development Bank, and then to the Myanmar Agricultural Development Bank
6

(MADB). It was during this restructuring that MADB was given the broader mandate to
become the primary source of short term and seasonal loans for agriculture over and above
the medium and longer term development loans mandate. This has been one of the key
drivers behind extending access to financial services to subsistence and self-employed
farmers.
In 1990, responding to external pressure from the international community and internal
domestic issues, the government enacted a brief market revival. The passing of the Central
Bank of Myanmar Law and the Financial Institutions Law of Myanmar paved the way for the
increasing role of the private sector in promoting financial access. In 1992 the first private
bank was permitted since nationalisation began in 1963.
Increased efforts by the state to serve the rural population were demonstrated by the
introduction of MADBs Rural Savings Promotion initiative in 1993. The initiative brought
mobile savings units to the doorsteps of MADB loan clients, and enabled farmers to open
savings accounts in MADB branches and agencies all over the country. Microfinance was
introduced in Myanmar in 1997 by the UNDP as part of its Human Development Initiative
(HDI) programme. Project implementation was initially subcontracted to three implementing
partners Private Agencies Collaborating Together (PACT, USA) for the Dry Zone, GRET
(France) for Shan State and Grameen Trust (Bangladesh) for the Delta Zone.
However, state control remained at the community level. In 1992, the Co-operatives Act was
introduced which enshrined a top-down, imposed co-operative structure, with a minimal
sense of ownership of secondary, tertiary and apex structures (Ferguson, 2013). The topdown structure was reinforced in 1998 under the Co-operatives rules.
The opening up of the financial sector was met with a rapid expansion up until the banking
crisis in 2003. In 2002, the Law to Control Money and Property Obtained by Illegal means
was issued following the Financial Action Task Force (FATF) announcement that declared
Myanmar a non-co-operative jurisdiction and that two of Myanmars largest banks were of
primary money-laundering concern. Following the announcement, the United States
instituted sanctions against Myanmars financial system. This saw a re-emergence of the
state run financial sector, with banks being placed under the Central Bank of Myanmar
(CBM) during the height of the crisis. In addition, the licences of the two largest private
banks were revoked, reinstating the MEB as the largest bank in terms of assets.
In 2008, the government of Myanmar passed a new constitution paving the way for
democratic elections in 2011. This brought about reforms looking to stimulate economic
activity and reduce the incidence of poverty in Myanmar. The financial sector was thus
opened up and in 2011 ushered in the following developments: eleven banks were licensed
as authorized foreign currency dealers trading with each other and domestic customers, six
private banks were issued licences to operate money market counters, and the first ATM
was launched in Myanmar since 2003. In 2012, Visa cards were introduced at two private
banks, Western Union officially started operations on its money transfer services and
MasterCard became the first payments network to issue a licence to a Myanmar bank to
issued branded cards. In 2013, the government ended a 50 years of state-run insurance
monopoly and issued licences to private insurance companies. New insurance regulations to
support the newly licenced private insurance companies are currently under review and are
expected to be released in 2014. However, the government is still cautious about protecting
7

local ownership during reforms. The government will not allow foreign investors to enter the
insurance market until at least 2015, which is similar to the policy around banks where joint
ventures will only be allowed starting in 2014.
The new constitution and democratic elections brought about a renewed policy focus on
poverty alleviation through increasing and improving financial access by means of MFIs and
co-operatives. In 2011 the government set up the Microfinance Supervisory Committee
(MSC) to oversee the development of the regulatory framework introduced in 2011.
Following the introduction of the Microfinance Law, 189 microfinance institutions have been
registered. They include a mix of International Non-governmental Organisations (INGOs),
domestic Non-governmental Organisations (NGOs), co-operatives and for-profit local and
foreign companies. In 2013, the Ministry of Co-Operatives officially announced their plan to
have a co-operative in all the 60 000 villages in Myanmar by adding 5 000 each year in order
to expand access to financial services. In December 2013, CBM passed a new directive on
mobile banking.

2.2.

Public policy objectives

Increasing access to financial services is a major goal of the Government of the President of
the Union of Myanmar, U Thein Sein. Although increasing such access is not an end in itself,
improving access to financial services achieves higher policy objectives. Such objectives are
reflected in Article 3 of the Microfinance Law and include: reducing the poverty of grass root
communities, social development, improved education and health of such communities as
well as assisting them with other means of earning a livelihood including agriculture and
livestock breeding, creating jobs, nurturing and cultivating a savings habit, encouraging
emergence of Small and Medium Enterprises (SMEs) and facilitating cottage businesses as
well as acquiring and disseminating technical know-how from local and abroad. In order to
design an appropriate national strategy for financial inclusion, it is therefore important to
understand the overarching policy objectives which financial inclusion is intended to
achieve. From recent pronouncements of the government of Myanmar3, the following are
suggested as the primary policy objectives the government seeks to achieve through
improved access to financial services over the next few years:
1. Improved household welfare, especially in rural areas. FinScope revealed that nearly 69%
of the Myanmar population lives in rural areas, where poverty is reported to be twice as
high compared to urban areas (UNDP, 2011). Although contradicting signals exist,
multiple sources report declining standards of living in rural areas over the past decade.
The Myanmar Government recognises rural poverty as an area that needs addressing
and has set a goal to reduce poverty from 26% (UNDP, 2011) to 16% by 2015 which is in
accordance with Millennium Development Goal-1. This was relayed in an address to the
Central Committee in 2011 by the Chairman of Rural Development and Poverty
Alleviation Central Committee, President U Thein Sein (President Office, 2011).
2. Increase agricultural productivity to enhance food security. Channelling productive credit
and related financial services to Myanmars farming population is of critical importance.
Increased food production will safeguard the countrys limited foreign exchange
3

At the opening ceremony of the Rural Development and Poverty Alleviation Committee, His Excellency President U Thein Sein
presented eight fundamental poverty addressing tasks to be performed by ministries and state organs. The development of
micro savings and credit enterprises, one of the eight national development priorities, was assigned to the Ministry of Finance
and Revenue. The Microfinance Law also states the first duty of the Microfinance Business Supervisory Committee as
implementing the microfinance-related policy objectives.

reserves in that domestic food security would enable the channelling of foreign
exchange reserves to investments instead of using them to import food to supplement
shortages. As result, interventions to extend credit to the agricultural sector (for
example through the MADB) should not just be evaluated from a financial inclusion
perspective. The larger strategic objectives being pursued should also be considered.
3. Improve development opportunities for SMEs. Most of Myanmars informal economic
activity, which constitutes approximately 57.4% (2005) of Myanmars overall economic
activity or Gross Domestic Product (GDP), is operated through micro and small
enterprises. These are found in rural and urban areas where they face similar
operational and growth challenges. In both areas, most micro and small enterprises
currently have to utilise expensive unregulated credit to buy stock and equipment and
expand their businesses, their business risks are not covered by insurance and they
typically utilise unregulated payment services for trade purposes.
4. Improve levels of formal financial intermediation to fund growth and development. The
ability of a countrys financial sector to intermediate funds efficiently between those
who wish to save and those who wish to invest in productive enterprises is critical for
the countrys growth. This deprives the country of the growth potential facilitated by
formal sector intermediation. Migrating pent-up or privately intermediated savings into
the formal financial sector is therefore critical to the countrys future growth.
For financial services to facilitate the achievement of these four objectives, strategies
targeting all four financial services (credit, savings, payments and insurance) and the
spectrum of providers (both formal and informal) will be required to engage with the issue.
Our current assessment is that no single provider category will be able to realise the
aforementioned objectives on its own and we therefore currently assess that a co-ordinated
approach would be advisable. Moreover, additional benefits could be derived from coordinating financial services development strategies and broader development strategies in
achieving these objectives.

3.

Macro drivers for market development

To achieve the broad public policy objectives stated above it is critical to understand the
underlying drivers or currents that will determine the evolution of financial services over the
next five to ten years, as well as the macroeconomic context within which it develops. These
underlying currents in the non-financial sector will not necessarily be affected by the
financial sector policy but will determine the impact of such a policy. Identifying and
understanding these drivers can assist in drawing the bounds of possibility for financial
access initiatives.

3.1.

Impact upon the demand for and nature of financial services

The first set of drivers will tend to increase the absolute demand for financial services and
also shape the nature of this demand:
Strong economic growth and rising personal incomes. Myanmars economy has shown
substantial growth since its liberalisation and is predicted to continue on this trend. GDP is
on track to grow by 6.5% by the end of the fiscal year 2013 (ending 31 March 2014) and is
predicted to grow by 6.8% in 2014. McKinsey (2013) predicts that the size of the economy
has the potential to quadruple from USD 45 billion in 2010 to over USD 200 billion in 2030
This would translate into an increase in per capita GDP (PPP) from USD 1 300 in 2010 to USD
5 100 by 2030 and move around 18 million people out of poverty. Growth is supported by
investor optimism following policy reforms, the reinstatement of Myanmar in the European
Unions Generalized System of Preferences for duty-free and quota-free market access, and
a gradual easing of restrictions on financial institutions that facilitates credit to the private
sector (ADB, 2014). Higher incomes and the accumulation of assets increase the demand for
financial services across payments, savings, credit and insurance. It also leads to an
increasing demand for more sophisticated financial services.
Movement of people, goods and services. Myanmar has traditionally enjoyed substantial
cross-border trade, especially in agricultural goods, with China to the Northeast and Thailand
to the South. The estimated number of Myanmar citizens working outside of Myanmar is
indicated to range between 2 and 6 million (Hall, 2012). These trends (trade and migration)
will further be strengthened by the formation of the Association of Southeast Asian Nations
(ASEAN) common market, which is foreseen to take place in 2015. Internal migration within
Myanmar from rural areas to the cities to seek employment is also significant given the
growing incidence of landlessness in rural areas (Integrated Household Living Conditions
Assessment (IHLCA, 2011). McKinsey (2013) estimates that the share of Myanmars
population that live in large cities (more than 200 000 inhabitants) could double from just
13% today, to around one-quarter of the total population in 2013. The extensive movement
of people and goods across the borders and within the country can create strong demand
for money transfer services and remittances.
Consumer culture taking root, particularly in urban areas. Industry consultation with retailer
groups indicated that higher levels of urban confidence in the economy were leading to
increased levels of discretionary expenditure. International brands have been moving into
Myanmar to create a presence in the hope of capturing one of the last untapped markets
left. The Myanmar population have shown a liking to South Korean culture which has been
used to sell goods such as cars, beauty products (fastest growing consumer market) and
other luxury goods. The growing consumerism in urban areas will create a strong demand
for retail credit services as well as new electronic payment instruments.

10

Rural population heavily employed in agriculture susceptible to price fluctuations. Although

agriculture as a proportion of GDP has been declining over the past decade, it contributed to
as high as 36.4% of the GDP as of 2010 (Kudo et al., 2013), and as such is still the single
largest sector in the economy. Of the economically active, about 54% are employed in
agriculture, which provides a livelihood to 70% of the population (World Bank, 2013). Up to
80% of agricultural GDP is derived from crop production, with the remainder coming from
livestock and fisheries (Cho et al., 2013). The proportion of the population that is dependent
on the sale or exportation of agriculture products as their primary source of income affects
the financial products needed in the households. Agricultural activities are high risk as the
yield is weather dependent and profits are a function of volatile prices. Historically, prices
have been impacted by fluctuations in the foreign exchange rate and inflation driven largely
by oil and gas sales. This is commonly known as Dutch disease4 and has resulted in
depressed agricultural prices and impacted the profitability of many farmers. This has forced
many farmers and businesses to curtail output and close all together (Myanmar Agriculture
in 2011, Harvard Ash Centre 2011). This problem will not dissipate if managed incorrectly as
gas exports have been increasing and were estimated to reach a high of USD 3.6 billion in
2012/2013, surpassing the 2011/2012 record (World Bank, 2013).
High levels of informality. The majority of economic activity is conducted outside of the
formal sector. A global study examining 162 countries ranked Myanmar as having the 9 th
highest level of informal activity5 as a ratio of total economic activity. The profiles of selfemployed and informally employed individuals often do not permit them to access
commercial banking services with ease, because, among other reasons, they are not able to
provide proof of a regular income. These citizens need specially adapted financial services
that allow for their inclusion, given their circumstances.
Inflation undermines the value of certain financial services. Myanmar has experienced high
price volatility, with inflation varying between 0% in 2000 and 58% in 2002. Inflation
averaged 2.8% in 2012/2013, but has been on the rise in recent months reaching 7.3% in
August 2013 (World Bank, 2013). High inflation can have several effects on how a population
interacts in the financial sector. It disincentives savings as money loses its function as a store
of value and change behaviour. In times of high inflation, people tend to restrict the amount
of wealth held in money and prefer to only hold money that is necessary for immediate
needs. Insurance is affected in a similar way as the value of insurance is devalued as the
currency diminishes.
Second round effects of the global financial crisis. The financial crisis did not affect Myanmar
directly but the second round affects are proving to be significant. These effects have led to
a decrease in exports, remittances and migration. Farmers, particularly in cyclone-affected
areas, are being hit by fluctuating prices for agricultural products and inputs. Migrant
workers who worked in neighbouring Asian countries where the wages are higher than those
received in Myanmar are losing jobs and being forced to return home. Newspapers have
reported on migrants returning home from Singapore, Malaysia, South Korea, and Middle
Eastern countries. This has a significant effect of decreasing household income as well as
flooding the labour market.

Dutch disease commonly occurs when a country exports a single commodity to the world market. The demand for the
commodity pushes up the value of countrys currency relative to other currencies. This in turn drives up the cost of other goods
and services that they are exporting, namely agriculture and/or manufacturing.
5
The informal economy refers to activities and income that are partially or fully outside government regulation, taxation, and
observation. World Bank, 2013. Workers in the Informal Economy. [Online] Available at:
http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTSOCIALPROTECTION/EXTLM/0,,contentMDK:20224904~menuPK:584
866~pagePK:148956~piPK:216618~theSitePK:390615,00.html [Accessed 19 12 2013].

11

3.2.

Impact upon the delivery of financial services

Then there are factors that will have a strong influence on the manner in which financial
services are delivered. The most important ones are as follows:
Limited infrastructure and connectivity drives up the cost of expansion for the financial
sector. FinScope revealed that 69% of adults in Myanmar are found in rural areas where
infrastructure is limited, restricting the reach of the formal financial sector. Myanmar has
the lowest road density in Southeast Asia with 41.3 km of road per thousand square meters
in 2005. This is compared to 352.4 km in 2006 in Thailand (ADB, 2012). Only 11.9% of the 27
000 km road network is paved. It has the lowest per capita electricity production in
Southeast Asia. Similarly, although mobile phone penetration is expected to grow rapidly to
reach 50% by 2015, mobile and fixed line penetration is still low. In 2013/14 mobile
penetration rates reached 27%6 (Eleven, 2014), while fixed line penetration was slightly
above 1% in 2013 (Deloitte, 2013). The limited infrastructure increases costs for banks to
expand as the building of new branches would also require the building of infrastructure to
support the branch. The lack of physical infrastructure would render the traditional brickand-mortar approach unfeasible and would require alternative channels.
Telecommunications technology would be one means in which this could be done.
Myanmar has an opportunity to roll out mobile-based distribution solutions more costeffectively than brick-and -mortar branches and touch points. The awarding of two mobile
licenses to Norways Telenor and Qatars Ooredoo in June 2013 opened the race to expand
mobile infrastructure.
Limited pool of skilled labour for the financial sector to draw upon. McKinsey (2013)
estimates that the financial services sector could contribute up to USD 11.1 billion to GDP by
2030 and generate 400 000 jobs The financial sector is heavily dependent on skilled labour,
particularly the nascent insurance industry and it is doubtful whether Myanmar can produce
enough skilled labour to meet this demand. FinScope revealed that only 7% of respondents
reported having a higher education degree. This is supported by McKinseys study that found
that in 2010 only 5% of the countrys workers had tertiary and higher education credentials,
and only 15% had finished secondary education. This is extremely low compared with other
developing countries in the region7 and has the potential to restrict growth of the financial
sector.
Strong culturally stable communities with local services and local institutions. The traditional
Buddhist culture is perhaps the strongest single influence in Myanmar life with 89.4% of
Myanmars citizens being Buddhist (Kuppuswamy, 2013). This has a profound influence on
financial behaviour. For example, respect and care for parents are highly valued (with
consequences for pension provision), the poor and orphans are often taken care of in
communities and health care is often a shared community responsibility. As a result, many
of the financial needs are met at the community level. In addition, there is a strong discipline
towards debt repayment. This strong community structure influences local services and
institutions.
Pervasive state structures down to local level. Myanmar has strong community based
structures established for the purposes of administrating or performing government,
religious, relief, finance or production functions. State structures are divided into seven
6

Global mobile penetration stood at 96% in 2013. Source: ITU, 2013. ICT Facts and Figures. [Online] Available at:
http://www.itu.int/en/ITU-D/Statistics/Documents/facts/ICTFactsFigures2013-e.pdf [16 04 2014]
7
30 percent of workers in Vietnam and Thailand have a secondary education; in Indonesia, the share is almost 50 percent, and
in China and Malaysia, it is about 60 percent.

12

regions, seven states and the Union territories. These state structures are constituted at the
lowest levels by village tracts and wards8 and are staffed by individuals who comply with
certain criteria (namely residing in that area and having lived there for more than ten years)
and elected by the community9. These ward committees play active roles in community
development activities such as immunization campaigns, religious events, election, sports
activities, and literacy education10. The state structure is a well organised hieratical
structure. This is one of the greatest assets to the financial sector as these state structures
and line of communication are already used by financial institutions.
Partly-led credit provision in the run-up to the 2015 general elections. General elections in
Myanmar are due to take place before or on 07 November 2015. Industry consultation
revealed that during and shortly after the by-elections in 2012 political parties had been
active in extending credit. CGAP/IFC estimated the Union Solidarity Development Party
(USDP) extended credit to 500 000 clients in 2012 (Duflos et al., 2012). Interviews with USDP
ward leaders during May 2013 revealed that credit extension through these channels had
concluded or significantly tampered off. The absence of appropriate distribution incentive
for ward leaders was sighted as the predominant reason for this. FinScope, which
overlapped with this period, registered party credit from USDP and NLD but uptake numbers
were insignificant. While party-led credit is unlikely to change the long run landscape of
credit provision in Myanmar, it is worth monitoring in the run-up to the 2015 elections.

3.3.

Impact upon the regulation and supervision of financial services

Finally, recent history has also shaped the attitudes to regulation and supervision of financial
services:
Local ownership and indigenisation underlying political reform and opening up. Myanmar has
cautiously introduced reforms that open up the economy and financial sector, while
retaining local ownership. Current regulation does not allow for foreign ownership of banks
or insurance companies. The government intends to open up the banking sector to foreign
entrants in 2014, but only through joint-ventures. The insurance sector will only be opened
up to foreign investment in 2015. This drive to protect local ownership and indigenisation
has been a constant of the government of Myanmar since its independence (see Section 2.1)
and will be an underlying driver of economic reform.
Impact of 2003 banking crisis. The government authorities may feel overly cautious during
the process of liberalisation, as the previous attempt to open the economy lead to the
banking crisis in 2003. The banking crisis followed a period of market revival and economic
reform. The government would be concerned about a reoccurrence of this crisis and it may
cause the supervisor to apply very strict prudential controls to protect the solvency of the
banking sector, while potentially undermining the use of innovative distribution channels for
the provision of financial services (Turnell, 2003).

Constitution of the Republic of the Union of Myanmar (2008). Chapter 2 Section 49,pg 13-18 [online] Available from:
http://www.burmalibrary.org/docs5/Myanmar_Constitution-2008-en.pdf Accessed: 13 March 2013
9
Republic of the Union of Myanmar: Ministry of Home Affairs (2012). The Ward or Village Tract Administration Law. Chapter
3 - 4 Section 3 8. [Online] Available from: http://www.burmalibrary.org/docs15/2012Ward_or_Village_Tract_Administration_Bill-2012-02-24-en.pdf [Accessed: 16/07/13.
10
Qualitative demand-side summary report. MAP in Myanmar (2012). Section 2.1.2.

13

4.

Demand for financial services

The following section will provide an overview of the relevant demand-side characteristics of
the adult population of Myanmar in order to better understand the nature of demand for
financial services. These characteristics include demographic, employment and income
considerations that will influence the current uptake and potential future demand for
financial services. This view is supplemented by Section 4.2, where target groups for
financial inclusion interventions have been identified based on key economic groups.
Within this section, if no specific references are made, it should be assumed that data was
obtained from the 2013 FinScope Survey.

4.1.

Demographic and income information

Myanmar has a large, predominantly rural and aging population. Myanmars population of
60.9 million (NSO, 2013) ranks as the 24th largest population in the world (World Bank, 2013)
and the 5th largest population of the 10 Southeast Asian countries. It is estimated that 69%
of the population is located in the rural areas, making it the 2nd largest rural population in
Southeast Asia. The remainder of the population, classified as urban for the purpose of this
study, are located in metropolitan areas11 (9%), semi - urban12 (2%) and towns (19%). Only
29% of the population are younger than 14 years with the majority of the population (62%)
between the ages of 15 to 59 and 9% of the population 60 years and older.
The population is predominately Buddhist, Burman and function within a strong family
structure. Qualitative respondents cited religion as a fundamental driver of behaviour in
Myanmar. The Institute of Peace and Conflict Studies (IPCS) found that 89.4% of the adult
population reported to be Buddhist. The remaining religious groups were Christian (4.9%),
Muslim (3.9%), Animist (1.2%) and Hindu (0.5%). Myanmar has 135 ethnic groups, of which
Burmans (69%) are the most predominant. The population is made-up of approximately 14
million households with an average household size of 4.8 individuals13. Of the adult
population, 72% reported to be married and qualitative research revealed that it is common
for up to three generations to live and contribute to the same household.

11
12
13

Yangon and Mandalay

Chief cities of states and regions
4.7 urban and 4.9 rural

14

Figure 2: Demographic breakdown by religion, ethnicity, age and rural vs. urban.
Source: Institute of Peace and Conflict Studies (IPCS) and FinScope 2013

Low levels of skilled labour. According to the UNDPs Human Development Index, in 2012,
Myanmar ranked 149 (out of 185 countries rated) for the average number of years of
education completed by people aged 25 years and older (UNDP HDI, 2013). Myanmars
average stood at 3.9 years. An alternative assessment by the Asian Development Bank (ABD)
indicates that the number is 4.8 years. According to FinScope, 63% of the population have no
education or only have basic education, 30% reported having secondary education and 7%
reported having higher education. Primary school (grades 1 to 5) Net Enrolment Ratio
(NER)14 stands at 84.6%, despite it being compulsory (JICA, 2013). In addition, less than 60%
of these pupils complete grade 5. Lower secondary (grade 6 to 9) school NER stands at
47.2%, upper secondary (grade 10 to 12) school NER stands at 30% and tertiary NER stands
at 15%. The regional NER averages for primary, secondary and tertiary schooling are 96%,
73% and 30% respectively (UNESCO 2011).
Large and potentially growing group of domestic and international labour migrants. Large
portions of the economically active population have migrated to urban centres or abroad to
seek better employment prospects. Myanmar has a relatively high rate of urbanisation at
2.6% per annum15. This is above the global annual average of 1.9%a, as well as the rate of
more advanced economies such as Thailand, which has an urbanization rate of h 1.4% per
14

NER is the number of pupils in the theoretical age group who are enrolled expressed as a percentage of the same population.
Its not possible to deduce from the data if rural to urban migration is primarily driven by migrant workers or relocated
families. Various studies do however indicate to the prevalence of migrant workers.
15

15

annum. However it is lower than Myanmars less developed Southeast Asian peers such as
Laos which has a rate of 5.1% per annum (CIA, n.d). The estimated number of Myanmar
labourers working outside of Myanmar ranges significantly, between two and six million
(Human Rights Document Unit, 2008). According to CARAM (2010) 48% of all Immigrants are
women. Industry consultations suggest that the largest remittance corridors are with
Thailand, Malaysia, Singapore and the United Arab Emirates. This was confirmed by FinScope
which estimates 1.9 million adults received remittances in the last twelve months from
Thailand, about 700 000 from Malaysia and about 120 000 from Singapore. IFAD estimated
the total 2012 remittances at USD 566 million, which is approximately 1.1% of GDP (IFAD,
2013).
Thailand home to largest number of Burmese migrants. There are an estimated two million
Myanmar labourers in Thailand, employed predominantly in low-skilled occupations in the
agricultural, construction and fisheries industries (Chantavanich, 2012). The majority of this
migration takes place along the border of Thailand via the Kayin and Tanintharyi states. Of
the remittance sent from Thailand, about 68% goes to parents, 15% goes to siblings, 10%
goes to children and 7% goes towards the support of spouse(s) and others (Deelen &
Vasuprasat, 2010).
Lowest income levels in region with high incidences of poverty. According to World Bank
Myanmar is the poorest country in Southeast Asia. FinScope estimates the average monthly
income to be K 93 527 (about USD 99 per month or just more than USD 3.5 per day). Figure
3 below indicates that, of those adults who responded to the income question in the
FinScope questionnaire, 19% live on less than USD 1 per day and 43% live below the
acceptable minimum wage for day labourers of USD 216 per day. The Gini coefficient was
determined to be 0.49 (IFPC, 2013).

19.4%

% of adults in income level

63.7%

42.8%

80%

94.8% of adults
earn less than $10
per day

15%
12.0%

70%

81.1% of adults
earn less than $5
per day

60%
50%

10%

5%

40%
42.8% of adults
under "min wage"
for day labourers

30%

7.3%
3.8%

5.4%

20%
2.0%

0%

100%
90%

81.1%

20.9%

20%

100.0%

94.8%

23.5%

19.4% of adults are under UNDP

poverty line 2010

1.1%

1.5%
0.1%

0.4%

0.9%

0.3%
0.1%

1.5%

Cumulative % of adulst living below

25%

10%
0%

Personal income in USD per day

N= 30 486 972 (adults who disclosed income)

% of adults in income level

Cumulative % of adults

Figure 3: Income distribution

Source: Finscope 2013
16

Note that the exchange rate has not been adjusted for Purchasing Power Parity (PPP). And exchange rate of USD 1 = Kyat 946
Kyat was used to calculate the dollar equivalent.

16

Urban wages significantly higher than rural wages. The reported average monthly income in
urban areas (K 126 004/USD 133) was 59% higher than rural areas (K 79 351/USD 83.9). In
addition, the number of individuals in urban areas living below USD 1.00 (9%) and USD 2.00
(12%) a day is significantly less than their rural counter parts (17% and 21% respectively).
The average income is significantly different within urban areas with the larger metropolitan
areas of Yangon and Mandalay average income of K 165 366 (USD 175), semi urban areas
with K 108 576 (USD 115) and towns with K 112 556 (USD 119). This represents an intraurban variation between lowest and highest average of nearly 50%. Wage differentials
between provinces are also significant with the highest income province of Tanintharyi,
which boarders Thailand, where the average income is in excess of 250% of the average
income of the lowest income province of Rakhine. Lastly, significant wage differentials exist
between agricultural zones with the highest average income in the Plain and Delta Zone,
with K 103 200 (USD 109), compared to the lowest income agricultural zone, which is Coastal
Zone, with K 85 822 (USD 91).
Agriculture is the largest economic activity by number of participants. 19.8 million adults or
6.97 million households (50% of the adult population) report being involved in farming. This
figure only includes adults who are involved in farming and does not include adults who are
farm workers, although there may be overlaps between the two groups17. Adults involved in
farming can be divided into 3 groups, described in Table 1 below: (i)Those whose main
income is from farming; (ii)those for whom farming is a secondary income source; and (iii)
those who are dependent on other household members for income but whose households
are involved in farming (family dependents of farming households). Those whose main
source of income is from farming constitutes 61% of all adults whose households is involved
in farming, or 30% of all adults.

Farming groups
Main income farming
Farming as secondary
income
Family dependents of
farmers
Total

Number of adults
12 098 928

% of adults whose households

are involved in farming
61%

3 264 502

17%

4 412 523
19 775 953

22%
100%

Table 1: Farming groups

Source: FinScope 2013

For an overview of the agricultural activities as reported by all adults whose households are
involved in farming, please refer to Section 14.5, Annex A: Credit products. An Agricultural
note summarising the agricultural content and main findings from the MAP Myanmar
Country Diagnostic report will also be available as a separate deliverable.

17

Our analysis deal with adults who are farm workers as a separate economic group (see Section 4.2).

17

4.2.

Segmenting the market

In order to assess the nature of take-up and to identify key priority areas for future
extension of financial services, it is important to understand the key parameters of priority
economic groups and identify target groups. The parameters of the target groups will form
the basis for assessing the appropriateness of institutions and the products they offer to
meet the needs of the target groups.
The segmentation was derived in two stages. Firstly, economic groups were identified based
on the main sources of income as reported by FinScope. Nine economic groups were
identified: Farmers, Formal enterprises, Informal enterprises, Farm workers, Government
employees, Employees of formal private employees, Salaried private individuals (private
employees not working for companies or government), Piece or casual workers, and
Remittance dependents. These economic groups were evaluated based on key parameters
as they influence the nature of the groups demand for financial services (income, gender,
geography, age, education levels, use of mobile phones and take-up of financial services).
Based on this evaluation the economic groups were grouped into five key target groups for
financial services:

Farmers are adults that reported to be self-employed (farming their own land or
family land) in engagements involving crop cultivation and livestock keeping.
Formal enterprises are enterprises that are considered regulated or licensed to
operate. This segment represents adults who are self-employed and own and
operate their own enterprises.
Informal enterprises are enterprises that are not licensed to operate. This
segment represents adults who are self-employed and own and operate their own
enterprises.
Formal consumer market consists of employees who are employed in the formal
private sector (Employees of formal private companies) or in the public sector
(Government employees).
Informal consumer market consists of adults who receive wages from the informal
market (Piece or casual workers as well as Farm workers), adults who receive a
salary from the informal market (Salaried private individuals) and those who rely on
remittances (Remittance dependants.

Table 2 below compares these different target groups based on the following parameters:
1. Number of adults in a group Farmers make up the largest category of economic activity
and represent their own defined target group. They represent 12.1 million adults or 30%
of the adult population. Adults considered as Informal enterprises (12%) are almost
equal to those who receive wages as casual workers and piece workers from informal
institutions (10%). Remittance dependants are the smallest economic group (1% of
adults).
2. Average monthly income18 Formal enterprises reported having the highest average
monthly income at K 211 891 (USD 224) followed by Employees of formal private
companies at K 129 288 (USD 137). Informal enterprises and Government employees
followed closely at K 125 676 (USD 133) and K 115 909 (USD 123) respectively. Farmers

18

Of those adults who reported their monthly income

18

3.

4.

5.

6.

7.

8.

9.

and adults in the Informal consumer market all received a monthly income below K
100 000 (USD 106).
Percentage of group not using any regulated/unregulated financial services
Government employees registered the lowest level of use (35%). Adults in the Informal
consumer market registered the highest level of financial services use (62% for Salaried
private individuals, 57% for Remittance dependents and 54% for Piece or casual
workers).
Percentage of group currently owing - the proportion of adults that have debt in each
segment at the time of the study. The segment with the highest proportion of debt was
Farmers at 62% compared to all the other segments, which was below 50%.
Percentage of group that resides in rural areas - represents the rural urban distribution.
Farmers and the Piece or casual workers groups had the highest percentage of adults
residing in rural areas (93% and 70% respectively). The lowest percentage of adults
residing in rural areas includes Formal enterprises (25%), Employees of formal private
companies (27%) and Government employees (32%).
Percentage of group that are male demonstrates the gender split in every segment.
The segments that have the highest proportion of males include Employees of formal
private companies (72%), Salaried private individuals in the Informal consumer market
(69%), Farmers (62%) and wage recipients in the Informal consumer market (61%),
which includes Piece or casual workers.
Percentage of group aged less than 35 years provides an overview of the age
distribution. The highest proportion of individuals under the age of 35 include Farm
workers (46%), Employees of formal private companies (37%), Piece or casual workers
(36%) and Salaried private individuals in the Informal consumer market
(35%).Remittance dependants are the oldest group with only 7% of adults under the age
of 35.
Percentage of group that reported owning a mobile phone represents ownership of
mobile phones. Those who are self-employed in formal enterprises (Formal enterprises
group) contain the highest proportion of mobile phone ownership (63%). Government
employees and employees of private companies follow with 48% and 43% mobile phone
ownership. Farm workers and Piece or casual workers have the lowest mobile phone
ownership at 5% and 12%.
Percentage of group that has no or only basic education demonstrates literacy levels.
The largest proportion of adults with no or only basic education includes Farmers (70%),
Piece or casual workers (69%) and Remittance dependents (68%). Government
employees followed by Employees of formal private companies have the highest
education levels (secondary and/or tertiary education. with 82% and 67%, respectively.

Note on segmentation methodology: The goal of the segmentation exercise is to identify

key priority target groups for the extension of financial services. Although a large proportion
of the population was captured in the segmentation exercise (72% of adults) the use of
economic groups and remittance receivers to identify priority target groups resulted in the
exclusion of the economic inactive. This is in-line with the G-20 definition of financial
inclusion which focuses only on working adults (see Section 1). The largest group of
individuals excluded from the segmentation exercise were adult household dependents who
account for 27% of the adult population. This group is mostly female (76%), and are mostly
spouses (44%), parents (19%) or other family members (9%) of the head of household.

19

Total adult
population

Metric
Number of adults in
group
Avg. monthly income of
those in group who
reported income (ratio
to average income)
% of group not using any
regulated/ unregulated
financial services
% of group currently
owing
% of group that resides
in rural areas
% of group that are male
% of group aged less
than 35 years
% of group that reported
using a mobile phone
(own phone)
% of group that has no
or only basic education

Farming

Formal
enterprises

Informal
enterprises

Farming

Formal
enterprises

Informal
enterprises

Formal consumer market

Employees of
formal private
companies

Government
employees

Informal consumer market

Piece/
casual
workers

Farm
workers

Salaried
private
individuals

Remittance
dependents

39 777 041
(100%)

12 098 928
(30.4%)

2 521 343
(6.3%)

4 687 722
(11.8%)

765 505
(1.9%)

968 030
(2.4%)

4 028 021
(10.1%)

2 178 101
(5.5%)

725 503
(1.8%)

520 829
(1.3%)

K 93 527/
USD 99
(1)

K 89 723/
USD 95
(0.96)

K211 891/
USD 224
(2.3)

K 125 676/
USD 133
(1.3)

K 129 288/
USD 137
(1.4)

K 115 909/
USD 123
(1.2)

K 66 836/
USD 71
(0.7)

K 48 611/
USD 51
(0.5)

K 86 319/
USD 91
(0.9)

K 62 309/
USD 66
(0.7)

48.8%

41.0%

45.7%

48.4%

44.5%

35.3%

53.6%

55.4%

62.4%

56.7%

47.4%

61.8%

26.0%

41.7%

26.7%

37.7%

49.5%

59.1%

44.1%

21.6%

69.2%

93.3%

24.8%

52.4%

26.6%

32.2%

70.0%

95.8%

45.1%

64.3%

48.7%

61.9%

55.6%

46.5%

71.8%

47.6%

61.2%

56.3%

69.0%

42.6%

28.9%

25.9%

23.0%

24.9%

36.9%

22.7%

36.3%

45.8%

35.1%

6.7%

41.8%
(23.5%)

34.8%
(15.7%)

73.3%
(63.2%)

54.1%
(36.6%)

72.6%
(43.2%)

67.6%
(47.8%)

33.7%
(11.8%)

28.6%
(5.2%)

35.5%
(22.6%)

30.6%
(17%)

63.2%

69.6%

32.9%

55.5%

33.4%

12.3%

68.8%

86.3%

50.8%

68.0%

Table 2: Key parameters of economic groups and target groups

Source: FinScope 2013

20

Economic activity strongly correlated to geography. As can be expected, the majority of farm
workers and farmers are located in rural areas. Formal enterprises, Government employees
and Employees of formal private company were predominately urban. Informal enterprises
were evenly split between rural and urban areas with Remittance dependents and Piece or
casual workers located primarily in rural areas. The largest economic groups are located
predominantly in rural areas and have lower incomes than their smaller urban counterparts.
90%
Formal enterprises

80%
Government emoployees

% of economic group that are urban

70%

Employees of formal private

companies

60%
Salaried private individuals
50%

Informal enterprises
Remittance dependents

40%

Piece/casual workers

30%

Target markets:

20%
Farmers
Farm workers

10%

Size of bubble = size of economic group

0%

20 000

40 000

60 000

80 000

100 000

120 000

140 000

160 000

180 000

200 000

220 000

240 000

Average income of economic group (Kyats)

Figure 4: Comparative profile of economic groups

Source: FinScope 2013

Significant variation in income between economic groups. Average reported monthly income
of economic groups differs significantly based on the main source of income (See Figure 4
above). Formal enterprises reported the highest income levels while farm workers reported
the lowest monthly income.
Key differences in economic activity, regularity of income, geography, age, gender and
mobile phone usage of the target groups, will need to be incorporated into any financial
inclusion initiatives to reach and meet the needs of each market.

4.3.

Take-up and usage of financial services

For the purposes of this discussion, usage of financial services will be categorised according
to the type of financial service provider through which the financial product or service is
accessed. The type of financial service provider can be broadly classified as regulated and
unregulated providers (see Box 2, below). Regulated providers in the general take-up section
(Section 4.3.1) will cover institutions regulated for the provision of financial services such as
State Financial Institution (SFI)s, MFIs, commercial banks, co-operatives and pawnshops.
Unregulated providers include individuals and institutions such as: employers, savings
groups, money lenders, village funds, religious institutions and agricultural buyers. This
category does not include loans obtained from friends and family. Product specific take-up
21

and usage will be dealt with in each individual product sections (Sections 7 - 10). Regulated
institutions in the product sections will include institutions that are regulated for the
provision of the financial services in question (e.g. credit or insurance).
Box 2: Categorisation of financial institutions and the revised access strand

Financial services providers in Myanmar can be broadly categorised into regulated and
unregulated providers:
Regulated financial services providers are registered legal entities that are regulated for the
provision of financial services. If a financial services provider is registered with a public
authority and its activities are subject to regulation which permits it to provide financial
services, whether a public authority supervises its provision of financial services from a
prudential or market conduct perspective or not, it is considered a regulated financial
services provider.
Unregulated financial services providers are not registered with any public authority for the
provision of financial services and are not subject to any institutional, prudential or market
conduct supervision in their provision of financial services. Even though legislation or
regulation may exist that govern their provision of financial services, unregulated providers
do not comply with such regulation and are therefore not subject to any public supervision
or control. Likewise, if an entity is registered with a public authority, but not for the
provision of financial services; and no regulation exists that govern their provision of
financial services, the entity will be an unregulated provider.
An access strand is a tool used to illustrate take-up of financial products or services from
different categories of financial services providers based on the level of public control and
supervision applied to the financial services provider, while placing an emphasis on
regulated financial services providers. The access strand consists of four distinct groups:

Financially excluded: This group consist of adults who do not access financial products
or services from either regulated or unregulated financial services providers, and who do
not demonstrate financial activity with family, friends or themselves.
Individuals who only demonstrate financial activity with family, friends or themselves:
This group consists of adults who illustrate financial activity through friends, family or
themselves. This financial activity includes saving at home or with family or friends,
borrowing from family or someone you know, sending money to someone via family or
friends, or using a savings or borrowing mechanisms in response to having experienced
an insurable event (ex-post financial mitigation)19.
Financially included through unregulated financial products and services only: This
group is comprised of adults who are financially included through the take-up of
financial products or services from unregulated providers. However, this group does not
include individuals who also have any financial products or services from regulated
providers.
Financially included through regulated financial products and services: This group is

19

This last category is captured as individuals who only demonstrate financial activity with family, friends or themselves in the
insurance access strand regardless of the regulated or unregulated nature of the saving or borrowing activity employed.,
because they are not using a regulated or unregulated insurance product to mitigate the risk, but are employing their own
financial mechanism to mitigate the risk. The use of regulated or unregulated saving or borrowing to mitigate the risk would
still reflect as regulated or unregulated use of saving or borrowing in the saving or borrowing strand, and overall financial
access would therefore still reflect the true extend of regulated and unregulated take-up.

22

made up of all adults who are financially included through the take-up of financial
products or services from regulated institutions.
Please note that the access strands do not show overlaps between the categories of
providers, so that an adults with both a regulated and unregulated financial product is not
distinguishable from the access strand and would only appear under regulated take-up.
Similarly, an adults with no regulated product but who has an unregulated product and who
(for example) saves with a family member, would only appear under the unregulated takeup.
The access strand can further be used to illustrate take-up across particular product groups
(i.e.: credit, savings, insurance or payments). Particular financial products, services,
mechanisms and activities that have been included for each category of the product group
access strands are listed under each product group below:
Credit access strand

Regulated take-up: Having a loan product or credit account with an SFI, commercial
bank, formal (non-bank) financial institution, MFI, government scheme, co-operative or
pawnshop.
Unregulated take-up: Borrowed money from an employer, savings group, money lender,
religious institution, village fund, community based organisation or a registered
institution which is not being supervised for the provision of financial services. Received
goods in advance from a farmer/shop/store/supplier or agricultural buyer and had to
pay back later.
Borrowing with family or friends: Borrowed money from family or friends that you have
to pay back. Received money from family or friends that you did not have to pay back.

Savings strand

Regulated take-up: Saving with or having a savings account with an SFI, commercial
bank, formal (non-bank) financial institution, MFI or co-operative.
Unregulated take-up: Belonging to a savings group or having savings with a savings
group, money donations group, or another institution that is not supervised for the
provision of financial services.
Saving with family, friends or self: Saving within the household, family or community
who keep it safe for you, saving in a secret place at home (like a piggy bank), saving in
jewellery or gold, saving in livestock or saving in kind.

Insurance strand

Regulated take-up: Any regulated insurance product (like motor vehicle insurance) with
an insurance company or bank.
Unregulated take-up: Saving with or borrowing from an MFI that has a mandatory
welfare fund, belonging to community funeral assistance or health assistance groups, a
free funeral society/ward clinic or health association, or a donation group.
Self-mitigation (after having experienced an insurable risk): Those who experienced an
insurable risk over the past 12 months and used savings or borrowed in order to mitigate
the impact of the event. Insurable risks include: Death of or loss of income from main
23

income earner, death of a family member (who is not the main income earner), illness
within your household or family that requires medical expenses, disability (self or
household member), loss of job (self or household member), fire or destruction of
household property, loss of your home, loss of your savings, drought, poor rainfall or
loss of access to water for farming, flooding/storms, harvest failure or losses of crop
harvest (including plant disease), death or illness of livestock, loss of your land or access
to land you use, loss/failure of your business or an earthquake.
Payments strand

Regulated take-up: Having sent or received remittances in the last 12 months via bank
transfer (or paying into a bank account), ATM, the Post Office, Western Union,
MoneyGram, internet/online banking or mobile phone or having one of the following
accounts/products from a commercial bank: Debit Card/ATM card/Myanmar Payments
Union (MPU) card, current/cheque account, foreign currency account, bank account
outside the country, internet/online banking.
Unregulated take-up: Having sent or received remittances in the last 12 months by
motorcycle, taxi or via a hundi.
Sending money with family or friends: Having sent or received remittances in the last
12 months directly via friends or family.

24

4.3.1. General take-up and attitudes towards financial services

Half of Myanmars adult population report to use financial services from regulated and
unregulated sources. FinScope reports that 51% of adults use financial services from either a
regulated or an unregulated institution. Figure 5 below shows that 30% of adults use at least
one financial service product from a regulated financial service provider, while 21% use
unregulated services only. The remaining adult population rely on meeting their financial
needs from friends, family or themselves20 only (30%) or do not use any form of financial
services (19%).

N(Total)= 39 777 041

Total

30.0%

N(Rural)= 27 542 256

Rural

30.6%

N(Urban)= 12 234 785

Urban

21.1%

22.6%

28.8%

0%

10%

29.7%

29.3%

17.7%

20%

30%

40%

19.2%

17.5%

30.6%

50%

60%

22.9%

70%

80%

90%

100%

% of Total, rural and Urban adults

Regulated access

Unregulated access

Financial activity with family, friends or yourself

Financially excluded

Figure 5: Financial services usage by source of provision

Source: FinScope 2013

Majority of adults with access to regulated financial services only make use of one product
class. Although 30% of adults reported to use at least one financial service from regulated
financial services providers, only 6% make use of more than one regulated financial product
class (a combination of credit, savings, insurance and payments). The remaining 23% of
adults (or 9.4 million) reported only using one financial product class from a regulated
financial services provider. Figure 6 below shows this breakdown of adults using financial
services from regulated financial services providers and classifies adults that make use of
more than one financial service as broadly served and those who only make use of one
financial service from a regulated provider as thinly served. This highlights that most adults
that are considered to be served by regulated financial services providers are only thinly
served and are still candidates for financial inclusion.

20

This category consists of individuals who only demonstrate financial activity with family, friends or themselves. This financial
activity includes saving at home or with family or friends, borrowing from family or someone you know, sending money to
someone via family or friends, or using a savings or borrowing mechanisms in response to having experienced an insurable
event (ex-post financial mitigation).

25

~5% of rural adults access

~9% of urban adults

more than one financial service

from a regulated institution

access more than one

financial service from a
regulated institution

Broadly served

Broadly served

~25% of adults
access only one
financial service
from a regulated
institution

~23% of adults
access financial
services only from
unregulated
institutions

~20% of adults
Thinly
served

Thinly
served

Unregulated
only

Unregulated
only

Financially
excluded

Financially
excluded

~47% do not

access only one

financial service
from a regulated
institution

~18% of adults
access financial
services only from
unregulated
institutions

~53% do not

access financial
services

access financial
services

27.5 million
rural adults

12.2 million
urban adults

Figure 6: Nature of financial services usage

Source: FinScope 2013

Thinly served driven largely by regulated borrowing without an account and non-account
based payments. Of the 23% of adults identified as thinly served, 61% (or 5.8m adults) only
borrow from regulated financial services providers and 27% (2.5m adults) use only payment
services from regulated financial services providers (see Table 3 below). Adults who report
only borrowing from regulated financial services providers are largely rural farmers who
access agricultural credit only from MADB21. Adults who report using only payments from a
regulated financial services provider consists almost entirely of adults who indicated that
they use a bank to send or receive remittances, but do not report having a bank account22.
Regulated payments as captured in our analysis are therefore largely non-account based.
These two services (adults only borrowing from regulated financial services providers and
adults using only payments from regulated financial services providers) make up 88% of the
thinly served category.

Regulated usage
Regulated borrowing only
Regulated savings only
Regulated insurance only

Nr of adults
5 763 519
746 489
388 714

% of adult
population
14.5%
1.9%
1.0%

21

FinScope reports that of the 5.8 million adults who only have a regulated credit product (see Table 3); 3.8 million only have
access to a MADB loan (adults in households who have an MADB loan
22
In Myanmar its common to use bank branches to remit money without holding an account with a bank. Only about 40 000 or
1% of remittance senders and receivers have a transactional bank account, while only 12% of adults who indicated they use
banks to send or receive remittances indicated that they have any account with a commercial bank or MEB, or that they
currently save or borrow from a commercial bank or MEB.

26

Regulated usage
Regulated payments only
Two types of regulated financial services (e.g. savings and
borrowing)
Three types of regulated financial services (e.g. savings,
payments and insurance)
All 4 types of regulated financial services
Total regulated access

Nr of adults
2 538 376

% of adult
population
6.4%

2 001 248

5.0%

455 736
51 692
11 945 774

1.1%
0.1%
30%

Table 3: Breakdown of regulated financial services usage

Source: FinScope 2013

Interpreting agricultural credit uptake for MADB using FinScope data. In FinScope, 5.3 million
adults from farming households reported having an MADB loan. With an average of about 3
adults per household, this translates to about 1.8 million households with a loan from
MADB. This accounts for the discrepancy between the number of adults reporting to have an
MADB loan in FinScope (5.3 million adults) compared to the number of loan clients reported
by the MADB during supply-side consultations (at least 1.6 million clients and 2.3 million
loans)23. The qualitative research findings suggest that farming is a household activity in
Myanmar. Farming households functions as an enterprise and agricultural credit decisions
tend to be made at a household level. There would therefore likely only be one MADB loan
per household. Because FinScope is an individual questionnaire conducted at a household
level, but extrapolated for the total adult population, uptake of agricultural credit therefore
reflects adults living in households who report having access to agricultural credit, rather
than the number of actual agricultural loans. MADB loans are the only credit that can
specifically be identified as being solely agricultural from FinScope, and to which this
reasoning can therefore be applied. Because of the nature of farming households in
Myanmar explained above, adults in farming households with a MADB loan are therefore
considered to have access to a regulated financial service.
Rural take-up exceeds urban take-up for both regulated and unregulated financial services.
Rural areas reported greater take-up of financial services (53%) than their urban
counterparts (47%). While the bulk of rural financial services are obtained from unregulated
providers (36% of rural adults have an unregulated product or service), the take-up of
regulated financial services is still higher in rural (31%) areas than in urban (29%). This is
largely driven by the rural penetration of credit provision by MADB and PACT (as explained
above; also see Section 7.3).
Large overlap between usage of financial services from regulated and unregulated
institutions. It was found that 12% of adults, or 4.6 million people, in Myanmar make use of
financial services from both regulated and unregulated financial services providers. This was
most prevalent in rural areas where 14% of adults, or 3.8 million people, make use of both
providers.
Take-up of regulated financial services is positively correlated with income levels. As depicted
in Figure 7 below, financial services obtained from regulated financial services providers is
directly correlated to income. Higher income levels increases the likelihood of using a

23

Although FinScopes implied number of households with an MADB loan roughly correlates with the supply side figures (1.8
million vs. 1.6 million).

27

financial service from a regulated financial services provider, but only marginally decreases
the likelihood of using financial services from an unregulated financial services provider.
Regulated financial services penetrate even the lowest-income categories. While take-up of
regulated financial services correlates with income, Figure 7 also shows that regulated
financial services have penetrated into even the lowest-income categories. FinScope found
that 19% of individuals earning less than USD 1 per day report to use financial services from
a regulated financial services provider. This increases to 27% for those earning between USD
1.00 and USD 2.00 and to 31% for those earning between USD 3.00 and USD 4.00 per day. As
with the case for rural take-up of regulated financial services, penetration into low-income
segments is largely driven by MADB and PACT.

Figure 7: Total take-up of financial services from regulated and unregulated providers.
Source: FinScope 2013

Figure 8 below shows the take-up of specific product classes (credit, savings, payment and
insurance) from regulated financial services providers across income (discussed further in
each of the market discussions in Sections 7 - 10). Credit is the most pervasive financial
offering across most income groups followed by payments and savings. All income groups
reported using financial services from a regulated financial services provider with take-up as
a percentage of the total adult population in a specific income group increasing with income.

28

Figure 8: Take-up of regulated products across income

Source: FinScope 2013

Proximity to financial service providers is a key driver for financial services take-up. Proximity
to a financial services provider, measured by proximity to bank branch24, is a key driver to
the take-up of commercial bank products (See Figure 9 below). It was found that 72% of
commercial bank clients were located within 30 minutes of a bank branch. Similar
parameters apply to take-up of MEB products with 67% of clients living within 30 minutes
from a bank branch. The only bank exception was MADB where no significant correlation
between proximity and take-up could be established. While MADB follows a microfinance
distribution approach that includes group loans and local loan screening committees (see
Section 7.3.3 for a description of MADB) farmers are still required to collect funds and repay
loans at the MADB branch. Proximity is a critical factor for take-up of financial services but
could be overcome through changes to the operational model of the financial services
providers.

24

Respondents reported distance, in time, to the nearest bank branch. The reported distance does not imply that the
respondent is a client of the bank operating the branch.

29

% of institution's clients/population in proximity group

45%
39%

40%
35%

71% of commercial bank

clients are within 30
minutes of a bank
branch

30%

29%

30%

25%

25%
20%
15%

8%

10%
5%
0%

28% of all adults are

within 30 minutes from a
bank branch

Less than 5
minutes

20%

16%

17%
14%

9%
4%
1%

28%
18%

4%
5 - 14 minutes

27%

MADB is similar to total

population

21%
19%
16%
9%
5%
5%

4%
1%
0%

2 - 5 hours

More than 5
hours

5%
15 - 29 minutes 30 - 59 minutes 1 hour - 1 hour
59 mi

Proximity to bank branch

Commercial bank clients

MEB clients

MADB clients

Total population

Figure 9: Proximity to a bank branch versus commercial bank, MEB and MADB clients
Source: FinScope 2013

4.3.2. Qualitative findings on take-up of financial services

Several barriers to the take-up of financial services provided by regulated financial services
providers. The barriers to take-up of regulated financial services identified by the qualitative
research included: insufficient delivery channels that required travelling long distances at
high costs, inconvenient operating hours, long delays such as those experienced between
the application of a loan and the actual disbursement of the loan or time taken to remit
money via banks, burdensome application requirements (specifically those related to loan
applications and account opening) and low interest rates on savings especially when such
interest rates are compared to alternative unregulated investment opportunities. Moreover,
respondents from both the urban and rural areas felt that requirements set by regulated
financial services providers excluded low-income earners. For example, banks only accepted
specific types of property as collateral.
Some regulated financial products are gaining acceptance and usage. The most utilised
regulated financial products are money transfers via banks and agricultural loans
(predominantly from MADB). Supply-side interviews revealed that in order to remit money
via banks, one is neither required to submit onerous paperwork, nor did it require being an
account holder. Money transfers via banks were also considered to be safer than the
unregulated hundi system.
MADB products appreciated but service levels require attention. With regards to MADB loans
(see Box 4 for a discussion on MADB) farmers were appreciative of the low interest rates
charged on the loan. However, they complained that the process was lengthy, the
requirements were rigorous, the loan amounts were insufficient and not always available,
loan disbursement was not prompt enough and the repayment period was not suitable as it
forced farmers to sell their produce right after harvest at low market prices in order to make
the repayments.

30

Unregulated financial services and products are ultimately preferred. The discussed negative
attitudes coupled with insufficient delivery of regulated financial products results in high
usage of the alternative unregulated financial services products. The benefits of regulated
financial services were unclear to most people, especially those in the rural areas. The risks
and extremely high interest costs associated with unregulated products such as unregulated
lending were widely known but this did not discourage users of unregulated services or
products (MSR, 2013). Respondents were very comfortable using unregulated services
offered by the money lenders, (unregistered) pawnshops, savings groups and hundi.
Respondents especially preferred unregulated providers because they had flexible operating
hours and they provided immediate relief and the borrowing terms were negotiable.

4.3.3. Summary of economic groupings

Inverse correlations between credit usage and average income. When comparing take-up of
credit between the nine economic groups it becomes evident that, with the exception of
adults dependent on remittances, credit take-up from regulated or unregulated financial
services providers is inversely correlated to income. Lower income economic groups such as
Farm workers, Piece or casual workers and Farmers have higher credit usage than higher
income enterprise owners (Formal enterprises and Informal enterprises) and Salaried
employees25. This picture however changes significantly when only considering take-up from
regulated financial services providers. As depicted in Figure 10 below, adults who earn
salaries reported very low take-up from regulated financial services providers and high takeup of credit from unregulated sources (the distance between the mid-points of the dotted
and solid circles).

Target markets:

% of economic group having regulated or unregulated

credit

60%
Farmers

50%
Farm workers
40%

Piece/casual workers

30%

Employees of formal
private companies

Informal enterprises
Government
emoployees

20%

Salaried private
individuals

Remittance dependents

10%

Formal enterprises

0%
-

50 000

Size of bubble = size of economic group

100 000

150 000

200 000

250 000

Average income of economic group

Figure 10: Comparison of economic groups by income, credit usage and region
Source: FinScope 2013

25

Employees of formal private companies, Government employees and Salaried private individuals.

31

Direct correlation between rural and credit usage. The use of credit is directly correlated to
location. Credit take-up is significantly higher in economic groups that are based in rural
areas. When only considering credit from regulated credit providers this continues to hold
for farmers, who are eligible for MADB loans, while farm workers and casual labourers use of
regulated credit sources is significantly lower.
Savings directly correlated to income. The higher income economic groups, enterprises and
salaried employees, have higher savings levels than lower income groups of Farm workers,
Piece workers, Remittance receivers and Farmers. This trend only holds when considering
the use of regulated savings products. Higher income groups did however show high levels
of savings outside of regulated financial services providers. This represents low-hanging
fruits for regulated financial services providers looking to mobilise savings as they have high
savings incidences and are relatively easy to reach as they are predominately urban.
Savings inversely correlated to rural. The increased prevalence of savings was observed with
groups that were predominantly urban. Farmers, Farm workers and Casual labourers had the
lowest take-up of savings and the highest concentration of rural respondents. On the other
hand, Government employees, Private sector employees and enterprises had higher savings
incidents and were predominantly based in urban areas. Rural savings mobilisation is more
challenging as these groups are harder to reach, have irregular incomes and lower
incidences of savings (see Figure 11 below).

% of economic group having regulated or unregulated

savings

45%

Target markets:

40%

Government
emoployees

35%
30%
25%
20%

Farmers
15%

Salaried private
individuals

Formal enterprises

Informal enterprises

Remittance dependents
Farm workers

10%

Piece/casual workers

5%

Employees of formal
private companies

0%
-

50 000

Size of bubble = size of economic group

100 000

150 000

200 000

250 000

Average income of economic group

Figure 11: Comparison of economic groups by income, rural and savings usage from regulated and
unregulated institutions
Source: FinScope 2013

Take-up of transactional products strongly linked to both location and economic activity. As
is illustrated in Figure 12 below, Formal enterprises and Government employees had the
highest usage of payments products. This is followed, by Remittances receivers.
Interestingly, only 12% of Remittances Receivers made use of regulated money transfer
32

providers such as banks. Urban groups, with the exception of employees hired by
individuals, made more use of payment services. Formal enterprises, which are located
predominately in urban areas and have high mobile usage, are expected to make frequent
payments and currently conduct a large part of this through unregulated financial services
providers.

% of economic group using regulated or unregulated

payments

40%
Formal enterprises

35%
30%
Remittance dependents
25%

Government
emoployees

Salaried private
individuals

20%
Farmers
15%

Informal enterprises

Piece/casual workers

Target markets:

10%
Farm workers
5%

Employees of formal
private companies

0%
-

50 000

Size of bubble = size of economic group

100 000

150 000

200 000

250 000

Average income of economic group

Figure 12: Comparison of economic groups by income, rural and transactional usage from regulated
and unregulated institutions
Source: FinScope 2013

Summary of take-up and needs by economic group:

Farmers have high take-up of regulated credit, but unmet demand still exists. Farmers
reported high levels of access to regulated credit with 37% of Farmers reporting that they
borrow from a regulated financial services provider. However, this high use of regulated
credit does not translate into high take-up of other regulated financial services, with Farmers
reporting low levels of regulated savings, payments and insurance. Furthermore, regulated
borrowing correlates with plots size, increasing from 24% of Famers with plots smaller than
2 acres to 54% of Farmers who have plots 10 acres or larger. While Farmers are the best
served group for regulated credit, high levels of unregulated credit usage indicates demand
for additional credit and credit products.
Farmers reported a high need for regulated insurance products. Farmers reported low takeup of insurance from regulated (2 % of Farmers) or unregulated financial services providers
(6% of Farmers). FinScope revealed that 42% of Farmers only rely on savings or borrowing to
manage the impact of insurable risk events26. With regards to savings, Farmers did not
report to use regulated savings extensively (only 6%), however 29% of Farmers reported
saving with family, friends or themselves only. This includes saving at home in cash, saving in
26

Please note, these are risks which are normally considered insurable. Insurance products that address these risks are not
necessarily available in Myanmar.

33

livestock, as well as saving in gold. The credit lines and savings used for responding to a risk
event could be used for productive purposes if appropriate insurance products were in
place. For example, Farmers represent an aging population and this savings could better
serve the need for retirement provision.

Payments

8% 3% 8%

81%

Insurance 2% 6%

Saving

42%

6% 5%

Borrowing

50%

29%

61%

37%
0%

N= 12 098 928

20%
Regulated

14%
40%

11%
60%

% of adults in income group

Unregulated only
Fam and friends/self only

38%
80%

100%

Excluded

Figure 13: Usage of financial services by Farmers

Source: FinScope 2013

Formal enterprises reported low credit usage for productive purposes. Take-up of credit from
either regulated or unregulated financial services providers is low for Formal enterprises,
with 74% of Formal enterprises reporting to not use any form of credit. These enterprises
thus rely heavily on savings, held largely with family, friends or themselves, and income to
fund expansions. This represents an opportunity to develop these enterprises through the
provision of working capital and asset finance. Similar to Farmers, Formal enterprises rely
heavily on savings and credit to manage risk events. Developing appropriate insurance
products will further allow enterprises to allocate capital to operations.
Formal enterprises reported comparatively high use of savings, payments and insurance
products. Formal enterprises reported high usage of savings products with 63% reporting to
save. This includes adults that save with regulated or unregulated financial services
providers, as well as adults who save with family, friends or themselves. This is compared to
38% of the total adult population. Furthermore, Formal enterprises are also more likely to
use regulated transactional and payment services and insurance products than the general
population. FinScope reports that 27% of adults in the Formal enterprise segment used
regulated payments, compared to 10% of the adult population. For insurance, 11% of adults
in the Formal enterprise segment report having an insurance product with a regulated
financial services provider compared to 3% of the adult population.

34

Payments

27%

Insurance

11% 1%

Saving
4%

61%

66%

8%

12%

0%

6%

21%

17%

Borrowing

6%

38%

37%

10%

10%

20%

74%

30%

40%

50%

60%

70%

80%

90%

100%

% of adults in income group

N= 2 521 343

Regulated

Unregulated only

Fam and friends/self only

Excluded

Figure 14: Usage of financial services by Formal enterprises

Source: FinScope 2013

Informal enterprises usage of unregulated credit is nearly twice that of regulated. Informal
enterprises earn half of the income their formal counterparts earn, but rely much more on
credit to manage their enterprises. Currently, nearly twice as many adults obtain credit from
unregulated financial services providers, and given the nature of Informal enterprises, it will
be difficult for commercial banks to serve this group. As Informal enterprises are located in
both urban and rural locations, more than one category of provider is needed to meet the
needs of this target group.
Informal enterprises have high reliance on family, friends or themselves for savings and risk
mitigation needs. Take up of insurance and savings products with regulated and unregulated
financial services providers is low for Informal enterprise. Adults in this target group rely on
family, friends or themselves to meet their financial service needs. Of all target groups,
Informal enterprises report the second highest use of savings with family, friends or
themselves (40%)27.

Payments

12%

4%

Insurance 3% 5%
Saving

4%

Borrowing

8%

76%

29%
11%

11%
0%

63%
29%

21%
20%

56%
11%

58%

40%

60%

80%

100%

% of adults in income group

N= 4 687 722

Regulated

Unregulated only

Fam and friends/self only

Excluded

Figure 15: Usage of financial services by Informal enterprises

Source: FinScope 2013

27

Note that 11% of Informal enterprises make use of savings with friends, family and self also use regulated or unregulated
products.

35

Formal consumer market:

Government employees have highest take-up of regulated financial services. Government
salaried and wage employees show the highest take-up of regulated insurance (17% of
group) and savings (22% of group) and the second highest take up of regulated payments
and credit and did not appear to have significant barriers to their usage. However, high
usage of unregulated savings and savings at home with family, friends or themselves, as well
as unregulated risk mitigation does signal demand for additional regulated products.
Private employees have low levels of borrowing, but high take-up of insurance and savings.
Private company employees have low take-up of credit from regulated financial services
providers (3%). However, 10% of this group has regulated savings and 9% have regulated
insurance. This group is younger, more urban and have regular incomes. Their credit needs
would predominately be asset finance and consumer credit which could be provided by
private banks and leasing companies. Private banks could also be a future provider for
current large unregulated savings and savings at home with family, friends or themselves.
From a payments perspective, this group is likely to lead the shift to a more consumer driven
market and would possibly be the first group to adopt electronic payment instruments.

Government employees
Payments

26%

Insurance

17%

Saving

3% 6%

5%

19%

22%

Borrowing

65%

59%

14%

18%

10%

0%

20%

44%

10%

20%

62%
40%

60%

80%

% of adults in income group

Unregulated only
Fam and friends/self only

N= 4 028 021

Regulated

100%

Excluded

Employees of private companies

Payments

16%

Insurance

3%4%

9% 2%

Saving

10%

Borrowing 3%

78%

23%
9%

32%

22%

0%
Regulated

49%

2%
20%

N= 968 030

66%

73%
40%

60%

% of adults in income group

Unregulated only
Fam and friends/self only

80%

100%

Excluded

Figure 16: Usage of financial services by the Formal consumer market

Source: FinScope 2013

36

Informal consumer market:

Informal consumers have the lowest take-up of financial services from regulated or
unregulated financial services providers. Outside of borrowing, very few adults have access
to financial services from regulated or unregulated financial services providers. Almost a
third of adults or 31% rely on family and friends or themselves for risk mitigation, 18% save
at home or with family and friends and the bulk of the group still utilize cash for payments.
Approximately 74% of the group do not save and adults rely on credit, either from an
unregulated financial services provider or family and friends, to meet most of their financial
needs. Farm workers and Piece or casual workers28 had low levels of regulated savings,
payments and insurance but high levels of unregulated credit, risk mitigation and savings.
Given Farm workers low income levels and location this group will remain challenging to
reach in the short term. Piece or casual workers reported residing in both urban and rural
areas and had higher income levels. Private employees working for an individual showed
very similar usage patterns as Farm workers. This group is however more evenly split
between urban and rural areas and had higher income levels. These adults will thus be more
accessible to financial services providers and expressed demand for savings and insurance
which can be more easily met by regulated financial services providers.
The exception in the Informal consumer market is Remittance Receivers, who receive
payments though a regulated institution. Remittance receivers are predominately rural and
use of cash payments is problematic over long distances. A large portion of these payments
are also foreign, which indicates the need for foreign exchange functionality to payments.

28

The Informal consumer market consists of Farm workers, Salaried private individuals, Piece or casual workers and Remittance
receivers.

37

Farm workers
Payments 2%3% 6%

89%

Insurance 0%6%

39%

Saving 2% 7%
Borrowing

55%

18%

10%

73%
31%

0%

19%

20%

N= 2 178 101

40%

41%
60%

80%

% of adults in income group

Unregulated only
Fam and friends/self only

Regulated

100%
Excluded

Salaried private individuals

Payments

6% 1% 8%

84%

Insurance 2%4%

27%

Saving 3%2%
Borrowing

67%

18%

9%

77%
21%

0%

14%

20%

N= 765 505

56%

40%

60%

80%

% of adults in income group

Unregulated only
Fam and friends/self only

Regulated

100%

Excluded

Piece or casual workers

Payments

5% 4% 7%

85%

Insurance 2%4%

30%

Saving 3% 5%
Borrowing

65%

19%

8%

74%
29%

0%

10%

20%

N= 4 028 021

13%
30%

40%

50%
50%

60%

70%

% of adults in income group

Unregulated only
Fam and friends/self only

Regulated

80%

90%

100%

Excluded

Remittance receivers
Payments

11%

Insurance

6% 1%

Saving

7% 3%

Borrowing

17%

41%

17%

76%

15%

75%

10% 2% 10%
0%

10%

N=520 829

20%

31%

78%
30%

40%

50%

60%

70%

80%

90%

100%

% of adults in income group

Regulated

Unregulated only

Fam and friends/self only

Excluded

Figure 17: Usage of financial service by Informal consumer market.

Source: FinScope 2013

38

5.

Regulatory framework to promote access to financial services

This section provides a brief description of the policy, regulatory and supervisory framework
that impact upon access to financial services in Myanmar. Policy, regulation and supervision
play a determining role in the development of a financial sector. It determines who can
enter and operate in the market; the level of regulatory compliance and thus the cost of
providing financial services; it sets registration requirements for clients that determine their
ability to access financial services; it can compel and/or subsidise the provision of certain
financial products and services to defined target markets; and it gives structure and direction
to the evolution of the domestic and cross-border payment systems.
An analysis of how the policy, regulatory and supervisory frameworks enable or constrain
financial services in Myanmar will be laid out in each of the relevant product markets. See
Section 7.7 for regulatory constraints and enablers in the market for credit, Section 8.6 in
the market for savings, Section 9.5 in the market for payments and Section 10.7 in the
market for insurance.

5.1.

Policy

National development policy. Since the adoption of the new constitution in 2008, virtually
every aspect of life in Myanmar has been subjected to far-reaching reform. The financial
sector has been a prime candidate for numerous reforms. However, these reforms must be
viewed through the wider lens of the Framework for Economic and Social Reform (FESR).
The FESR is the Government of Myanmars development roadmap prepared by the National
Economic and Social Advisory Council (NESC). The overarching priorities of the FESR are
agro-based industrial development, an equitable sharing of resources between different
regions of the country, the promotion of local and foreign investment, a people-centred
approach and poverty reduction. Key measures to implement these priorities include (i) land
reform, (ii) improving access to credit, and (iii) creating new job opportunities.29
Financial sector reform. Promoting access to financial services must in turn be viewed
against the broader programme of financial sector reforms. The platform for financial sector
reform implemented since 2012 include the following:

The adoption of a managed float exchange rate system in April 2012 and the unification
of the exchange rate, which previously had different values in different domestic foreign
exchange markets. Since then, the exchange rate has floated within a band of K 848/USD
to K 989/USD30. A number of forex controls were lifted, including all restrictions on the
current accounts.
The enactment of the new Central Bank of Myanmar Law in July 2013 (No 16/2013),
which is designed to provide the CBM with the necessary autonomy to conduct
monetary policy. The law also empowers the CBM to undertake a number of core central
banking functions, some of which were previously undertaken by state-owned banks.
For example, the stock of official forex reserves at state banks are now being transferred
to the CBM.

29

Country Presentation: Myanmar Progress of Reforms in Myanmar 4 May 2013 Policy Document, p2
This reflects historical exchange rate data for the period July 2012 to Sept 2013. The rate reached an all-time high of K
848/USD in October 2012 and an all-time low of K 989/USD in July 2013.
30

39

The banking laws, the most important one of which is the Financial Institutions of
Myanmar Law (No.16/1990), are being redrafted. However, in terms of its current
powers the CBM has already liberalised bank deposit rates, expanded eligible collateral,
lifted additional capital requirements for branch expansions and eliminated the
deposit/capital ratio that previously applied.
To promote payment system development, the Myanmar Payment Union (MPU) was
established in September 2011 and has 17 member banks. The CBM encouraged the
issuance of an MPU debit card, and promoted the entry of international credit card
services. An Automatic Clearing House (ACH) and a Real Time Gross Settlement System
(RTGS) for large value payments are planned (Hpaw, 2013).
CBM issued a Directive on Mobile Banking (No. 4/2013) in December 2013 to govern the
provision of mobile banking services by banks and non-bank financial institutions, In
February 2014, the CBM publicly stated that it plans to issue a further directive for nonbank mobile money providers.
On the fiscal side, the 2012/13 budget was the first budget to be debated and approved
by Parliament. To reflect the new Constitution, certain public expenditure functions have
been delegated to the regions and the states, signifying the stronger fiscal role played by
regional and state governments. The Government also widened the tax base to include
government employees, amongst others, as well as abolished the withholding of tax on
imports, simplified the domestic sales tax and eliminated a tax on key agricultural
exports.
A new Foreign Investment Law was passed in 2012 to facilitate and structure growing
foreign investment in Myanmar, including investment in the financial sector. Underlying
the opening up of the economy is a strong drive to maintain indigenous ownership of
financial institutions.

Policy on financial access. Since the new government was elected in 2011, they have
pursued a number of specific policies to promote access to financial services. In the first
instance, these policies fall under the broader rubric of poverty alleviation. At the first
national workshop on rural development and poverty alleviation held in May 2011,
President U Thein Sein in his capacity as Chairman of the Rural Development and Poverty
Alleviation Committee outlined eight tasks for the various ministries and state organs to
address poverty alleviation. The Government objective is to reduce poverty from 26%
(UNDP, 2011) to 16% by 2015. They are thus targeting Government actions towards the
states, regions and townships where the prevailing poverty incidence is the highest. Four of
the eight tasks require initiatives to increase the provision of financial services. These are:

Task 1, the development of agricultural productivity, requires substantial increases in

agricultural credit;
Task 2, the development of rural productivity and cottage industries, cannot be
realized without improving financial services to SMEs;
Task 3, the development of micro saving and credit enterprises, requires the
development of community based financial services providers; and
Task 4, the development of co-operative tasks, includes the establishment of cooperatives to deliver, amongst others, financial services.

These tasks have already triggered several implementation actions by government bodies.
For instance, a new Microfinance Law (No. 13/2011) was enacted in November 2011. The
objectives of this law closely follow the tasks outlined above (Article 3 of the Microfinance
40

Law). In line with the strong regional focus, each region or state government is required to
form a microfinance development working committee whose functions and duties are
defined in the law. The government has also converted the Myanmar Industrial
Development Bank into the Small and Medium Industrial Development Bank (SMIDB), which
is tasked with the distribution of credit to SMEs through the distribution network of the
Ministry of Industry.
The Ministry of Co-operatives is tasked with the implementation of task 4, which includes
the objective of establishing a co-operative in every village in Myanmar. A microfinance bank
has been established to provide wholesale capital to co-operatives. The government is also
considering pawnshops and money-lenders as an integral part of its broader strategy to
distribute credit to the low-income population. In this regard a number of City Development
Laws mandate municipal governments to oversee pawnshops. Similarly, the government
maintains the currency of the Money Lenders Act (1945) to oversee the conduct of money
lenders and protect clients31.
Although the land reform process is not primarily implemented as a financial access
measure, the passing of the Farm Land Law in 2012 and the consequent granting of rights of
use to existing farmers will have a huge impact on the potential to extend credit to farmers.
For the first time they now have permit certificates as evidence of the right to work on farm
land that can be used as collateral for loans.

5.2.

State structures

Public institutions at national, regional and local level are the strongest structures currently
available to promote development and coordinate government action throughout Myanmar.
Many of these structures are managed by retired military staff able to inculcate a culture of
discipline and efficiency. The national Ministry of Planning and Economic Development is
responsible for guiding, coordinating and monitoring the actions of the various state
structures. Government structures operate at five levels:

National Government;
Seven state governments, seven regional governments and the Nay Pyi Taw Council;
The regions and states in turn are divided into 73 districts;
The districts consists of 330 townships in total;
At the lowest level are approximately 60 000 villages organised in ward committees that
play a significant role in the approval of credit provided through state-owned financial
services providers.

5.3.

Categorisation of financial providers

Financial service providers in Myanmar can be broadly categorised as regulated and

unregulated (also see Box 2 and summary in Section 4.3):
Regulated financial services providers are registered legal entities that are regulated for the
provision of financial services. If a financial services provider is registered with a public
authority and its activities are subject to regulation which permits it to provide financial
services, whether a public authority supervises its provision of financial services from a
3131

Answer by the Deputy Minister for Finance and Revenue, U Win Shein, to a parliamentary question, 17 August 2013.

41

prudential or market conduct perspective or not, it is considered a regulated financial

services provider. Regulated financial service providers include banks, Microfinance
Institutions (MFIs), co-operatives and state-regulated pawnshops.
Unregulated financial services providers are not registered with any public authority for the
provision of financial services and are not subject to any institutional, prudential or market
conduct supervision in their provision of financial services. Even though legislation or
regulation may exist that govern their provision of financial services, unregulated providers
do not comply with such regulation and are therefore not subject to any public supervision
or control. Likewise, if an entity is registered with a public authority, but not for the
provision of financial services; and no regulation exists that govern their provision of
financial services, the entity will be an unregulated provider. Unregulated financial services
providers include rice specialisation companies, agricultural input providers, unregulated
money-lenders, community-based assistance groups, hundis and unregulated pawnshops.

5.4.

Banks

Categories of banks: Banks are regulated under the Financial Institutions of Myanmar Law
(No. 16/1990, also referred to as the Financial Institutions Law). This law is currently under
review. It classifies financial institutions into four categories: Commercial banks, investment
or development banks, finance companies and credit societies. No credit societies are
currently licenced by the CBM, and we therefore do not discuss these further. Finance
companies are dealt with as part of non-bank financial institutions below. The respective
banks are permitted to do the following business (Article 6 of the Financial Institutions Law):

Commercial banks are permitted to provide demand deposits, cheque accounts and
time deposits with a term shorter than one year. They are only allowed to extend
short term loans.
Investment or development banks are permitted to engage in time deposits with a
term exceeding one year and longer term credit with terms commensurate with
capital available to the bank.

Licensing of banks. Only limited liability companies registered under the Myanmar
Companies Act can be licenced by the CBM (Articles 3 and 12). A bank may hold a
commercial bank license and an investment bank license at the same time, which is indeed
the case for most private banks in Myanmar. To obtain a licence, banks must comply with
the minimum capital requirements set by the CBM (Article 15). The minimum capital is
determined according to the proposed location and financial activities of each bank. In terms
of the CBM Banking Directive, banks wishing to operate full branches in Yangon or Mandalay
require Kyat 700m in capital for each full branch. Lesser capital requirements (varying
between Kyat 200m 400m) apply for the establishment of branches in other cities. Even
lower capital requirements apply for the establishment of mini-branches Kyat 10m in
Yangon and Mandalay and Kyat 5m in other cities. The establishment or change in location
of branches, agency offices and other offices by financial institutions must receive the prior
approval of the CBM (Article 19). SFIs are exempt from these branch-related requirements.
Foreign banks. The CBM may grant permission to foreign banks to open representative
offices in Myanmar (Article 13). However, such representative offices may not perform any
banking functions. As of May 2013, the CBM plans to allow foreign banks to establish joint
42

ventures with domestic banks as from 2014. Draft regulations governing the setting up of
such joint ventures are being prepared.
Product regulation and collateral. The functions that can be performed by banks are set out
in Article 25 of the Financial Institutions Law. However, the ability to perform each of these
functions is subject to the prior approval of the CBM. For example, although Article 25(b)
provides that banks can lend money either upon or without security, the CBM requires
banks to secure collateral for all loans. Originally collateral was confined to immovable
property. However, in 2011, permissible collateral was expanded to include such movable
assets as certain exportable crops (rice, beans and pulses and sesame), bank deposits, gold
and personal and corporate guarantees (CBM, 2012: p18).
Supervision of banks. Banks are supervised by the CBM (Article 68 of the Central Bank of
Myanmar Law, 2013). This includes the authority to give such directives as may be necessary
to ensure the solvency and soundness of such institutions. The CBM further has the
authority to set interest rates, and also to issue work permits for the employees of banks
and financial institutions (Article 41 of the Central Bank of Myanmar Law).
Payment system oversight. In the absence of a dedicated payment systems law the CBM has
a mandate to licence and supervise any organisation engaged in the payment system (Article
79 of the Central Bank of Myanmar Law).

5.5.

State-owned Financial Institutions

Three of Myanmars SFIs are deemed to be established under the Financial Institutions Law
(Article 16, 1990). These are the Myanmar Economic Bank (MEB), Myanmar Foreign Trade
Bank and the Myanmar Investment and Commercial Bank. These SFIs and any others to be
established must also receive authorisation from the CBM (Article 12). The Financial
Institutions Law does not apply to the MADB (Article 86), which is established under the
Myanmar Agricultural and Rural Development Bank Law (No. 17/1990).
Corporate governance. The Financial Institutions Law regulates in particular the corporate
governance of state-owned financial institutions, as well as its shareholding. The board of
SFIs shall consist of a minimum of seven members (Article 65), six of which shall be
appointed by the government if it owns more than 50% of the shares.
State treasury functions. The MEB has to date, over and above its retail banking functions,
performed the treasury function for the state. It also handles cash for the entire banking
system and is responsible for government pay-outs. Under the Central Bank of Myanmar
Law 2013, the state treasury function is allocated to the CBM (Article 90). However, the CBM
may assign this function to another bank.
MADB. The Myanmar Agricultural and Rural Development Bank Law describes the main aim
of this bank as being; to effectively support the development of agricultural, livestock and
rural socio-economic enterprises in the country by providing banking services (Article 5). To
realize this aim, the bank is mandated to pursue the following specific objectives (Article 6):

Provide loans for agricultural enterprises, utilizing a simple procedure;

Promote rural banking;
43

Encourage a savings habit and bring about a self-help spirit among the rural
population;
Support socio-economic development in rural areas; and
Cultivate a habit of using banking services.

For an overview of MADB and their services, please see Box 4.

In terms of products, the bank is permitted (Article 20) to advance both short-term and longterm loans, to receive deposits and to extend loans and overdraft without security. It is also
authorized to organize, recognize and supervise village banks and prescribe their functions
and duties (Article 20(c)). It is further permitted to provide payment services.

5.6.

Non-bank financial institutions

Two categories of non-bank financial institutions exist under the Financial Institutions Law,
finance companies and insurance companies.
Finance companies. Finance companies are licensed under Article 6(c) of the Financial
Institutions Law and the same supervisory framework that applies to banks also applies to
finance companies. They are permitted to engage only in the extension of credit for the
purchase of goods and services. They therefore specialise in hire-purchase agreements.
Insurers. Insurers can be formed under the Insurance Business Law (6/1996). The Insurance
Law provides for three types of entities engaged in insurance, i.e. an insurer, an underwriting
agent and an insurance broker. An underwriting agent is defined as a company with the right
to underwrite on behalf of an insurer (Article 2(c)), while an Insurance Broker is an
intermediary company which makes contact with the insurer to effect insurance on behalf of
the insured (Article 2(d)). Only companies registered under the Myanmar Companies Act are
entitled to obtain licenses as insurers, underwriting agents or brokers.
Supervision. The Insurance Business Supervisory Board, established in terms of Article 4 of
the Insurance Business Law, is responsible for the supervision of insurance companies,
including the licensing of all three categories of insurance entities. The administration of the
Insurance Business Supervisory Board is undertaken by the Myanmar Insurance Company
(Article 6).
Products. The Insurance Business Law provides for only six product lines to be undertaken by
insurers: life insurance, fire insurance, comprehensive motor insurance, cash-in-transit
insurance, cash-in-safe insurance and fidelity insurance (Article 8). However, the Ministry of
Finance and Revenue may permit additional types of insurance from time to time. With
regards to life insurance products, their premiums must be determined by an actuary (Article
12)

5.7.

Mobile banking providers

The Directive on Mobile Banking (No. 4/2013) limits the provision of mobile banking services
to banks and financial institutions. These mobile banking services providers can then
appoint NGOs, Mobile Network Operators (MNOs) or government postal offices to perform

44

as the Cash points, Agents and Partners. It is the responsibility of banks and financial
institutions to monitor the conduct of the later parties.
With permission from the CBM, banks and financial institutions can provide domestic and
international remittances, cash withdrawal, cash deposits into interest earning mobile
banking accounts and various forms of payments (e.g. P2B, P2G and P2P). For the
convenience of users, all mobile banking services between different banks must be linked.
Moreover, the CBM shall determine a fixed mobile banking service fee to be charged and it
can also limit P2P payments to a maximum of three transactions a day of K 500 000
(USD518) each and totalling a maximum of K 1 000 000 (USD 1,035).
With regards to procedures, banks and non-bank institutions are required to collect KYC
information and have IT infrastructure to detect any contraventions to AML/CFT legislation.
They must also uphold consumer protection by clearly conveying and disclosing information
to clients and having procedures for dispute resolution.

5.8.

Microfinance Institutions

The Microfinance Law (No. 13/2011) as well as regulations issued by the Ministry of Finance
and Revenue (No. 277/2011) and three directives issued by the Microfinance Supervisory
Committee (Directives 1/2011, 2/2011 and 1/ 2014) provide the current regulatory
framework for microfinance in Myanmar. Prior to the promulgation of the Microfinance Law,
foreign microfinance entities were permitted to operate in Myanmar in terms of a
Memoranda of Understanding (MoUs) with the Government of Myanmar. These MoUs,
which included several government departments, determined the areas of operation and
were also utilised to grant access to various parts of the country.
Target market. The Microfinance Law identifies the main target market for microfinance as
grassroot people. These refer to low-income farmers, labourers and vendors who reside
in rural and urban areas (Article 2(d))
Policy and Regulation. Three different entities are tasked with oversight, regulation and
supervision of microfinance organisations. Political oversight is provided by the Rural
Development and Poverty Reduction Working Committee with a Vice-President of the
country as chairperson. The policy and regulatory function is fulfilled by the Microfinance
Supervisory Committee consisting of the Minister of Finance and Revenue as Chairperson,
the Managing Director of the Myanma Microfinance Supervisory Enterprise as Secretary, as
well as other suitable persons. Actual supervision is the responsibility of the MMSE,
supported by Microfinance Development Working Committees, established in each region,
state and Nay Pyi Taw council. The functions of the Microfinance Supervisory Committee
include the laying down of policy and directives, prescribing rules and regulations, granting
licenses to operate, determining the minimum capital for each MFI and setting the interest
rate on deposits and loans (Article 7).
Functions of MMSE and Regional Working Committees. The MMSE is responsible for
scrutinising applications for microfinance licenses, prescribing reporting formats and
undertaking general on- and off-sight supervision. They are supported in these tasks by the
regional Microfinance Working Committees (Articles 9, 10, 11).

45

Institutions able to undertake microfinance. The Microfinance Law permits a range of legal
entities to undertake microfinance activities. These include companies registered under the
Myanmar Companies Act, co-operatives registered under the Co-operative Society Act,
associations formed under the Law Relating to Formation of Associations, as well as entities
established under any other law (Article 13). Unlike banks, microfinance institutions can be
locally or foreign owned. They can also include banking or non-banking institutions.
Although banks are permitted under the Microfinance Law, Directive 2/2011 precludes them
from applying for a microfinance license for the time being.
Categories of microfinance institutions (MFIs). Two categories of MFIs are permitted by the
Microfinance Law, namely non-deposit taking MFIs and deposit taking MFIs. Non-deposit
taking MFIs can extend microcredit with funds obtained from sources other than public
deposits, but may utilise compulsory savings from members who take microcredit. Deposit
taking MFIs can utilise other sources as well as voluntary savings deposits collected only
from their clients.
Licensing requirements. Entities wishing to obtain an MFI license must submit a feasibility
study to the Microfinance Supervisory Committee, containing amongst others a description
of the geographical area in which they propose to operate, a proposal on funding and the
sources of such funding, as well as the projected benefits to the clients.
Products. The Microfinance Law defines microfinance services broadly to include
microcredit, deposits, remittances, insurance, borrowing locally and abroad, and carrying
out other financial activities (Article 29). However, this wide product portfolio is subject to
the approval of the Microfinance Supervisory Committee. For the time being, Directive
2/2011 limits the types of services that can be rendered by MFIs to microcredit and deposits.
Microcredit is defined as loans without collateral (Article 2(c)). Deposit-taking MFIs are not
yet allowed to take deposits from non-loan clients.
Loan caps. Directive 1/2014 stipulates that the maximum loan amount disbursed by MFIs
must not exceed K 500 000 (USD 518).
Minimum capital and interest rates. Directive 1/2011 of the Microfinance Supervisory
Committee defines minimum capital for MFIs as Kyat 50m for non-deposit taking MFIs and
Kyat 30m for deposit taking MFIs. Interest rates for microcredit shall not exceed 2.5% per
month, or 30% per year. Interest rates on deposits and savings must be above the threshold
rate of 1.25% per month or 15% a year.

5.9.

Co-operatives

Since 1904, several laws were passed in Myanmar to regulate the activities of co-operatives.
The current law is the Co-operative Society Law (9/1992). In terms of the Co-operative
Society Law, the Ministry of Co-operatives has the power to issue rules and regulations
governing co-operatives. A set of Co-operative Society Rules was issued in 1998.
Levels of co-operatives. The Co-operatives Society Law provides for four levels of cooperative societies: a primary co-operative society, a co-operative syndicate (consisting of
not less than three primary co-operatives), the union of co-operative syndicates (to be
established by the individual syndicates), and the Central Co-operatives Society (CCS). The
46

CCS is the apex body for all co-operatives and is placed directly under the Ministry of Cooperatives.
Types of co-operatives. The Co-operative Society Rules of 1998 provides for four different
types of co-operative societies: commodity production co-operatives (which include
agricultural co-operatives), service co-operatives (which will include co-operatives providing
financial services), trade co-operatives and general co-operatives.
Formation of co-operatives. A primary co-operative can be formed by a minimum of five
members eligible to join (Rule 11). Once a general meeting has adopted the by-laws for the
society, these together with other documents must be submitted to the Co-operatives
Department. The co-operative exists as a body corporate able to act in its own name only
after being registered by the Co-operative Department (Article 7 of the Co-operative Society
Law).

5.10. Pawnshops and money lenders

Pawnshops are categorised into state-owned and private pawnshops. A number of municipal
development laws provide for the supervision of pawnshops by municipal authorities but
state-owned pawnshops are supervised by the MMSE. The general pawn shop rules govern
interest rates charged, lending period, forbidden groups of customers, valuation process,
record keeping, safety of collateral, processes related to unredeemed items, inspection by
authorities, reporting of suspicious collateral, and even the location for setting up
pawnshops.
Moneylenders are reported to be subject to the Money lenders Act of 1945. The Money
lenders Act provides for the licensing of moneylenders by municipal authorities.

5.11. Other legislation

Anti-Money Laundering (AML) Legislation. Myanmar passed the Control of Money
Laundering Law in 2002 (No. 6/2002). The law defines the crime of money laundering and
provides for controls to be implemented by financial institutions. These include KYC (Article
18), record keeping and the reporting of suspicious transactions (Article 19). The Central
Control Board on Money Laundering is established under Article 6 of the Control of Money
Laundering Law to lay down policies on anti-money laundering and oversee its
implementation.

47

6.

Financial Sector Overview

The financial sector in Myanmar has been growing since the introduction of financial sector
reforms in 2008. This period has seen the rapid expansion of infrastructure by regulated
financial services providers. However, the growth has been off a small base and does not yet
translate into widely available regulated financial providers and products. This section
provides a brief overview of the financial sector in Myanmar, as well as the alternative and
supporting infrastructure impacting upon its development.

6.1.

Financial sector providers

Table 4 below provides an overview of the regulated and unregulated institutions as

identified in Section 5 and the relevant product markets discussed in Sections 7, 0, 9 and 10.
.

48

Regulated financial
service

Infrastructure

Product Markets

Institution(s)

Branches

Private

15

485

Semi-private

92

State-owned
(excluding
MADB)

332

MADB

205

NGO

19

19

INGO

163

Local
companies

84

84

Co-operatives

75

147

Foreign
companies

State-owned
(MIC)

39

1 469

1 469

342

342

457

457

5 222

5 222

1 842

1 842

184

184

Credit

Payments

Insurance

Savings

Unregulated Providers

Insurers
Pawnshops

Cooperatives

Regulated Providers

MFIs

Banks

Unregulated
financial service

Savings and
credit coop
society
Bazaar Credit
Coop Society
Micro-credit
Coop Society
Agricultural cooperatives
Regulated
Pawnshops
registered with
local
government
State-owned
Pawnshops

Rice Specialisation
Companies
Agricultural Input
Providers
Unregulated moneylenders
Community-based
assistance groups

3
N/A
400 000
N/A

N/A

Hundis

N/A

N/A

Unregulated
pawnshops

N/A

N/A

Table 4: Financial sector overview

Source: MMSE (2013), CCS (2013), FinScope (2013), Supply-side interviews (2013)

49

Growing private sector banking infrastructure. In total, there are 1 114 bank branches,
covering all 14 regions. Private banks house the majority of payments infrastructure. This
includes: 855 POS devices, 253 ATMs and 99 300 ATM cards (as at May 2013). The four stateowned banks (to be referred to as State Financial Institutions (SFIs) in this document) have
the largest branch outreach of the four categories of banks. MEB has the largest branch
network with 329 branches. MADB has the second largest branch network in Myanmar with
206 branches, covering all 14 regions in Myanmar. Despite this significant outreach, the
combined infrastructure of the three other categories of banks is 577, larger than the total
SFI branches at 537 (see Table 5, below).
Although the number of state bank branches has experienced a 1.8% decrease in 2012,
commercial bank branches have increased by over 66.3%. The number of new bank
branches is set to continue increasing rapidly with the easing of capital requirements for the
opening of new branches. In 2012, the number of new bank branch applications had more
than tripled from the previous financial year (IMF, 2012). Growth should be sustained and
increased with as government plans to remove all capital requirements in the future.
Banking Infrastructure
Categories

Number of
banks

Number
of
branches

Number of
ATMs

Number
of POS

Number
of ATM
cards

537

Number of
regions
covered
out of 14
32
14

State-owned

14

Semi-private
(co-ownership by
government)
Private with state
representation on
board
Private
Total

13

79

11

20 000

485
1 114

14
14

253
274

855
855

99 300
119 300

33

15
23

34

Table 5: Banking Infrastructure

Source: Supply-side interviews (2013), CBM Annual report (2012)

The limited reach of regulated financial sector infrastructure is disproportionately

concentrated in urban areas. While commercial bank branches appear to have the largest
retail footprint for the traditional brick- and -mortar approach, their concentration in
urban areas means that the majority of the population lacks access. Figure 18 shows that
65% of urban adults live within 30 minutes of a bank branch, compared to 12% of rural
adults. The trend is consistent for ATMs where 23% of urban adults report living within 30
minutes of a bank branch, compared to 2% or rural adults. This could be even less if it solely
included private banks and not SFIs, as they lack the outreach of institutions like MADB into
rural areas.

32
33
34

Information is based on MEB and MADB. Branch distribution for other three state banks was not available
May equal 17 including Rural Development Bank (former Development Bank) and Nay Pyi Daw Development Bank
Information is based on 13 of the 15 banks

50

% of urban, rural and all adults who are closer than 30

minutes from access point

100%

Urban

Rural

96%

Total

87%

90%

75%
65%

61%

50%

31%

28%
25%

23%

18%
8%

12%

2%
0%
ATM

Bank branch

Post Office

Grocery/convenience store

Figure 18: Percentage of adults that live within 30 minutes of access point.
Source: Myanmar FinScope 2013

Large unregulated financial infrastructure footprint to explore. The limited reach of

regulated financial infrastructure in Myanmar has resulted in a large dependence on
unregulated and often informal infrastructure to meet risk mitigation needs, especially
amongst the rural population. As noted in Section 5.3, and depicted in Table 4, unregulated
financial sector infrastructure includes rice specialisation companies, agricultural input
providers, unregulated money-lenders, community-based assistance groups, hundis and
unregulated pawnshops.

6.2.

Alternative distribution opportunities

Potential use of alternative infrastructure for the delivery of financial services. While the
exact number of retailers is not known, FinScope revealed that nearly 90% of the adult
population in Myanmar lives within 30 minutes of a grocery or convenience store. FinScope
revealed the practice of taking goods in advance from a store and paying later is already
common35. Retailers as a group could therefore potentially constitute a substantial existing
infrastructure base that is being (and can further be) utilised for the provision of financial
services. However, their potential as a distribution channel is limited. There are no
significant retail chains in Myanmar, despite numerous independent and small retailers.
There are no formal links between outlets and no underlying payment infrastructure to
facilitate transactions. Figure 18 compares the alternative infrastructure identified in
Myanmar with traditional financial sector infrastructure. Post offices have the third largest
branch footprint after co-operatives and pawnshops, but FinScope reveals that this is largely
concentrated in urban areas with only 18% of rural adults living within 30 minutes of one. In
addition, only a portion is currently operational for financial services. Money orders can be
made at 791 out of 1380 branches.
Box 3 below identifies opportunities to leverage traditional stores for financial services
Box 3: Opportunities to leverage traditional stores for financial services

Improvements in mobile telecommunication infrastructure and the development of lower

35

With almost 3.5 million adults having taken goods on credit or in advance from a shop or store in the past 12 months.

51

cost point-of-sales (POS) devices has allowed financial services providers to extend their
financial services offering, at lower cost and in real-time, through traditional stores and
street vendors. These agent networks have been created across Latin America, Africa and
Asia and are primarily driven by Fast Moving Consumer Good (FMCG) companies, banks,
technology providers, Mobile Network Operators (MNO) and in some cases Pawnshops.
These agent networks connect thousands of smaller retailers, who currently fall outside of
the reach of the traditional payment system, and allow these traders to act as agents to
financial services providers. Typical transactions facilitate by these agents include bill
payments, deposits, withdrawals, insurance sales, government grant disbursements,
money transfers etc. Examples of such networks include REDqiubo (Mexico), DDDEdo
(Colombia), FLASH (South Africa), Zoona (Zambia) and MPesa (Kenya).

Mobile network growth opportunity for financial inclusion. Mobile phone penetration has
grown rapidly but from a very small base. As of 2014, mobile phone subscribers had grown
to 16.4 million mobile subscribers which puts mobile phone penetration amongst adults at
27% (Eleven, 2014). The introduction of two foreign mobile network operators, Norways
Telenor and Qatars Ooredoo, will contribute to achieving the countrys target of 80%
penetration by 2016 (Thomas, 2013). Parliament officially passed the new
telecommunications law on 21 October 2013, however the detailed regulation that will
guide the governance of sector is not expected for another three months (Mathtani, 2013).
Both operators are expected to start delivery of services in the third quarter of 2014
(Thomas, 2013).
Both providers intend to launch voice and data services simultaneously through a 3G
network. In addition, both have indicated their intent to push low cost smartphones through
their distribution channels rather than focusing primarily on lower cost handsets. The
improvement of data services will provide opportunities for banks and MFIs alike to improve
communication between branches and agencies. In addition, the rapid introduction of
smartphones may offer an opportunity for innovative financial service providers to
circumvent the need for the mobile network operators USSD channels that have
traditionally been used for mobile banking and instead develop applications that work over
the broadband connection directly.
Both of the new MNOs have some experience in the provision of mobile financial services
and both have committed in writing to the government to introduce mobile money service
in the country.36 Telenor group (2014) has extensive experience in the delivery of mobile
financial services through mobile platforms with partnerships and initiatives in Pakistan
(Easypaisa), Bangladesh (MobiCash), Thailand (ATM SIM Project), Malaysia (DiGi
SendMoney, DiGi Simple Prepaid Card, and DiGi Insurance), India (purchase of movie tickets)
and Eastern Europe (Platimo). Ooredoo has experience through its Ooredoo Mobile Money
initiative although it is quite limited. If mobile penetration targets can be coupled with the
delivery of financial services through mobile networks, it could have significant implications
for financial inclusion in Myanmar.

36

A further description of their plans is included in Section 9.3.

52

6.3.

Supporting financial sector infrastructure

Limited supporting financial sector infrastructure. The delivery of financial services through
the existing financial or alternative infrastructure is limited by the enabling supporting
infrastructure. Myanmar authorities are moving towards building supporting infrastructure,
evidenced by the development of a national payments network and other planned
initiatives:

Credit bureau: Myanmar currently has no credit bureau, which means that there is no
formal mechanism to establish indebtedness of credit applicants. Plans are however
underway for the establishment of a credit bureau by CBM with assistance of Credit
Bureau Singapore (The Irrawadyy, 2014a).
Payments systems: Payments infrastructure is still underdeveloped (current POS devices
have a 90% down time) but it is slowly being redressed, mainly through efforts by the
Myanmar Payment Union (MPU) and CBM. Recent developments include a national
switch that started operating in December 2012 (operated by MPU), and POS devices
have been in operation since March 2013. All banks required to join the switch. In the
near future, a private payments processor will be appointed and a Real Time Gross
Settlement (RTGS) system will also be operated by the CBM to replace the current
manual payments clearing system. Moreover, Association of Southeast Asia Nations
(ASEAN) aims to achieve financial integration by 2015 (ADB, 2013) and this would also
require Myanmars integration into the ASEAN Payment and Settlement System.
Capital market: There is currently no formalised capital market in Myanmar, and
businesses rely solely on banks to raise capital (in the form of debt). The new Securities
and Exchange Law that was passed in July 2013 allows for the establishment of the
Yangon Stock Exchange, which is expected to be operational by the second half of 2015
(The Irrawaddy, 2014b).
Foreign exchange market: Although Myanmar has a regulated foreign exchange market,
it is still in the early stages of development. Fourteen private banks were licensed to
become authorised dealers of the US dollar, Euro and Singapore dollar in October 2011
(Global Times, 2013). In April 2012, Myanmar converted to a managed float exchange
regime after having a dual exchange rate regime for decades and efforts are underway
to further liberalise to a free floating exchange regime. Despite the developments,
industry consultations revealed that accounting for the amount of foreign currency in
the country and any time is still problematic. The exchange rate has only recently been
converted (April 2012) to a managed float exchange regime after having had a dual
exchange rate regime for decades, but efforts are underway to further liberalise to a
free floating system. Fourteen private banks were licensed to become authorised
dealers of the US dollar, Euro and Singapore dollar in October 2011 (Global times, 2013).
However, during industry consultations it also became apparent that accounting for the
amount of foreign currency in the country at any time is still problematic.

53

7.

Market for Credit

The following section aims to capture the market for credit in totality and as it relates to the
priority target groups as identified in Section 4.2. This includes providing an overview of
current take-up, the providers of credit and a detailed description of the products that they
offer. This section also provides the key challenges the credit market faces in further
expanding provision to the identified target groups.

7.1.

Credit landscape and take-up

Credit market the largest of all financial services categories with more than half of the adult
population reporting to be active borrowers. A total of 20.7 million, or 52%, of adults in
Myanmar have borrowed money in the last 12 months, while 48% of adults reported to have
outstanding debt at the time of the survey. A total of 19% of adults currently have credit
from regulated institutions, 18% have credit from unregulated institutions only and 11%
have loans from family and friends only (see Box 2 for an explanation of the access strand).
It was found that 5% of adults, or just over 2 million adults, reported to have credit from
both regulated and unregulated sources. Individuals who have credit from unregulated
sources are more likely to have additional credit from friends and family than those who
obtain credit from regulated sources.

Total

18.6%

Rural

17.8%

24.5%

Urban 5.2%

0%

13.4%
10%

11.2%

19.7%

52.5%

12.0%

9.4%

43.8%

72.0%

20%

30%
40%
50%
60%
70%
80%
90%
% of Total, Rural and Urban adults
Regulated borrowing
Unregulated borrowing only
Borrowing from family or friends only

100%

Not borrowing

Figure 19: Credit usage by source of provision

Source: FinScope 2013

Rural credit market, as measured by loan clients, is the largest in both absolute and relative
terms. The rural credit market is larger than the urban market both in terms of absolute and
relative number of loan clients. This is due to a larger rural population as well as higher
percentage of rural residents obtaining credit. As depicted in Figure 19, above, 44% of rural
adults have outstanding debt from either a regulated or unregulated financial services
provider. This is significantly higher than urban areas where only 19% of adults currently
have credit from regulated or unregulated institutions.
Credit from regulated institutions more constrained in urban areas. Penetration of credit
from regulated providers is lower in urban areas (5%) than in rural areas (25%). This trend
54

holds when evaluating take-up across each of the target group, with regulated take-up being
higher for target groups which are more rural.
Average outstanding debt higher in urban areas. While rural areas have higher take-up of
credit (from any source) measured by the number of debtors, urban debtors have higher
average debt stock. As depicted in Figure 20 below, the average debt of urban debtors is 1.8
times that of rural debtors. The average outstanding debt of those who currently have a loan
in urban areas is K 853 346 (USD 902) compared to K 482 295 (USD 510) in rural areas.

Figure 20: Average amount outstanding for all adults who currently owe money (from any source)
Source: FinScope 2013

Significant variation in take-up of credit by target groups. There is a significant variation

between the take-up and sources of credit between the target groups as were identified in
Section 4.2. Table 6, below, provides take-up figures of each of the target groups as well as
the total debt outstanding by the debtors within each of these categories. The main points
relevant to the analysis are:

Famers have the highest take-up of regulated credit (37% have regulated credit). There
are however a significant number who only access credit from unregulated sources
(14%) and a large number of farmers (1.37 million or 11%) who make use of credit from
both regulated and unregulated providers.
The groups with the lowest take-up of credit are the Formal enterprises group (74%
report not to have credit from any sources) followed by the Formal consumer market
group (67% report not to have credit).
The groups with the highest use of credit from only unregulated sources are the Informal
consumer market group (27%) and Informal enterprises group (21%).
Formal enterprises had the highest average outstanding debt (of USD 1 331) for those
who reported to have debt. This was followed by Informal enterprises (with USD 829)
and farmers (USD 678). The Formal and Informal consumer markets represented the
lowest average outstanding debt for debtors of USD 320 and USD 280 respectively.

55

Target
group

Economic groups

Average
outstanding
debt of
debtors

Regulated Unregulated
(only)

Family
&
Friends
(only)

Excluded

Farmers
12m adults

Farmers

K 641 234

37%

14%

11%

38%

(USD 678)
Formal
enterprises
2.5m adults

Formal enterprises

K 1 259 174
(USD 1 331)

4%

12%

10%

74%

Informal
enterprises
4.7m adults

Informal
enterprises

K 784 563
(USD 829)

11%

21%

11%

58%

Formal
consumer
market
1.7 m adults

Employees of
formal private
companies and
Government
employees

K 303 021

11%

15%

6%

67%

Informal
consumer
market
8.5m adults

Farm workers,
Salaried private
individuals, Piece
and casual workers,
Remittance
dependents

K 264 717

9%

27%

14%

50%

(USD 320)

(USD 280)

Table 6: Usage of credit by target group

Source: FinScope 2013

Use of multiple sources of credit more pervasive in rural areas than urban. The absolute
number and relative percentage of active borrowers with multiple outstanding loans was
higher in rural areas than urban. Of adults in rural areas, 12% obtain loans from more than
one source compared to 4% in urban areas. Of the total group of adults, 2% reported having
outstanding debt from three sources and 1% of adults reported to have outstanding debt
from four to six sources (see Figure 21 below).

56

Urban

23.1%

Rural

3.8% 1.0% 0.1%

39.9%

Total

12.3%

34.7%

0%

10%

20%

30%

2.7%

9.7%

2.2% 0.9%

40%

50%

1.3%

60%

% of Total, Rural and Urban adults

Borrowing from 1 source

Borrowing from 2 sources

Borrowing from 3 sources

Borrowing from 4 to 6 sources

Figure 21: Number of sources for borrowing

Source: FinScope 2013

7.2.

Use cases
Credit is used for multiple purposes. The most important of these use cases were identified
during the qualitative demand-side research, the quantitative segmentation exercise (see
Section 4.2) and the supply-side interviews. Brief summaries of these use cases follow:
Use of credit for agricultural production. Myanmars agricultural production is to a large
extent dependent on credit to fund inputs and to smooth consumption between harvests.
Farmers represent the largest target segment for credit with 12.1 million adults,
representing 4.1 million households, deriving their main livelihood from agricultural
activities. Of these 12.1 million adults, only 37% report to have credit from a regulated
provider and 14% make use of only unregulated providers for credit. It was found that 38%
of farmers (4.6 million adults) do not use credit and 11% have to rely on credit from friends
and family (see Section 4.2). These farmers are often in remote areas with limited choice
between credit providers and products. Specific uses of agricultural financing include
financing inputs (seed, fertilizer, etc.), pre-funding of outputs and financing equipment.
Asset and trade financing for enterprises. FinScope indicated that 6% of the adult population
(or 2.4 million adults) obtain credit for the purposes of starting or expanding their
enterprises. The segmentation in Section 4.2 indicates that 2.5 million adults own their own
registered enterprise while a further 4.7 million indicated that they operate an unregistered
enterprise. The current usage of credit for both types of enterprises is low (see Table 6
above) with 74% of Formal enterprises and 58% of Informal not having any form of credit
take-up. The traders interviewed as part of the qualitative demand-side research (see Box 1
on page 2) expressed supply-side constraints as the main driver to low credit take-up. The
main sources for loans for small-scale enterprises are bazaar co-operatives, MFIs,
pawnshops and unregulated money lenders. They are often repaid within 24 hours. Previous
government initiatives have focused on making funding available to an estimated 126 000
Small and Medium enterprises and 40 000 microenterprises through SMIDB, but so far
success has been limited.
57

The use of loans for consumption smoothing. The qualitative-demand side research and
FinScope identified consumption as the largest driver of borrowing. A total of 10.4 million, or
26% of adults (half of those who borrowed during the past 12 months), reported obtaining
loans for the purposes of funding living expenses (other than medical and/or education
expenses). Consumption smoothing loans speak specifically to individuals with irregular or
seasonal incomes such as famers (12.1 million), informal traders (4.7 million) and the
informal consumption credit market (7.4 million). At present the majority of consumption
lending happens through unregulated lenders (see Section 7.3). In addition, qualitative
respondents further suggest that productive loans are fully or partially used to smooth
consumption. Qualitative findings further suggest that inactivity during the rainy season
results in increased borrowing for consumption purposes (such as food). One agricultural
specialisation company also offered a consumption component to its agricultural production
loan.
The use of loans for health or education expenses. Focus group respondents reported the use
of loans to finance health (out-of-pocket expenses) and education. This is confirmed by
FinScope where 13% of adults (5.2 million) reported obtaining credit for planned and
unplanned medical expenses, and 7% of adults (2.9 million) obtained credit for education
and school fees. With regards to loans for health events, respondents indicated that these
were predominantly obtained from pawnshops followed by relatives or money lenders.
Health and education loans are offered by some co-operative MFIs and INGOs and NGOs.
However, one usually has to be an active member, e.g., they have a business loan with the
institution, in order to qualify for these loans, although some INGOs (for instance World
Vision) do offer these loans without requiring an existing business loan.
Credit for risk management. Section 7 shows a substantial portion of adults using credit as a
means to manage risk events. Overall, 44% (13.3 million) of adults who experienced an
unexpected event that affected their income borrowed as a response in order to cope
financially. The use of credit for risk management could be more pronounced due to the
absence of insurance.
The use of credit for on-lending. Some focus group participants indicated that they obtained
debt to on-lend at higher interest rates so as to profit off the interest rate differential.
Use of credit to repay other loans. Although only 2.3% of adults who currently owe money
(417 000) indicated that they borrowed in order to pay off another debt, 10.8% (2 million)
indicated that they are planning to repay their current debt by taking a new loan. The use of
credit to repay existing credit was also raised as a concern during some supply-side
interviews and in certain existing studies37 on agriculture in Myanmar.

7.3.

Providers

7.3.1. Overview of credit landscape

Before proceeding to discuss the individual categories of credit providers, we consider the
landscape of credit providers in an overview. As noted in Section 7.1 above, 48% of adults
37

Ash Centre for Democratic Governance and Innovation, Harvard Kennedy School (2011). Myanmar Agriculture in 2011: Old
Problems and New Challenges. [Online] Available at: http://www.ash.harvard.edu/extension/ash/docs/myanmar1111.pdf

58

reported to have outstanding debt at the time of the FinScope survey. This represents 18.9
million adults. Of these, 94% disclosed the value of their outstanding debt, and have an
average reported outstanding debt of K 548 050 (USD 579). This allows us to extrapolate the
total value of outstanding debt for all adults who are indebted in Myanmar to approximately
K 10.3 trillion (USD 10.9 billion).
For the purposes of the supply side credit landscape illustrated in Figure 22 below, we rely
on supply side data (and estimates based on supply side data), as these are generally
considered more exact than FinScope data, which is only a demand side reflection of uptake.
However, as we do not have any supply side data for unregulated providers (unregulated
credit), we rely on FinScope for an estimate of the size of the unregulated credit market in
terms of number of borrowers and the size of the outstanding loan book.
FinScope reported that 9.2 million adults have outstanding loans with unregulated credit
providers. The total value of these adults outstanding loans are K 5.4 trillion38 (USD 5.7
billion). There are however adults who have outstanding debt with both regulated and
unregulated institutions. The total value of their debt amounts to K 1.9 trillion (USD 2
billion). The nature of debt reporting does not allow one to separate the value of regulated
and unregulated loans for adults who report obtaining credit from both sources. The total
unregulated usage therefore lies between the ranges of K 3.6 trillion (USD 3.8 billion) and K
5.4 trillion (USD 5.7 billion; see Table 7 below). Unregulated lending consists of two groups:
those who have loans from unregulated money lenders (5.9 million adults), and those who
have loans from other unregulated providers (4.3 million adults), with the adults who
borrow from these two groups of providers overlapping. The value of the outstanding loans
of these two groups can be estimated by using the average outstanding debt of those who
only have a loan from a moneylender or those who only have a loan from another
unregulated provider and extrapolating this to the entire group in both instances. The
extrapolated outstanding loan values for these two groups are K 3.7 trillion (USD 3.9 billion)
and K 1.7 trillion (USD 1.8 billion; see Table 7 below).
Number of
adults
Total unregulated
borrowing
Total moneylenders
Total other
unregulated

9.2 million
5.9 million
4.3 million

Minimum total
outstanding loans
K 3.6 trillion
(USD 3.8 billion)
K 2 trillion
(USD 2.1 billion)
K 1.1 trillion
(USD 1.2 billion)

Maximum total
outstanding loans
K 5.4 trillion
(USD 5.7 billion)
K 3.7 trillion
(USD 3.9 billion)
K 1.7 trillion
(USD 1.8 billion)

Table 7: Number of adults and estimated outstanding loan book of unregulated loan providers
Source: FinScope 2013 and authors calculations

If we include these two estimates (unregulated money lenders and other unregulated
providers) with our supply side data on regulated providers, the following estimate of the
overall credit market in Myanmar (regulated and unregulated providers) emerge:

38

Please note: This value is extrapolated based on 94% of adults who borrowed from unregulated sources who disclosed their
total outstanding debt. Similarly, all further estimates rely on extrapolations based on adults who disclosed the value of their
outstanding debt. The percentage of adults who disclosed their debt varies between 92% and 95% for all extrapolations used.

59

Client base as % of adults

Total loans
who currently owe money
outstanding
0.3%
39.8%
31.0%
36.0%
22.9%
16.1%
16.4%
4.0%
8.4%
1.9%
7.9%
0.7%
4.4%
0.6%
3.7%
0.8%
0.1%
0.1%
18 907 935 adults
K 10.3 trillion

Provider
Commercial banks
Unregulated money lenders
Other unregulated providers
Pawnshops
MADB
Unregulated agricultural input providers
Co-operatives
MFIs
RCSs
Total

Table 8: Overview of the credit provision landscape in Myanmar (regulated and unregulated)

39

Source: Supply side data, FinScope 2013, authors calculations

Using this data, the credit landscape in Myanmar can then be illustrated as shown Figure 22
below:
Key
Regulated providers
Unregulated providers
120 000 K

Commercial
banks

Unregulated money
lenders

900K

Average size of loan

800K
Other informal
providers

700K

600K

Proposed MFI directive

500K
400K
300K

Coops with
additional USD 600 m
funding
Unregulated
Pawnshops

Rice
specialisation
companies

PACT

MADB
disbursed
MADB
outstanding

MADB

MFIs

200K

Coops

100K

Agricultural
input
providers
Regulated
Pawnshops

100

200

300

400

500

600

700

800

900

Thousands of clients

1500

2000

3000

5000

Bubble = Total loan portfolio

Figure 22: Credit provision landscape (loans outstanding).

39

Estimates based on supply side data for regulated providers and FinScope data for unregulated providers. Client numbers
does not account for overlaps (credit clients using more than 1 source for credit), and total adults who currently owe money as
identified by FinScope is used as base for percentage of adults.

60

Source: Author/Supply side consultations

Commercial banks largest provider by volume. Commercial banks are the largest credit
providers in terms of volume of loans outstanding, but one of the smallest in terms of
number of clients with estimates of only about 60 000 credit clients40, a large proportion of
which may be commercial clients, not retail (see Section 7.3.2 below). The average loan of
commercial banks are extremely high (around 1000 times higher than most other categories
of providers), but some loan products (e.g. hire purchase) start at low values.
Unregulated money lenders comparable to commercial banks in terms of loan volume. As
described above, unregulated money lenders are estimated to have in excess of 5.9 million
clients with an outstanding loan volume as high as K3.7 trillion (USD 3.9 billion). This means
that money lenders as a group are comparable to the commercial banking sector in terms of
the size of their total outstanding loan volumes.
Pawnshops have large combined client pool and loan book. Pawnshops are estimated to be
one of the largest categories of providers in terms of both number of clients and loan
volumes, but provide no net additional funding (only offers value of gold). The gold held by
pawnshops cannot be leveraged or intermediated through the rest of the financial system.
MADB largest single regulated provider by number of clients and largest single regulated
provider in low income space by loan volume. Although pawnshops as a group have more
clients, MADB is the single largest regulated provider in terms of number of clients and is the
largest individual regulated provider by loan book value. More details on MADB follow in
Section 7.3.3.
Agricultural input providers offer small loans to a large number of farmers. The figure shown
is estimated based on one input provider interviewed. Data for other input providers was
not available and the total for this segment is therefore likely to substantially exceed this
estimate.
Most average loan sizes below proposed cap, but many loan ranges exceed cap. Average
loans sizes reported in supply-side data mostly fall under K 500 000 (USD 529), the proposed
cap for MFI loan size, although many categories of providers have loan ranges exceeding K
500 000. For instance, some MFIs reported that their larger loans currently exceed K 500 000
and that some loans can extend to as high as K 1.5 (USD 1 586) to K 1.7 million (USD 1 797),
although very few do. These are mostly clients that have started with smaller loans and have
graduated to this level. With the increased loan size per acre, MADB paddy loans now
extend up to K 1.2 million (USD 1 268), or K 120 000 (USD 127) per acre for up to 10 acres.
Table 6 above (page 56) also shows that the average outstanding loan sizes of some
economic groups41 exceed K 500 00042 (Farmers: K 641 000/USD 678 and Informal
enterprises: K 785 000/USD 830). The average loan size reported in FinScope for those who
only have a loan from an unregulated money lender also exceed K500 000 at K 635 000 (USD
671). Regulated providers will, therefore, have difficulties competing with the unregulated
providers due to the regulatory cap of K 500 000. This will encumber the absorption of the
unregulated credit market into the regulated credit market.
40

Based on actual data for 10 banks (43 550) and estimate for 9 missing banks (using average number of credit clients for 7
smallest banks)
41
Average loan size of adults in economic group who currently owe money, not of all adults in economic group.
42
Disbursed loans likely to exceed K500k for other categories where current outstanding loans are below K500k.

61

13.1%
90 877

16%

Average income for

Myanmar

12%

78 954

10%

75 398

"Min wage" for day labourers

60 000

8%
6%

40 000

UNDP poverty line 2010

3.4%

3.0%

20 000
1.3%

18%

829 335

14%

100 161

93 472

85 450

Average income

800 000

14.3%

100 000

80 000

16%

4%
2%

Average income

14.7%

76 671

900 000

% of adult population borrowing with institution

120 000

9.8%

Commercial banks

18%
125 486

16.5%

700 000

14%

600 000

12%

500 000

10%

400 000

8%

300 000

6%

200 000

4%
125 486

100 000

1.3%

Average income for

Myanmar

2%

0.1%

0%
MFI's

Unregulated Friends/Family
(excl.
moneylenders)

Moneylenders

SFI's (Incl.
MADB)

MADB

Pawnshops

Co-op's

0%
Co-op's

Commercial banks

N=39 777 041

Providers
% of total adult pop

Average income

Figure 23: Take-up by institutions ordered by average income of clients

Source: FinScope 2013

Commercial banks predominantly provide credit at very high end of income. Figure 23 shows
the average income of borrowers borrowing with different types of credit providers.
Commercial banks serve a very small group of credit clients, but the average income of this
group is far above any other group of credit clients (K 829 335 or 8.9 times the average
income of Myanmar). Co-operatives serve a higher than average income group while MADB
and unregulated money lenders on average have credit clients whose income is comparable
to the total adult population (they also serve the biggest clients groups at 15% and 13% of
the adult population). MFIs on average has the lowest income credit clients with an average
monthly income of K 75 398 (USD 80). Figure 24 below illustrates the overlaps between
borrowers from different providers.
% of provider's borrowers who have loan from other provider
% of other provider's loans overlapping

20.9%
18.6%

9.9%
43.0%

3
15.5% 2.5%
13.6% 5.8%

5.1%
25.3%

6.2%
27.6%

6.6%
25.5%

0.1%
19.1%

4
6.6%
2.5%

3.9%
40.3%

1.3%
15.3%

1.8%
21.3%

Bubble size: Size of provider's client pool

Overlaps between number of loans from different providers

Money lenders
MADB
Pawnshops
MFIs
Co-operatives
Banks

Figure 24: Overlaps between different categories of credit providers.

Source: FinScope 2013

Limited overlap between clients of commercial banks and other lenders. There is very little
(to no) overlap between commercial bank borrowers and all other borrowers (except with
money lenders and co-operatives). There is also very little overlap between those who have
MFI loans, pawnshop or co-operative loans (illustration 3 and 4 in Figure 24). However, there
are significant overlaps between adults who have a loan from a money lender, a pawnshop,
62

% of adult population borrowing with institution

Average monthly income by provider borrower groups (excl. Commercial banks)

140 000

an MFI or a co-operative and adults who have a loan from MADB (illustration 1 in Figure 24).
Between 19% and 40% of those who have money lender loans, pawn shop loans, MFI loans
or co-operative loans also have a loan from MADB. Similarly, there are significant overlaps
between those who have money lender loans and those who have either a commercial bank
loan, co-operative loans, MFI loans and pawnshop loans, with between 19% and 43% of
individuals who have one of these loans also having a money lender loan (illustration 2 in
Figure 24).
Regulatory cap on interest charges and high cost of unregulated credit. The cost of credit is
strictly regulated in the formal sector. State financial institutions, such as MADB, charge up
to 8.5% and commercial banks are regulated to a maximum of 13% (but it is common
practice to also charge a 1% administration charge). MFIs are limited to 2.5% per month, or a
nominal rate of 30% per annum. Co-operatives charge the same rate (30%). The unregulated
sector, however, charges significantly higher rates. Regulated (by local authorities) pawn
shops charge in the order of 36%, whilst unregulated pawn shops charge about 60%. The
rates for unregulated money lenders vary, but if converted to an annual interest rate it
would vary somewhere between 120% and 240%. The credit market therefore consists of
four broad cost segments:

Under 15% - where the only providers are the MADB (and the SMIDB) and commercial
banks;
Between 15% and approximately 36% - where regulated institutions - MFIs and
regulated pawn shops - are permitted to operate at a concessionary rate;
Below 60% where unregulated pawn shops operate within a reasonable rate due to
the security which they hold;
Above 60% where the purely unregulated and un-collateralised unregulated money
lenders operate

Table 9 below shows the interest rate bands that different institutional categories charge on
their credit products.
Institutional category

State Financial Institutions

Banks
MFIs
Co-operatives
Rice Specialised Companies
Regulated Pawn shops
Unregulated Pawn shops
Unregulated money lenders

Nominal Interest rate

per annum
4 -8.5%
8.5-13%
30%
30%
24%
36%
60%
120% +

Table 9: Interest rates charged by institutional category

Source: Supply side consultations

63

7.3.2. Commercial banks

Small number of domestic state and commercial bank players. As at May 2013, Myanmar has
a total of 24 local banks and 16 foreign bank representative offices (although the foreign
offices have increased to almost 30 by March 2014). Four are purely state-owned43, two are
considered semi-private44 (as they are co-owned by the government), two are private with
government representation on their boards45 and sixteen are purely private banks. All local
banks except the four state-owned banks are considered as commercial banks in the
remainder of the document. Despite there being 16 foreign bank representative offices,
there are currently no foreign bank branches offering financial services in Myanmar.
However, joint ventures between local banks and some foreign banks may be permitted
next year.
Myanmars banking sector is concentrated. In 2012 the market share of the three largest
banks46 constituted 60% of total net assets, 40% of the total paid-up-capital, 63% of total
loans and 63% of total deposits (CBM 2012). Similarly, the five largest47 banks constituted
73% of total net assets, 55% of the total paid-up-capital, 74% of total loans and 77% of total
deposits (CBM, 2011-12).
Commercial banks are the biggest providers of regulated credit. As at March 2013,
commercial banks extended loans to the value of K 4 118 billion48 (USD 4.4 million), which
constituted 78.5% of the estimated total regulated sector credit (see Table 10 below) and
87.8% of total banking sector credit .
Regulated providers

Total loans outstanding

(K billions)

% of total

4 118
57049
412
86
5850
5 244

78.5%
10.9%
7.9%
1.6%
1.1%
100%

Private banks
SFIs
Pawnshops
MFIs
Co-operatives (non-MFI only)
Total regulated credit
Table 10: Total loans outstanding by institution.
Source: Supply side interviews and authors estimates

43

Myanma Economic Bank, Myanma Agriculture and Development Bank (MADB), Myanmar Investment and Commercial Bank
(MICB), Myanmar Foreign Trade Bank.
44
Myanmar Citizens Bank and Yangon City Bank Ltd.
45
Small and Medium Industry Development Bank (SMIDB), Myanmar Livestock and Fisheries Development Bank Ltd (MLFDB,
soon to be Treasure Bank).
46
Kanbawza, Myawaddy, Co-operative Bank
47
Kanbawza, Myawaddy, Co-operative Bank, Myanmar Livestock and Fishery Development Bank and Myanmar Apex bank
48
Estimated value. Based on actual data for 13 banks plus estimate for 6 missing banks (using average loan book for 10 smallest
banks)
49
This figure was calculated using the total loans outstanding for SFIs (excl. MADB) from the CBM 2012 annual report (K 377
billion) and adding MADBs reported loans outstanding amount for 2013 (K 193 billion)
50
Excludes MFI co-operatives

64

Total banking sector

(commercial and
SFIs- excl. MADB)
GDP (K billions) IMF
data
Bank assets as % of
GDP
Bank credit as % of
GDP
Bank deposits as % of
GDP

Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

23 336

28 778

32 351

36 436

39 805

44 621

8%

9%

12%

17%

21%

n/a

3%

3%

3%

5%

8%

n/a

7%

8%

10%

13%

17%

n/a

Loans / deposits

49%

40%

36%

39%

46%

n/a

Loans / assets

40%

32%

29%

32%

38%

n/a

Cash/assets
Government
securities/assets

44%

42%

38%

38%

29%

n/a

9%

18%

24%

21%

24%

n/a

Table 11: Selected performance indicators for total banking sector (Private banks and SFIs but
excluding MADB).
Source: CBM Annual Report (2012)

Bank credit extension growing rapidly. The 2012 CBM annual report shows that bank
deposits (including SFIs but excluding MADB51) grew by between 38% and 55% per year
between 2009 and 2012 while loans grew between 12.2% and 70.5% per year over the same
period (Figure 25 below). Table 11 above also shows that the banking sector grew relative to
the rest of the economy with banking assets growing from 8% of GDP in 2008 to 21% in
2012. Given that commercial banks make up almost 90% of the total banking sector loan
portfolio, the bulk of loan growth should have been driven by commercial banks. Growth in
2013 remained high, with the combined loan book of the largest three banks growing by
35.6%, although individual bank loan books showed substantial variation (see Table 13
below)52. The change in the growth trajectory of bank loans between 2010 and 2011 has
largely been the result of a release of regulatory constraints (see Section 5 for details on
these regulatory changes).
Commercial banks lending out larger proportion of deposits and holding large proportion of
assets in loans. Table 11 above show the loans to deposit ratio for the total banking sector
(excluding MADB) decreasing from 49% to 46% while loans as a proportion of assets
decreased initially but then returned to 38%. This would suggest that there is still some
excess liquidity that could be intermediated into loans. The balance of assets is likely to be
held in government bonds. This result is, however, skewed by the SFIs (particularly MEB as
discussed below). Considering the ratios private banks only, the loan to deposit ratio was
67% and loans made up 57% of assets as at March 2012. These ratios would have increased
over the last year given the expansion of the loan portfolio. Commercial banks are,
therefore, reaching the limits of their funding and this has been driving the expansion of
deposit-taking. Table 12 also shows that private banks are generating a substantial portion
of their income from non-interest revenue. Based on our consultations with banks, fees
generated from general transaction fees are still limited but fees on transfers were noted as
a substantial component of revenue.
51

MADB is excluded in data reported in CBM Annual Report.

Based on our estimate of total commercial bank credit for 2013, growth in total commercial bank credit was 43% between
2012 (CBM data) and 2013.
52

65

Growth in bank loans and deposits 2008 to 2012 (CBM data, table 3.1)
80%

Annual growth rate

70%

70.5%

64.7%

60%
50%

55.3%
44.6%

40%

38.1%

30%

41.7%

29.9%

20%
12.2%

10%
0%

2008-2009

2009-2010

2010-2011

Total bank deposits (commercial and SFI, excl MADB)

2011-12

Total bank loans (commercial and SFI, excl MADB)

Figure 25: Total banking sector (excl. MADB) loan and deposit growth 2009 to 2012.
Source: CBM, 2012

Commercial banks
Operational cost ratio
Net interest income as %
of total income

Mar-08
52%

Mar-09
49%

Mar-10
45%

Mar-11
42%

Mar-12
41%

53%

54%

49%

53%

61%

Mar-13
n/a
n/a

Table 12: Selected performance ratios for private commercial banks

Source: CBM Annual Report (2012)

3 largest private banks

KBZ
MWD
CB
Average for combined book of 3 largest
banks

Growth in loans
Growth in deposits
55.9%
46.8%
10.5%
17.9%
7.7%
46.6%
35.6%

40.2%

Table 13: Growth in the volume of loans and deposits of 3 largest private banks (2012 to 2013).
Source: Supply side data received from banks; CBM, 2012: Table 3.1

Commercial bank credit quality of concern. The 2011/12 CBM Annual Report notes concerns
over bank loan performance stating that the huge non-performing loan portfolio has been
the major predicament of banks. The current regulatory framework requires banks to
report loans as sub-standard, doubtful or bad when principle or interest payments are
overdue by 1-12 months, 12-24 months or more than 24 months respectively (CBM, 2012:
p17). Given the short-term nature of loans, this will result in a substantial understatement of
bad debt.
Private banks provide large loans to a small number of clients. Commercial banks are
estimated to only have about 60 000 credit clients53 with an average outstanding loan per
credit client of around K 70 million54 (USD 73 996). Details available for some of the banks
suggest that average loans vary substantially with a number of banks reporting average
53

Based on actual data for 10 banks (43 550) and estimate for 9 missing banks (using average number of credit clients for 7
smallest banks)
54
Based on estimated total loans outstanding for all commercial banks. Actual data for both loan book outstanding and credit
clients exist for only 10 banks, which have a combined average outstanding loan per credit client of K 75 million

66

loans in excess of K 150 million (USD 158 562), while the smallest reported average loan was
K 5 million (AGD, USD 5 285) 55. However, minimum loan values for individual banks appear
to be much lower than average loan sizes, with some banks indicating they have clients with
loan sizes less than K 10 million (USD 10 571) and some banks also offering hire purchase
products that start as low as K 100 000 (USD 106; see Section 7.5.3). All bank loans are
short-term and require collateral (see Section 7.4 for discussion on product details).
Private banks credit extension targeted predominantly at commercial customers. Other than
hire purchase products, the product offering of commercial banks seems to be largely
focused on targeting commercial customers (see Section 7.5.4 for a discussion on personal
loan products offered by banks). Furthermore, the relationship between commercial banks
and commercial customers seems to be long standing one, with some banks reporting only
10% turnover in their credit client base per year.

7.3.3. SFIs
SFIs contribute 12.2% of total banking sector loans. There are four state-owned banks in
Myanmar (MEB, MADB, MICB and Myanmar Foreign Trade Bank) which have a collective
outstanding loan book of at least K 570 billion56 (USD 602.5 million), or 12.2% of total
banking sector loans. SFIs as a group are therefore the second largest source of regulated
credit based on loan volumes. However, a large proportion of MEBs outstanding loan book
in 2013 consisted of wholesale funding to MADB which it uses to fund loans to farmers (so
the net credit extension of this group could be overemphasised).
Rapid SFI credit growth in 2012/13. While information is not available for all SFIs, the two
largest players (MEB and MADB) rapidly expanded their loan portfolio in 2012/13. MADB
expanded from K 84 billion (USD 88.8 million) to K 193 billion (USD 204 million) and MEB
from K 123 billion (USD 130 million), of which K 13 billion (USD 13.7 million) was to MADB, to
K 341 billion (USD 360.5 million), of which K 176 billion (USD 186 million) was to MADB. The
net increase of MEB and MADBs loan book for the year excluding MEB lending to MADB is,
therefore, 90%, up from K 194 billion (USD 205 million) to K 368 billion (USD 389 million).
MADBs growth was driven by increases in the loans per acre (See Section 7.5.1 for product
details). However, the number of SFI branches declined by 2.2% over the same period,
indicating that growth has been driven by factors outside of outreach (see infrastructure
discussion in Section 6.1). Despite the rapid growth, SFIs still only lend out 9% of their
deposits base and loans make up only 11% of SFI assets57. Detailed information is not
available but it is likely that the balance of assets is kept in government bonds. This
represents a substantial amount of funding that could still be intermediated into loans.
Whether this is appropriate or feasible would require consideration of the trade-off with the
current fiscal support that is provided through government bonds, which falls beyond the
scope of this document.
Operational efficiency is a potential concern for SFIs (excluding MADB). CBM (2012) reported
cost to income ratios in excess of 90% for 2011/12 increasing from 75% in 2007/8. At the
55

Only two out of ten banks that reported average loan value was less than K 70 million (USD 73 996), the other being MCB
with an average loan outstanding of K11m (USD 11.6k).
56 56
Based on CBM 2012 data for all SFIs excluding MADB (K 377 billion/USD 398.5 mil) plus MADB 2013 loans outstanding (K
193 billion/USD 204 million)
57
Cenfri calculations based on data provided in CBM Annual Report. Driven largely by MEB with a deposits to loans ratio of
11%. More detailed financials only available for MADB.

67

same time, the data for private banks shows cost-to-income ratios reducing from 52% in
2007/8 to 41% in 2011/12 (see Table 12, page 66). This suggests that the overall high cost
ratios are driven by high costs of operations in SFIs (excluding MADB). MEB cost data shows
a cost-to-income ratio of 88%, whereas data available for MADB shows a reduction in cost
ratio from 72% in 2009/10 to 48% in 2010/11 (see Box 4 below for a more detailed
discussion on MADB). It is difficult to interpret the high cost ratios for MEB as it fulfils
various other government functions (acting as government treasury) and also provide cash
handling facilities to other SFIs like MADB.
MADB is the largest single regulated credit provider in terms of numbers of clients. MADB is
the largest regulated provider of credit in terms of numbers of clients providing loans to an
estimated number of between 1.6 and 2.3 million farmers in 2013. It also has the second
largest branch network (205 branches). In 2009/2010 MADB extended loans to 1.3 million
farmers (MADB, 2011) but this has increased to between 1.6 million and 2.3 million farmers
in 2012/2013, consisting of monsoon loans58 to 1.6 million farmers, winter loans to 0.7
million farmers and pre-monsoon loans to 0.01 million farmers59. The total number is given
as a range, because there may be some overlap between the data from the three seasonal
loans provided. The total client pool would therefore be somewhere between 1.6 million
(monsoon loans) and 2.3 million (total loans).
MADB loans funded by subsidised funding. Until recently, MADBs loans were largely funded
from deposits but following a collapse in its deposit book (see discussion in Section 8.3.2),
the bulk of loans are now funded by a loan facility provided by MEB. MADB applied for and
received K 1.4 trillion (USD 1.5 billion) from MEB in June 2013, for disbursement in the
2013/2014 financial year60. This represents a substantial increase from K 568 billion (USD
600.4 million) in loans disbursed to farmers during 2012/201361, and follows on a
continuously increasing trend from 2009/2010 when loans disbursed were only K 93.5 billion
(USD 98.8 million) (MADB, 2011). MADB charges 8.5% per annum interest on their loans, and
funding received from MEB is in the form of a credit facility, with funding being withdrawn
repayable within one year62 (short- term loan) and charged at 4% interest per annum63. In
addition to the funding subsidy, MEB branches are also used by MADB for much of its cash
handling (as MADB branches are not all equipped to handle cash). This is an additional cost
subsidy that needs to be considered in the interpretation of the financials of MADB and
MEB.
Interest rates on MADB loans reduced substantially over last five years. MADB currently
charges 8.5% per annum interest on their loans, which is at a substantial discount to loans by
other market players. This is made possible by the subsidised finance provided by MEB. Prior
to 2012, MADB charged interest rates of between 13% and 18% on its loans. During this
period, the bulk of loans were funded from compulsory deposits (see discussion in Section
8.3.2) on which MADB paid 8% interest. The institution managed to generate a surplus
during this time and was, therefore, able to operate on a sustainable basis. As noted above,
this surplus did not explicitly account for the cost of using MEB branch infrastructure for
cash handling.
58

Monsoon loans also make up nearly 80% of loans disbursed in terms of value (MADB, Aug, 2013)
Information received directly from MADB (Aug, 2013).
60
Information received directly from MADB (Aug, 2013).
61
Information received directly from MADB (May, 2013).
62
Although MADB township branches have to pay quarterly interest to MEB Branches.
63
MEB normally charges 13% interest rate per year, and the difference (9%) can be seen as a subsidy to MADB.
59

68

MADB uses group loans to overcome collateral problems. Seasonal loans make up the bulk of
MADBs loan portfolio and are provided on a group-basis. Regulation allows MADB more
flexibility around collateral so commercial banks (for instance) will not be able to use groups
as a substitute for collateral.
Box 4: MADB

Agricultural development has been a focus area for the Government of Myanmar since its
independence in 1948. Initially, agricultural development fell under the State Agricultural
Bank established in 1958, but it was merged with the other state banks during the mass
nationalisation period to create the Peoples Bank (1970 to 1975)64. In 1975, the Myanmar
Agricultural Development Bank (MADB) was established during the restructuring of the
monolith bank and its mandate expanded to provide short-term and seasonal credit to
farmers. In 1997, the Act establishing MADB was amended to move MADB under the
supervision of the Ministry of Agriculture from CBM.
Today, MADB provides mostly seasonal loans (97.7% of all loans disbursed for 2012/2013),
the bulk of which (90% in 2012/2013) are to paddy rice farmers. Seasonal loans are
structured as group loans with five to ten farmers in each group.
Short-term loans make up the remaining 2.3% (in 2012/2013) of loans disbursed by MADB.
Short-term loans include loans for salt mining, sugarcane, tea and coffee farming and
citronella gas production, as well as some loans for farm machinery and special loans
which are executed on behalf of other ministries.
All loans are approved at MADB branches and the Village Tract Committee is involved in
the approval process. Farmers obtain and repay loans in person and in cash at MADB
branches. The capital amount together with an interest rate of 8.5% per annum is repaid at
the end of loan term, which usually coincides with the harvest period.
Over the last five years, MADBs loan amount per acre for seasonal loans has expanded
significantly (see Table 35, page 196, Annex A: Credit products). This expansion was initially
made possible through funding from compulsory deposits for term loans (MADB has never
been able to attract sufficient voluntary deposits), and savings deposits prior to the massive
withdrawal of savings in 2011/2012 (see Section 8.3.2). MADB is able to continue meeting
this growing demand at affordable interest rates through their relationship with the
Myanmar Economic Bank (MEB). MEB provides funding to MADB at a subsidised 4%
interest per annum. This enables MADB to charge interest at 8.5% per annum, which
translates into an effective subsidy (from MEB) of USD 15 per borrower per year.

MEB provides retail lending as well as wholesale financing to various government-linked

initiatives. MEB conduct retail and wholesale lending and estimates that 50% of their lending
is retail with 1.4 million borrowers in 2012/13. FinScope data, however, only report 14 000
direct credit clients of MEB suggesting that the bulk of the client base is obtained indirectly
through its loan to MADB. Lending to MADB makes up just over half of MEB loans at

64

Preceded by the State Agricultural Bank (1953 to 1970).

69

subsidised rate of 4% but, at the same time, MEB only lends out 11% of its deposits. They
also provide wholesale loan to the Small and Medium Industry Development Bank (SMIDB).
MEB has incurred substantial losses over last few years. CSO data shows that MEB losses
peaked at K 28.5 billion (USD 30.1 million) in 2007/8 and reduced to K 14.2 billion (USD 15
million) in 2010/11 (the last year for which financial data is available). The loss caused by
subsidised funding to MADB accounted for K 12.1 billion (USD 12.8 million) of overall
registered loss in 2010/11. Given the rapid expansion of the MADB loan portfolio which it
has achieved through an increased MEB loan facility, MEB losses are likely to have
substantially increased in 2012/13 with an estimated interest discount to MADB of about K
21 billion (USD 22.2 million).

7.3.4. MFIs
Formal MFI sector made up of diverse set of institutions. The regulated MFI sector is made
up of a diverse group of institutions including 6 INGOs, 19 domestic NGOs, 75 cooperatives65, 84 domestic for-profit companies and 5 foreign for-profit companies66. Table
14 below reveals the combined number of branches for all MFIs is estimated at 381 (this
includes co-operative MFIs).
Ownership, funding and mandate differ by type of institution. For all categories of MFIs,
compulsory deposits contribute a limited proportion of loan funding and they have been
unable to attract sufficient volumes of voluntary deposits. As such, INGOs and NGOs are
funded by donor-funding and expansion is dictated by donor interests. In a number of cases,
funding comes is tied with a particular mandate or instruction, which may fall beyond the
current capacity and experience of a particular MFI (e.g. to lend to particular region or
sector). The remaining MFIs are either for-profit MFIs or co-operatives that have registered
as MFIs. Domestic for-profit MFIs are largely funded by owners capital and stay in areas that
they can make profits (urban, densely populated, higher income). The impact of foreign forprofit MFIs such as ACLEDA and AEON, who recently registered as non-bank credit providers
as there was no space for them in the banking sector, remains to be seen.

65

Although we know the number of MFI licences for primary co-operatives (72) and that 2 more MFI licenses are held by CCS
and the Union of Monetary co-operatives, we do not know the number held by federations. The total number of MFI licenses
held by co-operatives are therefore estimated as the difference between the total number of MFI licenses, and the number of
MFI licenses held by INGOs, NGOs local companies and foreign companies.
66
These include ACLEDA, a foreign owned microfinance bank, and AEON, a foreign owned salary-based lender.

70

MFI infrastructure
Categories

Number of
branches

NGO
INGO
Local companies
Foreign companies

Number
institutions /
licenses
19
6
84
5

Co-operatives
Total

7568
189

144
38169

12
163
61
167

Table 14: Overview of MFI categories

Source: MMSE, CCS

Registered MFIs serve a total client portfolio of 690 000. As of March 2013, MMSE reported a
total MFI client pool of 690 000 with an outstanding loan book of K 85.8 billion (USD 90.7
million). The bulk of MFI clients are served by INGOs, which has 82% of loan clients. MFI cooperatives (including CCS and its 72 branches see Section 6.1) serve about 15% of MFI
clients, while local NGOs and for-profit MFIs serve only around 3% of all MFI clients.
Domestic NGOs and for-profit MFIs are all relatively young, as they could only recently enter
the market with the adoption of the Microfinance Law in 2011. Very little information is
available on them.
PACT is the largest MFI and serves approximately 74% of all active MFI clients. PACT serves
about 74% of all active MFI clients and contributed to 90% of the total INGO clients reported
as of March 2013 (PGMF: 16% and PACT MF: 74%). PACT also holds 65.4% of all MFI
outstanding loans as at March 2013. About 30% of its loans are agricultural, while 70% are
regular loans.
Box 5: PACT

PACT was one of three MFI operators contracted by UNDP in 1997 to provide microcredit in
11 townships in Myanmar. In March 2006 the UNDP consolidated its activities and selected
PACT as the sole operator of UNDPs retail microfinance operations, bringing together a
combined active membership base of 164 000 Turnell (2009). In 2012 PACT started a
separate programme in Myanmar called Pact Global Microfinance (PGMF).
As of March 2013, PACT (both PACT Myanmar and PGMF) provides microloans (discussed in
Section 7.3), compulsory savings (discussed in Section 8.5) and microinsurance services
(discussed in Section 10.3) to about 450 000 active clients (377 000 with PACT Myanmar and
74 000 with PGMF).
PACT Myanmar and PGMF are run on a near identical basis from the same management
structure and off the same Excel-based MIS system but focus on separate geographic areas.
PACT Myanmar currently has 105 branches and PGMF has 28. They both provide
67

Currently, only ACLEDA has 1 branch. The other foreign companies were not known to have operating branches open to the
public at the time of this report.
68
CCS the Apex body for all co-operatives has 1 MFI license and 73 MFI co-operatives branches directly under its wing, the
remaining 71 MFI co-operative branches are primary societies holding their own MFI licences
69
MSE indicated that total MFIs branches equal 199 but interviews and data collected from the different MFIs yield 381 MFI
branches.

71

uncollateralized productive loans (loans for income generation) to individuals on a group

basis (the so-called solidarity lending model, where group members are held liable for
each individuals loan) and have a focus on women and the poor.
PACT Myanmar has 377 borrowers per loan officer and has a repayment rate of 99%. It has
an Operating Self-Sufficiency ratio70 (OSS) of 301% and Financial Self-Sufficiency ratio71 (FSS)
of 81%. Its operating profits therefore would not cover its costs if it was not subsidised by
donors (an MFI with a FSS above 100% would be able to cover its costs from its operating
profit). However, because of its high OSS, it does not have to use its equity (loan fund from
donors) to cover operational costs and the loan fund should therefore not reduce over time.
PACT Myanmars funding is currently structured in the form of a loan fund (68% of funding)
and an operating fund (32% of funding)72. Funding is provided by a group of five funders
(UNDP, USAID, DANIDA, DFID and LIFT), the largest of which is UNDP, which is responsible
for 60% of total project cost (USD 38.4 million, including the loan fund of USD 26.2 million).

MFI growth driven by funding injections. Most MFIs report strong growth over the last year.
Given their inability to raise voluntary deposits as a means of financing loans (see discussion
in Section 7.3.4) MFIs are dependent on owners capital, donor-funding and other wholesale
funding to expand their portfolio. Recent growth seems to be driven more by the availability
and/or release of funding rather than an explicit expansion strategy. In some cases the
constraint on capital was as a result of regulatory constraints on increasing foreign funding
or increasing registered capital.
Challenging funding mandates may further stretch capacity of MFIs. In a number of cases, it
was reported that donor funding comes with a particular mandate or instructions, which
may fall beyond the current capacity and experience of a particular MFI (e.g. to lend to
particular rural region or agricultural sector). In most cases, it will require the MFI to serve
new clients, which requires new branches in new locations (presenting substantial
challenges as noted below). Given the shortage of funds, some MFIs have accepted such
directed funding without necessarily having the capacity to deliver to those particular
regions/states and sectors (e.g. extending loans in particular rural areas where they may not
have branches or experience or extending loans to agriculture without any knowledge of or
experience in this sector). While it may catalyse innovation, the additional funding also
places added strain on the already limited capacity of the MFIs, which can jeopardize their
overall operation.
Changes in INGO MFI mandates and in relationships with international parents are resulting
in a consolidation phase for INGOs. A number of INGO MFI parent organisations are reevaluating their involvement in microfinance in general, as well as in the specific
microfinance operations in Myanmar. One of the early outcomes seems to be an increasing
emphasis on sustainability. At the least, it is likely to result in pressure to be less dependent
70

Operating self-sufficiency is a percentage (%), which indicates whether or not enough revenue has been earned
to cover the Microfinance Institutions (MFIs) total costs operational expenses, loan loss provisions and
financial costs.
71
Financial Self-Sufficiency indicates whether or not enough revenue has been earned to cover both, direct costs
including financial costs, provision for loan losses, and operating expenses and indirect costs, inducing the
adjusted cost of capital.
72

Data used for calculation refers to PACT Myanmars external funding only.

72

on their primary donor for funding. The result is that these MFIs are focusing on evaluating
their business, strengthening their operations (including business process design,
management information systems, etc.) and considering strategies to achieve the scale
required for sustainability. The implication is that these MFIs are reconsidering marginal and
loss-making businesses as potential priority areas to prune. The focus on sustainability
makes these MFIs more susceptible to impacts resulting from restrictions imposed by the
regulation than would have otherwise been the case. As an illustration, one of the INGOs
with operations in rural areas is consolidating operations and is likely to close some of its
rural branches, which are considered to be unviable within the current market and
regulatory constraints.
Transformation from INGO status presents challenges. Prior to the enactment of the
Microfinance Law, many MFIs operated as programmes under specific MoUs with different
government ministries without being registered as a domestic legal entity. With the
introduction of the Law, the interpretation is that MFIs are required to register as domestic
legal entities but that there is some uncertainty around the exact requirements. A number of
MFIs have reported challenges in transforming to one of the registered legal entities
permitted under the Microfinance Law. The first challenge relates to uncertainties around
the legal identity requirement under the Microfinance Law. In addition there are also
challenges relating to the mandate of the global institution and whether they can
accommodate the restructuring required for transformation (e.g. whether a division can be
sold off or whether their ownership of an NGO would be transformed into holding equity in
a for-profit entity). In the case of such uncertainties, MFIs are hesitant to take on substantial
new developments or opportunities even if funding becomes available.
MIS and systems capacity of MFIs evolving. MFIs operate on a variety of MIS systems ranging
from largely paper-based (e.g. GRET) and Excel-based systems (Myanmar Microfinance, STC
and PACT who are looking to move to a more advanced MIS system) through to more
advanced MIS systems (World Vision installed the Kredits MIS system in late 2012). Some of
the domestic MFIs have also noted donor support to implement microfinance MIS systems
(MicroBanker Win). Moving to more advanced MIS systems will require substantial
investment and also business process engineering that is presenting challenges to some of
the smaller MFIs. While it may require a period of consolidation to embed the more
advanced MIS systems, it seems that the MFI sector is moving faster than the banking sector
with regards to improving MIS systems, which should provide a platform for future growth.
Even with the more advanced systems, challenges will remain to run a distributed branch
network given the limited telecoms connectivity and in some cases electricity only for short
periods during the day.
Staff capacity a major constraint. Finding suitably qualified and experienced domestic staff
capacity was mentioned as a significant constraint by several INGO MFIs. This relates to both
head office management and technical staff (e.g. accountants) as well as branch-level staff.
In initial stages of growth, MFIs are able to manage this from centralised head office staff.
Beyond this, growth requires more decentralised operations, which requires higher-skilled
staff at branch level. MFIs also need to build up the institutional structure to manage such
decentralised system.
Increased competition from many new licensed MFIs. In the past, INGO MFIs had a relaxed
relationship. In conversation with each other, they would avoid targeting the same areas in
73

order to manage overlap. With the increase in newly licensed entities, MFIs have become
more competitive and are no longer sharing information in the interest of coordination,
especially regarding areas where competition are fiercest, e.g. Yangon. However, some
information regarding provision is still shared through the Microfinance Working Group (an
association formed by the INGO MFIs in Myanmar).

7.3.5. Co-operatives
There are three different types of co-operatives involved in the provision of financial services.
Co-operatives licenced as MFIs, financial co-operatives, and agricultural co-operatives. The
MMSE has awarded 75 microfinance licenses with the Central Co-operative Society (CCS), an
apex organization of Myanmars Co-operative Movement holding one licence under which it
operates seventy-two of its own co-operative branches, and the other seventy-five licences
being held mostly by primary co-operatives. There are 2268 financial co-operatives that do
on-lending that do not hold MFI licenses. Of the financial co-operatives, the savings and
credit co-operative societies are institution based and are formed in departments, factories
and schools, while the bazaar and microcredit co-operative societies are community based
with the former being established in market areas. Co-operatives are run by community
based boards who administer the co-operative and who also act as a loan approval
committee. These are supervised by the Department of Co-operatives. Lastly, there are
5222 agricultural co-operatives that have recently started doing on-lending to their
members.
Category of cooperatives
providing financial
services
MFI licenced cooperatives

Financial cooperatives

Agricultural cooperatives
Total

Types of co-operative
societies

Number of branches

Number of
members

CCS

73

64 263

CCS's microfinance
societies

72

37 771

Savings and Credit

Coop Society

1 469

283 723

Bazaar Credit Coop

Society

342

49 200

Micro credit Coop

Society

457

37 888

5 222

400 157

7 635

873 002

Various

Table 15: Infrastructure of co-operatives that provide financial services

MFI co-operatives provide credit to 102 000 members. According to MMSE (October 2013),
75 MFI licenses are held by co-operatives. One of these licenses is held by the Central Cooperative Society (CCS)73. Data provided by CCS for 72 MFI co-operatives as well as its own
73

One MFI license is also held by the Union of Monetary Co-operatives, which indicated that they have 10 of their own
branches. However, the size of their member base as well as loans disbursed is unclear.

74

MFI operations (CCS has 73 branches through which it provides its own microfinance)
indicated K 24.7 billion (USD 26.1 million) being disbursed to 102 000 members during
2012/2013. Of this, CCS disbursed about K 12 billion (USD 12.7 million) to 64 000 members.
As of July 2013, CCS has 72 000 members.
Non-MFI financial co-operatives provide credit to 370 000 members. As at July 2013 non-MFI
financial co-operatives had 370 000 members and have disbursed K 46.774 billion (USD 49.4
million) from April to July 2013.
Rapid expansion of credit through agricultural co-operatives to 400 000 members. Most of
these co-operatives have only started lending to their members recently as a result of
funding being channelled to agricultural co-operatives which was obtained from the ExportImport Bank of China. China and the Government of Myanmar agreed to finance USD 600
million in the next 3 years for agriculture, and the funding is disbursed from the Ministry of
Co-operatives to CCS who directs it to primary agricultural co-operatives through the cooperative apex structure. Farmers will be able to borrow a maximum of K 100 000 and the
interest rate to farmers is 18% per annum. CCS only indicated 21 agricultural co-operatives
doing on-lending as of January 2013, at which stage a loan amount of K 1.1 billion (USD 1.7
million) had been extended to 10 900 members. However, as of July 2013, agricultural cooperatives as a group (5 222 of 7 000 are providing credit to members) had disbursed K 26.4
billion (USD 27.9 million; April 2013 to July 2013) with loans outstanding of K 23.8 billion
(USD 25.2 million) to 400 000 members. This represents a massive expansion of credit
provision in rural areas and is the equivalent of almost 60% of the reported MFI client base.
Portfolio management tools for these loans do not seem to be in place.
Seed capital expedites co-operative growth. In establishing new co-operatives, government
have followed a structured approach/template where CCS provides funding and technical
support and government provides supervision. CCS indicated that microfinance cooperatives were typically able to repay their seed capital in the first year, after which the cooperative would continue to provide loans from its own accumulated capital. Co-operatives
therefore seem to be able to grow more rapidly if seed capital is available. Interviews with
co-operatives indicated that, once established, member deposits are only able to fund about
30% of loan demand.
The number of co-operatives societies is set to expand substantially. The Ministry of Cooperatives intends to create over 5000 new co-operatives per year with the support of the
Department of Co-operatives and CCS. The aim is to establish one co-operative in every
village (totalling 60 000), as a means of increasing microfinance penetration and reducing
poverty. Each co-operative will receive K 10 million (USD 10 571) in seed funding. A further
K 50 million (USD 52 854) per co-operative will be distributed as the capacity of the cooperatives develops. A projected total of K 3.6 trillion (USD 3.8 billion) in lending will be
distributed through the co-operatives by 2015.
K300 billion will be required to establish 5 000 co-operatives per year. If it is assumed that 5
000 co-operatives will be established per year and if initially only K 10 million (USD 10 571)
per co-operative is needed, only K 50 billion (USD 52.8 million) will be required from those
co-operatives (0.4% of government expenditure). Furthermore, from interviews with current
74

This includes loans disbursed by 72 MFI co-operatives. The data is only available at an aggregated level for this period, but as
comparison the 72 MFI co-operatives disbursed 12.4 billion during 2012/2013

75

microfinance co-operatives, it is known that established microfinance co-operatives were

typically able to repay their seed capital in the first year. If this also holds for new cooperatives, the government can continue to open 5 000 new co-operatives a year while
recycling the same seed capital. Adding the additional K 50 million (USD 52 854) per
established co-operative, a total of K 300 billion (USD 317.1 million) will be required per year
(2.5% of government expenditure). In August (2013), Myanmar received a K 94.6 billion (USD
100 million) loan from the Export-Import Bank of China which will be used to fund cooperative programs that support farmers and the rural poor (The Irrawady,2014). This
funding is currently being funnelled to existing agricultural co-operatives and it is yet unclear
how the establishment of one co-operative in every village will be funded.
Co-operatives are already growing rapidly. The Ministry of Co-operatives reported 21 138
co-operatives as of May 2013, with a total membership standing at 2.2 million in January
2013. This includes all co-operatives in Myanmar (not just loan providing co-operatives) and
reflects a substantial increase from CCS figures of 11 700 co-operatives with a membership
of 1 085 692 reported as of September 2012.
Co-operatives functioning well and autonomously, with good governance. Furthermore, low
defaults are reported for loans provided by co-operatives. Additionally, the co-operative
structure/model seems to be well embedded and regulatory supervision by government
which provides additional support to co-operatives.

7.3.6. Pawnshops
2026 regulated pawn shops could provide K 400 billion (USD 422.8 million) in credit.
Regulated pawnshops are divided into two categories, Myanmar Small Loans Enterprises
(MSLE) network of pawnshops and other pawnshops that are licensed by local governments
all across Myanmar. There are 1 842 registered pawnshops by local governments and 184
state-owned pawnshops nationally under the MSLE. The outstanding loan book for
pawnshops is difficult to estimate in the absence of concrete loan book data, but one
pawnshop that was met with during supply-side consultations indicated a loan book of K
200 million (USD 211 416), which if flatly extrapolated (for about 2 000 registered
pawnshops) would indicate an overall outstanding loan book of around K 400 billion (USD
422.8 million). To put this amount in perspective, the average outstanding loan book of a
commercial bank in Myanmar is K 269 billion (USD 284.4 million).
Unregulated pawnshops common in most wards or villages. Although little information could
be gathered on the reach of unregistered pawnshops, there are indications (from the
qualitative research) that such institutions are common in most wards or villages. More
research is needed to unpack the nature and reach of these institutions.

7.3.7. Rice specialised companies

Only three rice specialisation companies remaining operating in four townships only.
Although 57 Rice Specialisation Companies (RSCs) registered since 2008, are currently only 3
(Gold Delta, Khittayar Hinthar Rice Specialization and Ayeyarwady Greenland) that are still in
operation, as well as 1 newly established agricultural public corporation that also does

76

contract farming (Myanmar Agribusiness Public Corporation or MAPCO75). RSCs have very
limited reach as they usually operate in one township only, with contract farmers farming
around a core or nucleus farm owned by the RSC. The four townships that the three RSCs
and the agricultural public corporation operate in are the Danu Phyu Township, Phyar Pon
Township and Nyaung Done Township, all three of which are in Ayeyarwadyas well as Pyay
Township in Bago. The remaining RSCs provide credit to an estimated 12 00076 farmers and
charge 2% interest per month.
Failure of agricultural specialisation companies. Rice Specialisation Companies were
originally created in 2008 as part of a government-initiated regime to improve access to
farm inputs (including credit) whereby large investors/registered firms were encouraged
to provide paddy inputs on credit under contract farming schemes in return for rice export
permits (USAID, 2013). Initially, RSCs seemed to have a positive impact on the rice industry
as Larry, Wong and Wai (2013) found an increase in rice exports from 2008 onwards.
However, USAID (201377]) finds that the poor performance of the RCSs in Myanmar is to be
expected because while contract farming schemes can work well for highly specialized, high
value export commodities, they are unlikely to prove commercially sustainable for low-value
commodities with broad market outlets, such as ordinary rice78. They advise that contract
farming is therefore not a solution for Myanmars weak rural credit systems and weak input
markets, given the current nature of agriculture in Myanmar.
Weather risk has further undermined the viability of production and therefore, credit
provision. The failure of RSCs have at least partially been ascribed by Cho et al. (2013) to the
heavy cost of input finances and poor repayment rates resulting from crop losses, flooding
and low paddy prices. Currently, the largest rice specialisation company that still provides
credit, Gold Delta, has 2 000 farmers owing (a third of their farmers) who are unable to
repay their current loans because of poor harvests caused by flooding79.

7.3.8. Agricultural input providers

Substantial reach of agricultural input credit. Industry consultation revealed large scale
extension of inputs80 on credit by agricultural input providers. Exact data on take-up is not
currently recorded as these entities are not regulated for the provision of credit. However,
one provider reported extending agricultural inputs on credit to approximately 1.5 million
farmers, with a typical credit amount of K 50 000 (USD 53) per farmer. This would put loans
disbursed in a year at around K 75 billion (USD 79.3 million), although further investigation
into these figures is probably warranted. This provider focus on high value crops (only
starting to look at rice now) and its clients are farmers who own between 5 and 10 acres of
land. As there are indications that it is likely that there are numerous companies providing
75

MAPCO is a wholly-owned non-government Public Corporation, established in 2012. MAPCO was formed to mobilise public
savings and to foster broader investment in agriculture and agro-based industries of Myanma. MAPCO distributes urea
fertilizer under contract farming in the Nyaung Done Township and Ayeyarwady Region. However, it is unclear whether they
operate under the same agreement with government as RSCs, and could possibly qualify as a separate category of financial
services providers (http://mapco.com.mm/index.php).
76
Gold Delta is the largest with between 3000 and 6000 farmers while Kittayar Hinthar is second largest with 3000. Ayeyarwady
Greenland should therefore have less than 3000 farmers putting overall contract farmers with RCSs at less than 12000.
77
See Box 4 on page 49 of their report for a detailed explanation.
78
This is because of the ease of side selling by contract farmers in order to obtain higher prices, and the fact that Rice
Specialization Companies cannot match these prices because they have to recover their capital costs.
79
Understanding the scale of value chain credit as well as the apparent success of input credit compared to the failure of credit
linked to agricultural processing will require further investigation.
80
Typical inputs include seeds, fertilizers and agrochemicals.

77

agricultural inputs on credit, this could well be a sizeable segment of total agricultural credit
provision. Given the absence of formal aggregated data, the scale of overall value chain
credit is not clear. The apparent success of input providers compared to the failure of credit
linked to agricultural processing warrants further investigation.

7.3.9. Unregulated money lenders

Unregulated credit market dominated by money lenders. Approximately 5.9 million adults
indicated that they currently have outstanding loans from a money lender and an additional
1.5 million indicated that they have taken out loans from a money lender in the last 12
months. This constitutes 28% of all active borrowers. Money lenders are therefore providing
a significant proportion of loans to the market. This is illustrated in Figure 22 where credit
extended by money lenders exceeds the number of credit clients that MADB has, and the
estimated loan volume of outstanding loans with money lenders is on a level comparable to
commercial banks. A direct implication of this form of unregulated provision, is that much of
financial intermediation in Myanmar is individualised (i.e. individuals with savings directly
extend credit rather than intermediating savings through a financial institution). This limits
the financial sectors ability to aggregate savings and to facilitate large-scale investment.

7.3.10.

Other unregulated providers

In addition to the providers discussed above, there are a number of other unregulated
community-based providers of credit.
Community-based assistance groups provide financial and non-financial support. Community
based assistance groups also exist in a limited form; although some assistance groups like
free funeral societies seem much more prevalent. These groups provide assistance for
health, education, the elderly etc. as well as money for various welfare purposes.
Traditionally based on Buddhism, they mostly collect money from villagers as donations, but
they also lend out funds (at 2% per month) to increase their funds. Assistance groups and
societies that were found in the qualitative research as well as supply side interviews were
religious contributions/donations groups, ward-based funeral assistance groups, voluntary
health assistance organizations, self-help health assistance groups, free ward clinics/health
associations and the Free Funeral Service Society.

7.4.

Distribution
This section considers the distribution infrastructure and geographic reach of the various
categories of credit providers.
Rural credit outreach limited to SFIs and some MFIs. Rural outreach is largely driven by SFIs.
Table 5 shows that SFIs have 537 branches covering all 14 regions of Myanmar. Although
private banks also cover all 14 regions, SFIs, driven largely by MADB, have a rural focus as
opposed to the urban focused commercial banks. Similarly, MFIs operate in more densely
populated towns and cities that are not very rural and not considered to be low income
areas. Two notable exceptions are PACT and Proximity (INGOs). PACT, the largest MFI in
Myanmar, and Proximity are the only MFIs with a rural footprint, largely driven by their
donor mandate.

78

Co-operatives and pawnshops have the largest regulated footprint in Myanmar amongst
credit providers. Section 7.3.5 revealed that co-operatives offering financial services have
the largest regulated distribution footprint with 7 635 branches. Agricultural co-operatives,
which account for 5 222 branches, have a greater reach into rural areas but have only
recently started offering credit to its members. Financial co-operatives which account for
2268 branches operate almost exclusively in urban areas81. Pawnshops have the second
largest footprint, but are comparable to financial co-operatives in number of branches (more
than 2 000 for pawnshops and 2 400 for financial co-operatives).
Money lenders have largest distribution footprint amongst regulated and unregulated credit
providers. Qualitative research indicates that money lenders are present in almost all wards
or villages. . Money lenders are different from unregistered pawnshop as they do not take
collateral and can almost be anyone with extra money. An interview conducted with an
unregulated money lender in Yangon during the supply-side interviews also suggested that
money lenders are common at a ward level, with money lenders in other (nearby) streets
being discussed. Although the interviewed money lender typically only had ten loans
outstanding at any time, some money lenders take on more loans than this. If a conservative
estimate of fifteen loans on average for a typical moneylender is taken, FinScope take-up
data would suggest as many as 400 000 money lenders are operating in Myanmar82 with
nearly 100 per 100 000 adults (by far the largest provider density).

7.5.

Products and take up

Credit products in Myanmar can be grouped into four distinct categories based on their
intended use. These categories of loans are: Agricultural credit, Business loans, Asset-based
finance and personal loans. The nature/intended use of some of these product categories
(for instance agricultural credit) also coincide with the nature of the different target groups
(like farmers). The following sections consider each of these four credit product categories
individually, looking at both take-up and product features for each. Some overarching
distinguishing features that will be discussed are the requirements that have to be satisfied
in order to qualify, physical accessibility and the way the products are structured. These
three characteristics shall be examined for each of the product categories below. Annex A:
Credit products contains additional details on credit products.

7.5.1. Agricultural credit

Agricultural context:
As described in Table 1 (Section 4.1), three groups of adults reported that their households
are involved in agriculture. For the credit discussion below (based on FinScope data), take-up
will be looked at through the lens of these three groups of adults in order to describe both
take up for total agriculture, but also for those whose main source of income is from farming
(the farmer segment, as described in Section 4.2). As noted earlier, an Agricultural note
summarising the agricultural content and main findings from the MAP Myanmar Country
Diagnostic report will also be available as a separate deliverable.

81

As reported by the Central Co-operative Society and the Union of Monetary Co-operatives during supply side meetings
Even if a much higher estimate of 50 loans per money lender on average is used, the number of moneylenders in Myanmar
would still be substantial at 117 000.
82

79

As indicated in Table 6, adults whose main source of income is from farming (12.1 million)
has the highest percentage of adults with regulated loans as well as the highest percentage
of adults who either has a regulated or unregulated loan (37% and 51%, with total credit
take-up for this group at 62% -also highest). For all adults who are involved in farming (19.8
million), the credit take-up is similarly high with 32% having a regulated loan and 47% having
either a regulated or unregulated loan (see Table 16 below). However, this high take-up is
largely driven by MADB (and PACT to a lesser extend), with only 19% of adults who are
involved in farming having either a regulated or unregulated loan other than a loan from
MADB and PACT (or only 4% if regulated only).

Farming groups

Number of
adults in
each group
with (loan):
% of adults
in each
group with
(loan):

Number of adults
MADB loan
MFI loan
Any regulated loan
Any regulated or
unregulated loan
MADB loan
MFI loan
Any regulated loan
Any regulated or
unregulated loan

Main income
farming

Farming as
secondary
income

Family
dependents of
farmers

Total

12 098 928
3 748 655
586 761
4 478 014

3 264 502
470 286
206 979
776 636

4 412 523
895 272
97 014
1 149 954

19 775 953
5 114 213
890 754
6 404 604

6 181 984
31.0%
4.8%
37.0%

1 393 378
14.4%
6.3%
23.8%

1 802 184
20.3%
2.2%
26.1%

9 377 546
25.9%
4.5%
32.4%

51.1%

42.7%

40.8%

47.4%

Table 16: Credit take up over groups involved in farming

Source: FinScope 2013

MADB loans are not saturating the market for agricultural credit. Of the 19.8 million adults
who are involved in farming, only 26% indicated that their household has an MADB loan.
This is mostly driven by loans to adults involved in paddy production, who have 87% of all
MADB loans, while adults involved in the production of beans and pulses but not paddy have
9% of MADB loans and adults involved in cereal, but not paddy, beans or pulses account for
only 2% of MADB loans. Only 0.7% of adults with MADB loans are not involved in any of the
three major crops. However, even though most MADB loans are held by adults involved in
paddy, only 31% of adults in paddy production have an MADB loan while 18% have a
regulated or unregulated loan other than an MADB loan. In addition, adults who are not
involved in paddy, have a much lower MADB loan take-up rate. Only 12% of those who are
not involved in paddy or cereals, but are involved in beans and pulses have MADB loans,
while only 13% of those who are not involved in paddy or beans and pulses, but who are
involved in cereals have MADB loans (for the number of adults in each of these groups, see
Figure 53 in Annex A: Credit products. Furthermore, of the 14.7 million adults who live in
households involved in farming, but who do not have a loan from MADB, 29% (4.3 million)
currently has a regulated or unregulated loan (not from MADB). MADB has therefore not
saturated the market for paddy loans, and it has very low penetration rates for farmers not
involved in paddy production.
Not all loans taken by adults whose households are involved in farming are used as
agricultural productive credit. Of those adults whose main source of income is from farming
80

and who currently have either a regulated or unregulated loan, 75% indicated that they
borrowed money for agriculture related purposes83, while only 47% of those whose
secondary source of income is from farming and who currently has either a regulated or
unregulated loan borrowed for agricultural purposes. 65% of family dependents whose
households are involved in farming and who currently has either a regulated or unregulated
loan borrowed for agricultural purposes (69% of all adults involved in agriculture and who
have a regulated or unregulated loan borrowed for agricultural purposes).
Agricultural products:
Agricultural credit largest regulated credit product. The largest regulated credit product
currently being offered is agricultural production loans (including input finance, output
finance and asset finance), which is offered by the MADB (providing the bulk of agricultural
credit), agricultural companies, MFIs, co-operatives (only the newly credit providing
agricultural co-operatives) and unregulated providers. A detailed agricultural credit product
table in Annex A: Credit products (Table 34) provide an overview of agricultural credit
products by provider. Annex A: Credit products also contain more detailed discussion on
agricultural credit product offerings by provider. The immediate discussion below aims to
provide an overview of agricultural credit in Myanmar, to draw out the general features for
agricultural loan products, and to highlight the product related issues of agricultural credit
provision.
Providers of agricultural credit fall within three categories based on the scale of outreach:

Large providers including: MADB (1.6 million clients) and Awba (1.5 million clients;
Awba is an agricultural input provider, see Section 7.3.8)
Medium providers: Agricultural co-operatives (400 000 clients) and PACT (70 000 to 80
000 clients)
Small providers: everybody else who seem to be really small with client portfolios of
fewer than 15 000 each (Including INGOs other than PACT as well as RSCs).

The following are product related aspects of the agricultural credit market:
Much of MADB growth was derived from increased loan sizes per acre to farmers. MADB
provides loans to farmers on a maximum amount per acres basis, up to a maximum of 10
acres, and farmers tend to take the maximum loan amount84. According to the Ash Centre
(2011), this maximum amount per acre has increased continuously over the past five years
from as low as K 8 000 (USD 8) per acre in 2009 to a current level of K 100 000 (USD 106) per
acre for paddy and K 20 000 (USD 21) per acre for other crops85 (See Table 35in Annex A:
Credit products). During consultation with MADB in May 2013, they indicated that they are
applying for increased finance to increase the maximum loan amount per acre for paddy to K
150 000 (USD 159) per acre and K 70 000 (USD 74) for other crops.
Different views on financing requirements of farmers. There are differences of opinion about
whether MADB products are meeting farmers financing demands (see discussion in Section
14.1.1 in Annex A: Credit products). Some sources suggest that loans of K 100 000 (USD 106)
83
84
85

To buy livestock or farming equipment or to pay for agricultural expenses such as seeds or fertiliser.
Information received directly from MADB (May, 2013)
Information received directly from MADB (May, 2013)

81

per acre are still not sufficient to cover production inputs. MADBs view is that farmers
require K 200 000 (USD 211) to K 300 000 (USD 317) per acre to cover production costs.
USAID (2013) found that a loan of K 50 000 (USD 53) per acre only cover 25-50% of the
overall financing needs per acre, putting estimated production costs at K 100 000 to K
200 000. Production costs are estimated by the Myanmar Farmers Association at between K
140 000 (USD 148) to K 177 000 (USD 187) per acre (MFA, 2013). Statements by government
note production costs that may go up to K 400 000 (USD 423) per acre for better quality rice.
At the same time other reviews (e.g. JICA review) warns that per acre loan sizes are already
exceeding what is required and also potentially farmers repayment capacity. However,
production costs for paddy vary considerably depending on the season, with dry season
paddy requiring more fertiliser than monsoon paddy. A careful evaluation of farmer credit
needs and capacity will be essential to inform any further expansion by MADB, and the
absorption capacity for different groups of farmers to take on more debt would not be
uniform (see discussion in Section 7.6.2 below).
MADB product features could improve., MADB loans are often not dispersed in time for the
necessary preparations for the planting season and repayment of loans is due when the crop
prices are at their lowest (immediately after the harvest), all of which leads to the sourcing
of additional credit at a much higher cost from other regulated providers or money lenders.
Input financing products not regulated. Beyond MADB, the bulk of finance seems to be
provided on an unregulated basis by input providers and value chain players (e.g. Myanmar
Awba). Average reported loans are very low at K 50 000 (USD 53) per client. Awba is in the
process of applying for a microfinance license (see discussion in Section 14.1.5, Annex A:
Credit products) with the intention of extending its lending operations beyond input finance.
Other regulated agricultural products have achieved limited reach. MFIs agricultural
portfolios are relatively small (particularly if you look beyond PACT). Some MFI products are
also not particularly suited to farmer needs, for instance, the term of some loans is actually
shorter than the production season, which makes it difficult to repay these loans. However,
credit provision by agricultural co-operatives has grown rapidly over the last year and may
also benefit from a new funding injection. Their role in this sector going forward remains to
be seen but could be substantial.
Across all providers, the bulk of loans are for paddy rice. While some reviews caution against
concentration of finance in the rice sector, there are still many rice farmers who were unable
to access MADB loans to date (e.g. as they did not have the land registration
documentation). Only 31% of adults in paddy production currently have an MADB loan (see
Section 7.5.1 above).It would suggest that there is still further room for growth in the rice
sector.
Bulk of credit is provided as seasonal loans with very little to asset/equipment finance. The
only asset finance products are a small portfolio of term loans by MADB and possibly a small
number of loans by MFIs. In total, this is unlikely to reach more than 50 000 farmers.
Most loans are focused on plots smaller than 10 acres. Only MADB term loans are for plots
greater than 10 acres. Co-operatives and MADB provide credit to farmers with more than 10
acres but only partial finance (MADB only provide per acre finance for the first 10 acres and
co-operatives only provide per acre loans for half of farmers acreage for farmers who have
82

more than 10 acres). There are 2.1 million adults (698 000 households) involved in farming
who indicated that they have farms that are 10 acres or larger. 47% of these adults indicated
that they earn less than USD 5 per day.
Maximum loan sizes already exceeding K 500 000 (USD 529). In a number of cases, loan
ranges already exceed K 500 000 (USD 529) and for RSCs and MADB maximum loans exceeds
K 1 million (USD 1 057).
Documentation requirement possible access barrier. Both MADB and Awba require
documentation to prove right of use of land in order to obtain a loan. It is estimated that 3.4
million farmers cannot provide this documentation (Harvard Ash Centre, 2011).

7.5.2. Business loans

Banks provide large loans to few while MFIs and co-operatives provide small loans to many.
Business loans are provided by all commercial banks, SFIs (MEB and MICB), MFIs and
financial co-operatives. Commercial banks are providing the largest loans (with average loan
values as high as K 200 million or USD 211 416) at low interest rates of 13% per annum.
Banks have recently introduce hire purchase lending with loan values starting at K 100 000
(USD 106). Detailed take-up information is not available for this product but it is likely to be
still limited as our estimate suggests that there are only about 60 000 bank credit clients in
total (split between business and personal loans are not known). MFIs mostly operate in the
K 50 000 (USD 53) to K 500 000 (USD 529) space in terms of business loans, although a small
proportion of individuals graduate to individual loans that could go as high as K 1.7 million
(USD 1 797). All MFIs provide loans at an interest rate of 2.5% per month. They provide at
least 408 000 business/productive loans (of which PACT MFP provides 93% or 374 000), but
could provide as many as 487 000 depending on PGMFs loan portfolio. Non-agricultural
financial co-operatives provide productive loans to between a third and two thirds of its
480 000 members. Loan sizes range between K 30 000 (USD 32) and K 300 000 (USD 317),
with most loans not exceeding K 90 000 (USD 95). Co-operative loans bear an interest rate of
2.5% per month with daily or weekly repayment and a term of between 60 and 75 days.
Table 37 in Annex A: Credit products sets out the product details by provider groups for
business/productive loans in Myanmar.
Loan gap between K 2 million (USD 2 114) and K 70 million (USD 73 996). While banks offer
hire purchase loans starting at K 100 000 (USD 106), in practice (and as illustrated by average
loan values), banks focus on large and mostly commercial loans. The average loan for
commercial banks is estimated at K 70 million (USD 73 996), while some banks do offer loans
as low as K 10 000, but only to a limited degree. MFIs, in turn, offer loans of up to K 2 million
(USD 2 114) with co-operative loans being smaller than MFIs loans. The result is a potential
loan gap between K 2 million and about K 70 million, but possibly effectively even higher
(due to low availability of these lower value loans).
MFI and co-operative group loan products are mostly for working capital but some are
experimenting with asset finance (e.g. Proximity is looking at asset finance for agriculture).
These short-term loans are mostly offered on a group basis making it difficult to scale up
loans. Many of these loans also have a high repayment frequency (weekly or bi-weekly)
making it more suitable to high turnover trading businesses. MFIs allow for good clients to
graduate to individual loans but only a small proportion of clients are able to do so. These
83

individual loans are offered on a monthly repayment basis. Co-operatives offer smaller loans
than MFIs on a group basis with high (daily/weekly) repayment frequencies. As with MFI
loans this is geared towards traders with high turnover and not suitable to businesses with
longer turnover cycles and asset financing.
Limited graduation of co-operative loan clients. Loans by financial co-operatives tend to be
small. This is not just because of the structure of the product and limited funding but also
member preference. Some co-operatives report that members have qualified for larger
individual loans (with monthly repayment) but have opted not to take this. This could either
be a result of the product features of co-operative loan products (which may not be suitable
for clients, see paragraph above) or it could signal a limit to the trust placed in the cooperative mechanism as higher savings levels need to be kept by members to access the
larger loan. It could also reflect a barrier to the development of member businesses. With
the support of a co-operative loan a trader can perhaps grow their stock but graduating their
business to, for example, a wholesaler or formal store may not be possible on the back of a
slightly larger loan.
All loans are for short terms, mostly shorter than one year. For MFIs and co-operatives loan
terms are typically shorter than one year and in most cases shorter than 6 months. Given
that much of MFI funding is in the form of wholesale donor funding (and not deposits), it is
not clear why loans are restricted to short-term loans only. For private banks and SFIs the
loan term can range between one and three years but the indication is that most are for
terms less than one year. Hire purchase products are advertised with terms of up to three
years. Some SFIs (e.g. MEB) used to offer longer-term loans of up to 10 years, but have
ceased to do so. Poor repayment performance was mentioned as a key reason for doing so.
Refinancing creates longer-term bank loans in practice. It seems that it is common practice
to refinance both term and hire purchase loans. Bank brochures advertise the ability to
restructure or refinance loans if agreed before the end of loan term. The result is that a
product advertised as a one year term loan or hire purchase product is effectively rolled over
to function as a longer-term loan vehicle. This would explain the ability to offer large and
unusual assets such as condominiums on hire purchase. Information on how this refinancing
works in practice as well as the degree to which this takes place are not available. Given the
issues raised in Section 5 around the definition of non-performing loans applied in the
banking sector, it is possible that clients simply miss a number of these hire purchase or
term loan payments without it resulting in the loan being classified as non-performing. The
result is that the client is effectively just spreading the payments over a longer period.
Hire purchase products leverages vendor infrastructure. Bank loans (particularly HP) are
providing asset finance and leverage the distribution networks of vendors (often in same
group as bank) selling assets that is financed. These are still very recent and data reported by
banks suggest that it is not widely used yet.
Subsidised interest rates not enabling commercial banks to attract SME portfolio. Despite
offering loans at substantially discounted interest rates, commercial banks have not been
able to build up a substantial SME portfolio. At the time of this report SMIDB, for example,
only had 550 loans, 40% of which was to SMEs. Less than 4% of SMIDBs loans made use of
discounted funding provided by the MEB for SMEs. It is not clear what the problem is in

84

extending these loans but during our consultations, the issue of collateral was raised as the
main constraint.
MFIs and co-operatives use group loans as an alternative to collateral. A small percentage of
clients are able to graduate to larger individual loans and for these the MFI or co-operative
would require guarantors and compulsory savings.
Banks require collateral and are constrained to formally registered businesses. Loan values
are often only a limited proportion of collateral (e.g. 50% of value of land). Banks and SFIs
also seem to only lend to registered businesses (based on some banks requiring proof of
registration before opening an account). MFIs and co-operatives can extend finance to
individuals running businesses and do not have the same requirements of proof of
registration. Given the absence of MIS systems and no credit bureau, banks are dependent
on collateral and business plans as basis for lending and are not able to apply more
advanced scoring approaches to lending to this market.
Substantial paperwork requirement for bank loans. Based on requirements to open an
account, it seems like banks require substantial paperwork in order to get a loan. This was
also highlighted by qualitative research where respondents mentioned substantial
paperwork in order to open bank accounts with banks but also with MFIs. Co-operatives
require less paperwork but provide limited loan sizes and take long to process applications
(they also do not always have funds available to lend, with some co-operatives reporting
they could only lend to 30% of their members at a time).
More tailored business loan products emerging in market. At least 5 banks86 provide various
types of other specific purpose business loans. These loans include working capital financing,
warehouse financing, construction financing, factoring, corporate financing, import and
export financing, letters of credit and pledge loans. The specific product features as well as
take up figures for these loans are not known but given their recent introduction to the
market, take-up is likely to be limited.

7.5.3. Asset-based finance

Hire purchase loans seem to be a relatively new product offered by private banks. Although
new as product offering by the banks, Oriental Leasing Company (a subsidiary of Myanmar
Oriental Bank) has been offering hire purchase loans since 1995. Not all banks are providing
hire purchase loans, but at least 5 banks are doing so (AGD, Co-op Bank, KBZ, SMIDB and
UAB). Some banks may require guarantors, while most banks require at least insurance on
the asset being bought on hire purchase.
Limited take-up to date but reaching into low-value assets. Despite being in the market for
many years, Oriental Leasing currently only have 5400 clients on one year leases. Their
average value for a hire purchase loan is reported to be K 100 000 (USD 106) while total
loans outstanding is K 823 million (USD 869 979). Given the low overall credit client base for
banks and the recent introduction of this product, take-up of bank hire purchase products is
likely to be limited.

86

Asia Green Development Bank, Ayeyarwady (AYA) Bank, Co-operative Bank, Myanmar Citizens bank, United Amara Bank.

85

Variety of assets available on hire purchase. Hire purchase loans can be obtained for the
following specified goods87:

Electronics,
Cell phones and communication devices,
Gold and jewellery,
Furniture,
Automobiles and motorbikes,
Hospital and clinical equipment,
Heavy machinery,
Tractors and agricultural machinery,
Machineries for business use and generators, and
Apartments, condominiums and individual houses.

Mortgage and vehicle finance non-existent. AGD is the only bank that offers a home loan
product (they offer two), and they are also the only bank to offer a vehicle finance product
(outside of hire purchase loans). There is no indication of any significant degree of take up
for these loans.

7.5.4. Personal loans

Our product survey has found six categories of players in this space: Banks, INGO MFIs, cooperatives, pawnshops and unregulated money lenders.
Personal loans not only for consumption. With personal loans we refer to loans that are not
explicitly targeted to business or farming or the purchase of an asset. In some cases, these
loans may be applied for business reasons, but it is not limited to this application by its
product design or requirements. It includes emergency loans, education loans, and payroll
loans. These loans may (e.g. pawn shop or bank loans) or may not (e.g. payroll loans or MFI
top-up loans) be secured by collateral. In some cases it may be offered as an additional topup loan within an existing credit relationship while in others (such as payroll loans) it could
be the only loan an individual has with an institution. These loans are not necessarily used
for consumption but at the same time, there may not be any restriction to do so.
MFIs and co-operatives offer some consumption smoothing/emergency loans at discount.
Two INGO MFIs (PACT and World Vision) reported personal products for emergencies and/or
consumption smoothing targeted specifically at healthcare and educational expenses. E.g.
PACT offers these small loans for healthcare and school fees at a discounted rate of 2% per
month instead of 2.5% but only have about 2 500 of these loans on their book. WV reports
strong demand for their education product and they expect a spike in loans following the
release of this product in 2013. Co-operatives also offer emergency loans for health and
education purposes. In the case of healthcare loans our understanding is that these are
additions to the healthcare benefits offer under co-operative provident funds and offer
similar benefits to family members of the borrower as interest-free loans. These loans tend
to range between K 50 000 (USD 53) and K 100 000 (USD 106).
AEON plans to provide retail credit in the form of salary-based loans (payroll lending). They
initially plan to target staff of Japanese-owned factories with small scale finance of K 189 200
87

Based on marketing material of respective banks.

86

to K 473 000 (USD 200 to USD 500). Eventually they want a loan offering of between K 50
000 (USD 53) and K 3 million (USD 3 171) in order to accommodate higher values for
motorcycles and generators.
Pawn shops offer loans using gold and clothing as collateral. Clients may receive about 95%
of the gold value as loan but may opt for smaller loans. Regulated pawn shops charge 3% per
month interest and interest and capital is only repaid at the end of the loan period. If clients
are unable to repay loan, the loan can be rolled over. In such cases the client pays only
interest for the next 3 months after which the loan can be settled. Loans may be rolled over
more than once and the pawn shop interviewed as part of this study noted that is not
unusual for loans to be extended over one or two years. The same pawnshop estimated that
about 30% of their clients request loans to be extended. Loan amounts are determined by
the value of the gold or clothing pawned. For the pawn shop interviewed, typical loans
against gold would range between K 700 000 and K 800 000 (USD 740 to USD 846) and loans
against clothing would be around K 20 000 (USD 21).
Bank personal loans constrained by collateral requirement. The survey of bank products
found two banks that offer personal loans that are not explicitly targeted for business or
asset purchases. CB Bank offers a gold financing term loan and an Easi credit loan, while
Yangon City bank offers a Personal Loan. Details on product features for these products
are not available. The limited number of personal loan products (other than hire purchase
loans) confirms the limited focus that banks have placed on the retail credit market to date.
As discussed in Section 5, one of the key reasons for this is the regulatory prohibition on
unsecured lending by banks.
Uncollateralised individual loans high cost and mostly only accessible through informal
sector. A prominent feature of regulated credit products is that all loans are either
dependent on collateral (commercial banks and pawn shops), group based (MFIs, cooperatives and the MADB), or a combination of being group based and membership based
(co-operatives). The INGO MFI loans noted above are small in both value and number and do
not make a significant contribution to the market. In reality, the only source for
uncollateralised individual-based loans is unregulated money lenders. AEON may change this
going forward by offering individual loans secured against payroll. At the time of this study,
they have, however, not yet started their operations.
Unregulated credit charged at a premium. Despite the fact that interest rates in the
unregulated market is much higher than the regulated market (as much as 10% to 20% per
month for unregulated money lenders), people still seem to utilise the unregulated market
to a large extent possibly indicating that the regulated credit market is not accessible and/or
unable to meet demand. Despite these high interest rates, consumers interviewed during
the qualitative research held a positive view of these money lenders and considered them
supportive when few other options are available.

7.6.

Demand for credit and levels of indebtedness

A key question in the current analysis is the demand for credit. It is not possible to consider
estimates of demand for credit without also consider levels of indebtedness and we consider
both these issues in this section.

87

7.6.1. Demand for credit

The demand for credit can be estimated in a number of ways. For the purposes of this study,
we will use total unregulated money lending as a static estimate for the demand for credit
currently not met by regulated providers.
Demand for credit estimated between K 3.6 trillion and K 5.4 trillion (USD 3.8 billion and USD
5.7 billion). As explained in Section 7.3.1, 9.2 million adults have outstanding loans with
unregulated credit providers with an estimated total outstanding loan value of between K
3.6 trillion and K 5.4 trillion88 (USD 3.8 billion and USD 5.7 billion). The total unregulated
usage, and proxy for demand, thus lies between this ranges of K 3.6 trillion and K 5.4 trillion.
The same process (described in Section 7.3.1) also allows an estimate of the demand for
rural credit as a sub-component of overall credit at between K 1.9 trillion and K 3.5 trillion
(USD 2 billion and USD 3.7 billion). Please note that this estimate is for loans outstanding;
loans disbursed would be higher.

Number of adults obtaining

loans from unregulated
providers
Total unregulated
(proxy for demand)

Total value of outstanding

unregulated loans (range)

lending 9.2 million

K 3.6 trillion K 5.4 trillion

Total
rural
unregulated 7.1 million
lending (proxy for rural
demand for credit)

K 1.9 trillion K 3.5 trillion

Table 17: Demand for credit

Source: FinScope 2013

7.6.2. Debt burden

The estimates of credit demand provided above needs to be contextualised by also
considering the current levels of indebtedness. This is particularly the case as some warnings
have been raised about debt levels for some consumer segments in Myanmar. Current levels
of regulated and unregulated debt may, therefore, exceed the debt capacity for some
borrowers.
The information available does not allow us to come to a definitive conclusion on
indebtedness but allows an exploration of current levels of debt and relative debt levels for
different consumer segments. Certain factors make it difficult to draw definitive conclusions
on debt levels. For instance, the short term nature of debt in Myanmar could mean that a
higher debt ratio would be more problematic. Whether debt is used productively or for
consumption would also have an impact, as productive debt should be measured against
revenue and not personal income. Unfortunately FinScope only allows us to measure debt
88

This would represent more than 450% our estimate of total regulated retail credit (total regulated credit excl. credit from
banks; see Table 10, page 59)

88

against personal income. In the following section we explore the debt burden by calculating
total (1) debt stock to annual income and (2) estimated monthly debt repayments as a
percentage of monthly income.
Debt stress as a ratio of debt stock over income89. As is shown in Figure 26 below, there is a
strong inverse relationship between indebtedness (using this measure) and level of income.
In the lowest income groups, adults earning less than USD 1 per day, total outstanding debt
to annual income was 237%. This was followed by indebted adults earning between USD 1
and USD 2 a day at 84%.

Figure 26: Outstanding debt to income ratio across income distribution

Source: FinScope 2013

Debt stress calculated as a ratio of debt repayments to monthly income. Debt stress levels
were also calculated for each of the target groups by estimating the monthly repayment as a
ratio of monthly income. For the purposes of comparison, only a best case scenario is
calculated where it is assumed that all loans are taken over 12 months and at 8.5% interest
per year90. This provides a baseline comparison of ability to repay and service debt burden.
In reality repayment burden will be higher as a large proportion of loans are taken over
shorter terms and at higher interest rates.
As mentioned in Section 7.3.1, 94% of adults who owe money disclosed the value of their
outstanding debt. This allows us to extrapolate the total value of outstanding debt for all
adults who are indebted in Myanmar (48% of adults), to approximately K 10.3 trillion (USD
10.9 billion), or an average of K 548 050 (USD 579) per indebted adult. Furthermore, the
average reported monthly income of all indebted adults in Myanmar is K 86 756 (USD 92).
Based on a best case scenario (described above, where all loans are taken over 12 months
and at 8.5% interest per year), the average indebted adult in Myanmar would spend 55% of
their monthly income repaying their debt obligation (see Table 18 below).
89

In a more diversified credit market it would be difficult to compare this measure across income groups as different groups
would have loan products with different maturities. In the case of Myanmar all debt is short-term making this a more
reasonable comparison.
90
Although total interest repaid would be lower for shorter term loans, the total size of the monthly repayment decreases as
the loan term increase. For the purpose of a best case monthly affordability assessment, a 12 month term is therefore used
instead of a shorter term.

89

Target group
Farming
Formal Enterprises
Informal Enterprises
Formal consumer market
Informal consumer market
Other
Total

% of
adults
currently
owing
61.8%
26.0%
41.7%
32.9%
49.8%
39.7%
47.4%

Average
monthly
income of
indebted
(Kyats)
91 534
212 839
100 730
128 806
55 862
74 353
86 756

Average
total debt
outstanding
of indebted
(Kyats)
641 234
1 259 174
784 563
308 045
264 907
452 782
548 050

Estimated
monthly
repayment
(Kyats)
55 928
109 825
68 429
26 868
23 105
39 492
47 801

Affordability
(Monthly
repayment
as % of
monthly
income)
61%
52%
68%
21%
41%
53%
55%

Table 18: Repayment affordability of indebted adults

Source: FinScope 2013

Debt stress level highest for farmers. While indebted adults in the Formal enterprises group
has the highest average outstanding debt (K 1.26 million/USD 1 331), the proportion of this
groups adults who are indebted is the lowest (only 26%). Conversely, indebted adults in the
Informal consumer market has the lowest average outstanding debt at (K 264 907/USD 280),
while 50% of adults in this market group is indebted. Farmers are the group with the largest
proportion of indebted adults at 62% and they have an average outstanding debt of K
641 234/USD 678).
Using this information, affordability of monthly debt repayment can also be calculated for
each economic group. Indebted adults in the Informal enterprises target group on average
would spend the highest proportion of monthly income to repay their debt obligation at 68%
of monthly income, followed by Farmers at 61% of monthly income. On the other hand,
indebted adults in the Formal consumer market will spend the lowest proportion of their
monthly income on debt repayment at only 21%, followed by indebted adults in the Informal
consumer market at 41%. If a typical rule of thumb for indebtedness of 30% as the
affordability threshold is applied, this would suggest that several target groups are
exceeding this. However, this rule only applies to consumption debt, and not to productive
credit (see discussion on productive indebtedness below).
NPLs may not accurately reflect indebtedness. Despite these apparent high levels of debt
stress, reported Non-Performing Loan (NPL) ratios are low for all financial institutions in
Myanmar (in the order of 1% - 2%)91. Current NPL ratios may however, understate actual
levels of non-performance (see Box 6 below for a discussion on why NPLs may be
underreported). This makes it difficult to verify levels of indebtedness using repayment
rates, however there have been reports of repayment problems with old agricultural loans
delaying the disbursement of new loans (Sar, 2013). Furthermore, qualitative research
revealed that on average, Myanmar households in the areas covered dedicate 30% of
monthly expenditure to interest payments. In addition, FinScope indicates that 2% of adults
(418 000) that currently have a loan took the loan in order to repay outstanding debt, while
91

The only apparent exceptions are the specialised rice companies. These were about 60% at the beginning of 2012, but there
was only 1 remaining as of June 2013. These specialised rice companies are reported to have folded as a result of non-payment
of loans.

90

11% indicated that they plan on repaying their current loan with a new loan. Finally, it was
also noted above, that the CBM has raised some concerns on credit quality for some banks.
In an environment where an increasing number of credit providers serve the same client
groups, it is appropriate that the credit bureau is prioritised to enable more careful debt
monitoring.
Box 6: Reasons why NPL ratios may be underreported

Reasons why NPL ratios may be under reported:

The official definition used for reporting non-performing loans may be too generous
and thus result in under reporting. The current definition classifies loans as doubtful
if they are overdue for more than 12 months and bad debt only once overdue by 24
months92.
The indications of debt refinancing (sourcing new credit to repay old credit, both
within an organisation but also between organisations) may potentially obscure the
true debt performance. This ensures low NPL ratios for the providers but potentially
significantly increases borrowing costs to the concerned households, increasing debt
levels but also causing significant financial stress. If financial services providers
follow international standards, this would not be possible.
Interpreting debt to individual or household income. While the above analysis flags high
levels of debt particularly for some target groups, it is not possible to conclude on the
degree of indebtedness based on this information. The first issue is whether debt levels
should be considered relative to household or individual incomes. The current analysis
considers debt levels relative to individual income. Consideration could be given to whether
the debt burden should be considered relative to household income rather than individual
income.
Considering debt relative to revenue generated. For farmers and owners of Formal and
Informal enterprises, it may also be misleading to state debt relative to reported income. For
farmers, it would for example be more appropriate to evaluate debt relative to the farming
revenue generated using the credit, assuming the reported income is likely to reflect the net
yield from farming activities (after debt has been repaid and other costs covered).
To evaluate this, it is possible to construct a model of farm revenue using an estimated range
for yield per acre (baskets) for paddy farmers. Assuming a price per basket of K 3 500 (USD
4), Table 19 below illustrates a revenue range by farm size based on two scenarios: a
comparatively low yield and comparatively high yield estimate (it is typical for Myanmar
paddy farmers to have yields of between 30 and 70 baskets per acre, but can be as high as
100 baskets for dry season paddy, but much less dry season paddy is grown). Based on this
model, farmers with a farm size of 1 acre would have revenue (on one crop cycle) of
between K 105 000 (USD 111) and K 245 000 (USD 259) while farmers with a farm size of 10
acres would have a revenue of between K 1 050 000 (USD 1 110) and K 2 450 000 (USD 2
590).

92

This issue of alignment with internationally accepted definitions for loan classification and provisioning was also raised in the
IMF Article IV consultation.

91

Acres
1
2
3
4
5
6
7
8
9
10

Revenue if yield is 30
baskets per acre
105 000
210 000
315 000
420 000
525 000
630 000
735 000
840 000
945 000
1 050 000

Revenue if yield is 70
baskets per acre
245 000
490 000
735 000
980 000
1 225 000
1 470 000
1 715 000
1 960 000
2 205 000
2 450 000

Table 19: Revenue estimates by farm size

Based on this revenue model, the following indebtedness ratios (debt to revenue) can be
calculated for farmers based on farm size and a yield range of between 30 and 70 baskets
per acre. Please note this calculation uses reported debt levels and reported farm size:

Acres
Own less than 1
acre
1 to 2 acres
2 to 3 acres
3 to 4 acres
4 to 5 acres
5 to 6 acres
6 to 7 acres
7 to 8 acres
8 to 9 acres
9 to 10 acres

Debt to revenue ratio if yield

is 30 baskets per acre
298%
178%
159%
124%
103%
101%
74%
99%
110%
69%

Debt to revenue ratio if yield

is 70 baskets per acre
128%
76%
68%
53%
44%
43%
32%
42%
47%
30%

Table 20: Debt to revenue ratios based for indebted farmers over farm size and yield range

Debt to revenue analysis suggests challenges for smaller plot sizes. To evaluate debt relative
to revenue, we assume that the debt is utilised to cover input costs of farming. Farming
revenue should, therefore exceed debt levels by a sufficient margin to provide a sustainable
income to the farmer. As can be seen from Table 20 above, under low-yield conditions and
current indebtedness levels, farmers with farms less than 6 acres in size would have debt
levels that exceed their harvest revenue (based on assumption of K 3 500/ USD 4 per
basket). However, under higher yield conditions, current indebted farmers have debt ratios
of only about three quarters or lower of their harvest revenue. However, farmers with farms
smaller than one acre would have debt levels which exceed that of their harvest revenue
under both low and high yield conditions. Furthermore, this ratio remains above 100% for
this segment even if price per basket assumptions are significantly adjusted upwards. This
group therefore raises some questions on sustainability of debt consumption, which
warrants further investigation.

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7.7.

Regulatory constraints and enablers

MFI regulations may potentially discourage entry and expansion in more challenging
markets. All MFIs are still adjusting to the new regulatory environment and its implications
for businesses. It is also likely to still take some time to process the full implications. Three
areas of regulation that may discourage and possibly inhibit expansion of credit to priority
areas such as rural and agriculture have been noted. These are interest rate (spread) caps,
loan size caps and access to capital.

One of the key areas of impact reported by MFIs is the reduction in interest rates
charged by MFIs as result of the regulatory cap. Prior to the cap, INGO interest rates
were reported to be in the order of 3.5% per month. This rate yielded a nominal annual
rate of 42% (effective rate of 51%), well below the private pawnshops and comfortably
in the third cost segment indicated above. Further interaction with other categories of
MFIs will be required to come to firmer recommendations on the cap. Even at this rate
there were some questions about sustainability but the INGOs indicated that they could
maintain their business and explore growth in some challenging priority areas such as
rural and agricultural loans. Under the current regulatory dispensation, which caps
interest rates that can be charged by MFIs at 2.5% per month, MFIs will be largely
confined to urban areas and will struggle to grow substantially unless subsidised. There
is ample need for lower-cost credit in urban areas and MFIs can meet some of this.
However, if expansion into rural areas remains a public objective, the current interest
rate spread ceiling may have the unintended adverse effect of hindering achievement of
that objective.
Based on current findings, we suggest that careful consideration should be given to the
caps on loans sizes being considered. At the current stage of development of the market
it may beneficial to allow MFIs to determine the maximum size of loans extended by
their organization except for considerations of prudential supervision (particularly
related to single borrower risk and related party risk). Consultations with industry
stakeholders have noted discussions on a potential cap on loan sizes for MFIs. Setting
such a cap too low may undermine the outreach, poverty impact and sustainability of
the microfinance sector. A cap on the size of loans may risk of cutting off existing MFI
clients and excluding small and microenterprise from non-collateralised funding sources.
The exact target group for microfinance, however, remains undefined. Based on the
information received to date, existing MFI loans extend up to K 3 million (USD 3 171).
Industry consultations revealed that as many as 10% of current industry clients may be
excluded by the proposed loan cap. While one interpretation of this information may
suggest that these MFIs are moving away from the poorest clients, it may also reflect the
success of these MFIs in lifting their clients out of poverty. MFIs interviewed reported
that these clients have graduated over time to larger loans. The MFIs offering such loans
noted that these clients are still low income with little access to other regulated sources
of credit. In addition, evidence provided by MFIs suggests that loans larger than K 500
000 (USD 529) may have higher impact than smaller loans as they tend to create more
employment opportunities. Some of the newly registered local for-profit MFIs also noted
that limiting extended loans to smaller amounts, such as for example below K 500 000,
would be too restrictive for their intended target market. This would not allow the MFI
to grow with its customers and it would not allow the MFI to have a balanced portfolio
of still low-income people. In addition, the potential cap on loan sizes may exacerbate
the already substantial financing gap between loans offered by MFIs and those offered
93

by commercial banks. Loan data for banks suggest that the average outstanding loan for
banks are around K 70 million (USD 73 995), i.e. the average loan disbursed will be
higher. The result is a substantial gap between current maximum loans offered by MFIs
of K 3 million and the loans of commercial banks. Government has previously recognised
this funding gap and has made subsidised wholesale funding available to SMIDB to fund
these entities (an estimated 126 000 MSMEs and 40 000 microenterprises). This has
however failed to achieve significant scale due to collateral requirements imposed by
SMIDB with only 40% of its current client base of 550 obtaining MSME loans to-date.
Sufficient information is not available to judge the levels of loans required by micro,
small and medium enterprises respectively and this will be another important
consideration in determining target market segments for MFIs and loan-sizes demanded
by poor and low income people.
All MFIs currently find it difficult to raise capital and indicate that this is at least in part
due to regulatory and supervisory complications in sourcing both foreign and domestic
capital. Regulatory practice currently requires Myanma Microfinance Supervisory
Enterprise (MMSE) to approve all increases in capital. Several MFIs (across all subcategories) have reported delays and challenges in obtaining approval for such capital
increases. Deposit-taking MFIs are also limited in their ability to use deposits as funding
for loans.

7.8.

Gaps and opportunities

Commercial banks serving insignificant proportion of retail credit market despite accounting
for largest proportion of credit market by loan volume. The total credit market is estimated
as K 10.3 trillion (USD 10.9 billion) and 18.9 million credit clients. Commercial banks are
providing the largest proportion of credit by volume (39.8%% of the total credit market, see
Table 8 on page 60 (Section 7.3.1), but is almost negligible in terms of the proportion of the
overall credit client base that they serve (0.3%). This is the result of commercial banks focus
on corporate clients as well as the regulatory requirement for collateral, which will only be
removed once the credit bureau is in place. Furthermore, the current systems and capacity
constraints experienced by virtually all commercial banks (absence of MIS systems and credit
assessment technologies) militate against the delivery of large-scale retail credit in the short
to medium term. While commercial banks are expanding their branch infrastructure for
savings (see Section 8.3.1), this will therefore not result in commercial banks reaching a
significantly larger proportion of the retail credit market over the short term.
Dynamics of commercial banking landscape may change significantly. The introduction of
hire purchase products and the potential of banking company payrolls that may result as
spin-offs of banking large corporates may present interesting opportunities that could
change retail banking landscape. The dynamics of the banking landscape will also change
substantially with the introduction of joint ventures with foreign companies expected to be
allowed within the next year. CBM has also announced that it will consider opening up
unsecured lending for banks once the credit bureau is implemented, which would also
drastically change the banking landscape.
Outside of commercial banks, most credit provision happens in unregulated market.
Unregulated credit providers account for 87% of non-commercial bank loan volumes and
54% of non-commercial bank credit client volumes (see Table 21 below). FinScope and

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qualitative research indicates unregulated credit is not only used for consumptive purposes,
but also as productive credit.

Providers
Unregulated money lenders
Other unregulated providers
Pawnshops
MADB
Unregulated agricultural input
providers
Co-operatives
MFIs
RCSs

Proportion of total loan volumes of selection of

providers
60%
27%
7%
3%
1%
1%
1%
0.1%

Table 21: Comparison of credit providers excluding commercial banks

Source: Supply side data, FinScope 2013, authors calculations

High cost of unregulated credit. As discussed in Section 7.3.1, unregulated credit is provided
at much higher interest rates than regulated credit (60% to 240% and higher versus 8.5% to
36% for regulated). Although no indication of widespread consumer abuse (through for
example lending and debt collection practices) was found, unregulated credit clients still pay
a much higher cost for unregulated credit then they would did they have access to the
lower-cost regulated products. Migrating unregulated credit clients to regulated products
could therefore have significant economic (and welfare) benefits for this market.
Pawnshops not providing intermediation of capital. Although pawnshops as a group are the
biggest regulated providers other than commercial banks, they essentially do not provide
intermediation of capital, and only provide a liquidation facility for saving held in gold.
Substantial provision of agricultural credit. Table 22 below shows the share of the regulated
credit market other than commercial banks or pawns shops (but including unregulated
agricultural input providers). Agricultural providers as a group (MADB, Input providers93 and
agricultural co-operatives) account for 75% of non-commercial bank (and non-pawnshop)
clients and for 64% of the of non-commercial bank (and non-pawnshop) loan volume. This
group is also the biggest of all regulated providers in terms of number of clients, with a
combined client pool of at least 3.5 million (assuming no overlap), almost rivalling
unregulated moneylender credit clients as a group. Furthermore, regulated credit
penetration is highest in rural areas, due to high take-up amongst Farmers (driven largely by
MADB credit) and Farmers being the largest group in the population. As Farmers constitute
the biggest economic group, expanding access in this target group will have a big impact on
overall access to finance in Myanmar.

93

Input providers are semi-formal

95

Providers
MADB
Unregulated agricultural input providers
Co-operatives
MFIs
RCSs

Proportion of total loan volumes

of selection of providers
46%
18%
15%
20%
1%

Table 22: Comparison of regulated credit providers excluding commercial banks and pawnshops

Funding constraint for regulated lenders Other than commercial banks and MEB who have
demonstrated the ability to raise voluntary deposits, all major regulated providers are
experiencing funding constraints based on the inability to raise voluntary deposits. In some
cases regulation is also constraining funding (like MFIs).
Regulated credit take-up mostly driven by subsidized credit. Due to the largest take-up of
regulated credit being state-owned (MADB), as well as the presence of INGOs (and NGOs)
in this market, the majority of the regulated non-commercial bank credit market is provided
on a subsidised basis. Together, MADB and INGOs94 represent 68% of the regulated noncommercial bank credit market95 client base and 74% of the loan book for this group.
Under current conditions rural outreach depend on access to subsidised funding. MADB (and
PACT to a lesser extent) are also the only providers with already demonstrated ability to
provide rural credit at scale. Agricultural co-operatives have recently started to provide
credit to members, and their credit portfolio seems to have expanded rapidly over the last
year. Although still very small compared to MADB (1% of MADBs loan book, 25% of clients),
their agricultural credit portfolio is already comparable to that of PACT (64% of loan book,
74% of clients). Both MADB and PACT are benefitting from subsidised wholesale funding and
would otherwise not have been able to raise sufficient deposits amongst its clients.
The largest priority market in Myanmar is Farmers. FinScope revealed that almost half of all
adults in Myanmar are involved in farming and farmers as a group already has the highest
take-up of regulated credit (38%). Despite this outreach, 40% of farmers borrow from
unregulated providers or from family and friends. Qualitative research confirmed that there
is scope to both increase the quality of credit provision to this market, as well as extend
access to regulated credit provision. Increasing the quality of regulated provision is intended
to mitigate the need to borrow from multiple sources including the unregulated sector,
while increasing access to regulated credit is intended to migrate current unregulated
borrowers into regulated provision.
Current debt levels should be taken into account. Before actions can be recommended, it is
important to understand the current capacity of the target group to take on more credit.
There are some indications that current levels of credit are unsustainable for some segments
of households in Myanmar (for instance indebted farmers with less than one acre of land). In
order to confirm this, a further evaluation of their capacity to take on more debt should be
conducted as part of the financial inclusion strategy and may require a more detailed diaries
exercise to understand the use of credit and particularly the interaction with both regulated
and unregulated credit. This is particularly critical as there is no credit bureau that can track
94
95

Of which PACT constitutes 74% of the (INGO) client base

Not including unregulated agricultural input providers.

96

clients taking loans from multiple (including unregulated) sources. However, it should be
noted that the debt burden on credit consumers is to a significant degree a function of the
returns on their investment (e.g. there is a need to increase the returns from agriculture
production). This can only be partially addressed by the financial sector and financial sector
policy. Although there is obvious need for increased incomes, especially for farmers, such
recommendations do not fall under MAPs mandate.
High risk exposure of agricultural credit. The demise of many specialised rice companies is
attributed to the severe 2011 floods which destroyed crops and thus the ability of farmers to
repay debt. Insuring credit against disaster risk could mitigate this situation and stabilise
credit providers operating in the agricultural market.
MADB as largest aggregated provider. MADB is the largest single provider of credit based on
number of clients and is perfectly positioned within the priority market (agriculture).
Furthermore, they provide the most affordable credit in this market (MADB is up to 30 times
cheaper than some unregulated providers), therefore existing unregulated credit clients
would benefit significantly from gaining access to MADB provision. Although MADB is
currently subsidised, they would still be significantly cheaper than any other provider able to
operate in rural areas should they revert to former unsubsidised interest rate levels. MADBs
portfolio has also been consistently growing over the last 5 years, and no other provider has
yet been able to serve the target group to the same extent. MADB have the largest
infrastructure outreach in rural areas and current clients have a positive attitude towards
MADB. Their products are suitable and appropriate to the current low-income environment.
They operate on a decentralized basis allowing them to manage their portfolio at source by
relying on village loan committees for loan approvals or group lending models to ensure
reasonable repayment rates. This is critical in the absence of an electronic management
information systems or a credit bureau.
Other critical target groups not in MADBs focus. There are other critical (if comparatively
smaller) markets in Myanmar that also requires access to credit in order to facilitate
important aspects of development. The creation and development of small enterprises for
instance is critical to facilitate the long term transformation from and agriculture based
economy to production. Informal enterprises are in fact the next largest economic group
(although Informal consumers are the largest target group) after Farmers consisting of 4.7
million adults, 52% of whom are in rural areas. Regulated credit take up among Informal
enterprises is only 11% while 36% borrow from unregulated sources or from family and
friends. MFIs can also offer more advanced and longer term agricultural finance to
compliment MADB.
The challenge of rural expansion. Even though the largest segment of the population is rural,
and any major attempt to accelerate the expansion of access should also include a rural
focus, some providers are unlikely to serve the rural market soon due to several factors. The
major challenges are discussed in the remainder of this section.
Within current constraints, MFIs are unlikely to provide rural credit at scale. Although the
Myanmar governments intention is for the MFIs to focus on rural areas, the majority of MFI
clients are reported to be urban. This is in part due to regulatory constraints, as current
interest rate and loan caps do not enable or incentivise formal MFIs to enter into new and
more challenging markets (even those with developmental mandates). However, MFI
97

capacities are also limited. With a few exceptions, MFIs (and particularly INGO and NGO
MFIs) may find it difficult to absorb large increases in funding. Their systems and capacity
seem to be limited and they appear not yet to have the operational infrastructure to achieve
scale (or may face operational risks if they do push scale too quickly). As noted, most MFIs
are in the process of implementing MIS systems or considering this. Combined with
strengthening of operations and business processes, this may over the medium term put
them in a position to accommodate further expansion. Even if feasible, expansion of capacity
needs time and can only be achieved through intense and extensive capacity building efforts
the availability of which is also limited and further constrained by generally low levels of
education. Given the current regulatory and market situation, initial indications are that
MFIs are unlikely to rapidly expand credit provision on a large scale, not only in urban areas,
but more so for rural areas which is more challenging.
PACT is the exception. PACT seems to be an exception when constraints noted by other MFIs
are considered. PACT is much closer to self-sustainability than other INGOs/NGOs, although
it is still dependent on its current subsidised donor funding and the transformation of the
investment will have a significant impact on its ability to operate and expand. PACT also has
an extensive footprint, which includes outreach to rural areas. Furthermore, PACT believes it
can rapidly increase scale and has plans to do so going forward.
Co-operative credit confined to urban areas and loan volumes limited by funding. Cooperatives have been working under similar regulatory restrictions as MFIs (e.g. the interest
rate cap of 2.5% per month). Even before the Microfinance Law was passed, such regulations
already applied to non-MFI co-operatives. Similar to non-co-operative MFIs, these
circumstances have resulted in most of the financial co-operatives operating in urban areas
as a result of low real returns in rural areas versus the higher returns in urban areas due to
lower transaction costs for providers and clients alike. Current information also suggests that
existing co-operatives may not grow their loan portfolio rapidly if left unassisted. Funding for
on-lending has been noted as a key constraint. It results in co-operatives only providing
loans to a limited proportion of members at any point in time. Ultimately, while the bulk of
the growth in the regulated MFI sector in the near future is likely to come from existing cooperatives registering as MFIs, the organic growth of these co-operatives is likely to be
limited and urban-based. In this respect, the seed capital raised by the Central Co-operatives
Society (CCS) has provided valuable loan capital to catalyse the development of MFIs. The
CCS funding was, in turn, sourced from the Co-operative Bank and collateralised by the
assets of CCS and some of its member co-operatives. Establishment of new co-operatives
using this seed capital may generate new clients that may ultimately be transferred into the
MFI space if they become large enough.
Nature of co-operative products not suited for longer term investment. Although the nature
of provision by agricultural co-operatives is not yet understood, current credit provision by
financial co-operatives is not suited for longer term investment or asset finance. Such longer
term financing would be required for further development of both the agricultural but also
the Formal and Informal enterprises markets. Current co-operative loans are limited to
working capital with a high repayment frequency, low values, short term and the group
repayment guarantee structure. These loans are useful for traders and other businesses with
low values and high turnover. The loans enable these to grow to larger micro-enterprises but
it will then require larger and longer-term loans to grow further. There is also an overall
heavy reliance on group loans by many regulated providers (MFIs, Co-operatives, MADB) in
98

the absence of collateral and formalised businesses (i.e. no formal financials and business
plans).
Substantial loan gap between MFIs and banks. There is also a substantial gap in the credit
market in terms of loan size. Co-operatives only provide loans up to K 300 000 (USD 329).
MFIs mostly provide loans of up to K 500 000 (USD 529) due to Government focus on
implementing a cap at this level, but with some isolated cases of loans as high as K 1.7
million (USD 1 797). Although banks now have introduced a product that start as low as K
100 000 (USD 106), average bank loans is estimated around K 70 million (USD 73 995)
suggesting that the bulk of loans are at very high values.
Pent up demand for credit. As discussed in Section 7.6, unregulated credit take up can be
used as a proxy for latent demand for credit. The substantial proportion of current
unregulated provision indicates significant absorption capacity for regulated credit (moving
from unregulated to regulated). With the size of current unregulated loan volumes
estimated at more than 450% of total regulated retail credit, i.e. total regulated credit
excluding credit from commercial banks, the regulated market for credit would have to
expand substantially in order to absorb unregulated credit clients (see Table 5, page 56 and
discussion in Section 7.6.1).

99

8.

Market for Savings

This section considers the current take-up of savings and potential use cases for savings, as
well as the providers, products, distribution, and regulation that drive the supply of services.
An assessment of these critical dimensions leads to an identification of gaps and
opportunities in the market for savings.

8.1.

Savings landscape and take-up

Low savings measure by number of savers and as percentage of GDP. Of the total adult
population in Myanmar, 62% do not report any savings and amongst those who do save,
saving with self, family or friends dominates the savings landscape. In the formal sector,
Duflos et al. (2012) reports a very low deposit to GDP ratio of 12.6% in 2011, as compared
with bank deposit to GDP ratios of 32% in Indonesia, 32% in Cambodia, 28 % in Lao PDR, and
99.7% in Thailand (DataMarket, 2014). However, there are several forces currently in play
that are playing a positive role in driving regulated savings deposits.
Microsavings a government priority. The public policy imperative to boost domestic savings
is undeniable. Myanmar will need to meet significant funding needs through both domestic
savings and foreign capital to channel into investments to fuel GDP growth (McKinsey 2013).
Furthermore, the banking sector in Myanmar is dependent on deposits as their primary
source of funds (because of the lack of domestic capital markets), with the exception of
some SFIs which receive budgetary support. President Thein Sein and his government have
identified microsavings and credit enterprise as one of the eight tasks for the Government of
Myanmar to address poverty and the Ministry of Finance and Revenue has been charged
with this initiative.
Many drivers of the preference for saving with self, family or friends. There are several
historical factors that may contribute to the prevalence of saving with self, family or friends.
A preference for holding savings in cash, gold, and livestock appears to be a response to
persistent, high inflation rates of above 20% (prior to 2009) which eroded the value of
monetary savings. The current low incidence of crime and lack of easily accessible savings
infrastructure may not incentivize clients to deposit their funds in regulated institutions for
safe-keeping. Furthermore, savings clients in Myanmar have been subject to many historic
upheavals that have caused them to lose trust and confidence in the regulated financial
sector. Notably, demonetisation that accompanied nationalisation of the banking sector and
a banking sector crash in late 2002 where depositors were adversely affected (see Section
2.1), are likely to have affected attitudes towards savings.
Take-up of savings
Low levels of absolute savings in Myanmar. While 56% of adults plan to save in the next 12
months, only 38% of adults indicated that they currently have savings in some form. 62% of
the adult population of Myanmar does not report any savings. Use of regulated financial
institution to save money is uncommon with the majority of savings conducted at home or
with someone they know (see Figure 27 below).

100

Savings Strand

N(Total)=39 777 041

Total

6.2% 6.0%

25.7%

Rural 4.1% 5.0%

Urban

10.8%

0%

62.2%

25.3%

8.1%

10%

65.6%

26.5%

20%

30%

54.5%

40%

50%

60%

70%

80%

90%

100%

% of Total, Rural or Urban adults

Regulated savings

Unregulated savings only

Saving at home or someone you know only

Not saving

Figure 27: Use of savings by source of provision

Source: FinScope 2013

Savings more prevalent in urban areas and urban savers save more. While credit usage is
higher in rural areas than in urban areas, the total use of savings (from all sources of
provision), is lower in rural areas than in urban areas. Urban areas also had higher take-up of
regulated savings instruments, 11% of adults, while rural areas only had 4% of adults holding
savings with a regulated institution. Urban savers also disclose an average total savings
amount at K 435 254 (USD 460) which is higher than the rural average of K 279 989 (USD
296) and the total average of K 340 346 (USD 360), as seen in Figure 28 below.

Figure 28: Average total savings by region.

Source: FinScope 2013

Saving at home is pervasive. Approximately 16% of adults indicated that they save in cash at
home while an additional 14% indicated that they have saved in this manner in the past.
101

Focus group discussions revealed that it was common to have a piggy-bank at home to
save money. Savings in livestock was the second largest savings vehicle with 11% of the
population indicating that they save by purchasing livestock and an additional 5% indicated
that they have used livestock as a means of savings in the past. Savings in gold was the third
largest savings category with 10% of the population reporting to save in gold and an
additional 14% indicating that they have saved in gold in the past.
Preference for savings outside of regulated institutions. Qualitative research revealed that
bank accounts were viewed as burdensome, in terms of requirements, inconvenient and the
interest rates offered were considered too low to justify the use of accounts. Some
respondents also felt that the amounts they saved were too small for banks and that should
they require the money for emergencies, obtaining the funds from the bank would take time
and effort such as travelling long distances. Saving in gold and in piggy-banks were preferred
due to low transaction cost and the ability to pawn gold if cash is required. The use of these
savings mechanisms is further reinforced by relatively low crime rates as none of the
respondents mentioned being robbed as a concern.
The target groups vary in their take-up of savings products. Savings levels and means of
savings differ significantly by target group and provide indication of opportunities for
mobilizing savings. Table 23 below captures the basic features of savings behaviour for each
group: Average total savings, average monthly savings, and percentage take-up of savings
product by source of provider. Notably, across the groups we see:
Average total savings across the groups, varies from K 609 147 (USD 644) for people for
individuals who work at Formal enterprises down to K 156 183 (USD 165) for the
Informal consumer market.
Average monthly savings across the target groups, ranges from K 20 116 to K 75 905
(USD 21 to USD 80). By group, this represents a substantial portion - between 23% and
46% - of average monthly income for those who save.
Informal enterprises report the highest monthly savings both in absolute amount, and as
a percentage of average income of those target group members that report savings.
However, they report the second lowest level of (4%) regulated savings.
Those who work in the formal sector (Formal enterprises and the Formal consumer
market) save more than the other target groups and save more commonly in regulated
institutions than the other target groups.

102

Average
total
savings

Average
monthly
savings

Savings as
% of
average
96
income

Farmers

K 309 412

K 25 805

23%

Formal
enterprises

K 609 147

K 67 108

Informal
enterprises

K 426 282

Target group
Farmers
12m adults
Formal
enterprises
2.5m adults
Informal
enterprises
4.7m adults
Formal
consumer
market
1.7 m adults

Employees of
formal private
companies
and
Government
employees
Farm workers,
Salaried
private
individuals,
Piece and
casual
workers,
Remittance
dependents

Informal
consumer
market
8.5m adults

Unregul
ated
(only)

Family,
friends
or self
(only)

6%

5%

29%

61%

28%

17%

8%

38%

37%

K 75 905

46%

4%

11%

29%

56%

K 244 554

K 28 898

24%

17%

11%

26%

46%

K 156 183

K 20 116

25%

3%

5%

18%

74%

Economic
group

Regulated

Excluded

Table 23: Savings by economic group.

Source: FinScope 2013

8.2.

Use cases

Both regulated and unregulated savings behaviour is limited in Myanmar: only 38% of adults
report saving in some way. A total of 57% report that savings is about putting money aside
to stop it from being spent immediately. Connecting the take-up of regulated and
unregulated savings products with the motivations and use for savings allows us to
formulate and consider four relevant use cases for individuals savings in Myanmar,
recognizing that individuals will identify and have to fulfil more than one use case for
savings.
Use case 1: Short-term savings for consumption smoothing. Short-term savings behaviour
with a demand for a savings tools with generally high liquidity appears to dominate. Of the
total respondents, 20% report saving for their living expenses (consumption). Only 4% of the
population report using savings to respond to adverse changes in the price of goods such as
basic groceries. Focus group discussions reveal that savings are often considered necessary
to smooth incomes for the large proportion of the labour force with cyclical income. Savings
are critical to cover expenses during the rainy season when income decreases significantly.
For example, farmers (a target group), reported buying gold at harvest time which would

96

For those who save only. Monthly reported savings as a percentage of monthly reported income.

103

then be pawned or sold later when money was needed. To meet this use case, proximity and
easy access of savings appear to be paramount to cope with short-term needs.
Cash savings is accumulated, often in a piggy-bank in the house, with 16% of adults saving
this way. Home-based savings have virtually no restriction on liquidity and appear to be lowrisk for Myanmar households given the low incidence of crime. The relative popularity of
savings accounts at SFIs and commercial banks (see below) as opposed to more liquid
current accounts and less liquid fixed deposit accounts at commercial banks is testament to
the need for short-term savings. This would suggest that some clients do see bank deposits
as a reliable store of value for savings, or that clients are attracted by the interest earned,
which is a drawback of saving at home. Saving in physical assets, such as gold, is often
characterized as a larger value, long term savings device with low liquidity. However, in
Myanmar 10% of adults save in gold or jewellery, some in the smallest of gold trinkets such
as earrings. The ubiquitous presence of pawnshops (there are 1842 registered pawnshops by
local governments and 184 state-owned pawnshops nationally under the MSLE, see Section
7.3.6) that are at least somewhat trusted, has allowed individuals to use gold as collateral
and easily liquefy savings to meet consumption smoothing needs.
Use case 2: Larger, medium-term savings for unplanned eventualities such as health
emergencies or anticipated needs such as education. Unplanned eventualities (risks) and
expected larger expenses are amongst the top reasons for saving: 11% of adults save for
medical expenses (planned or emergency), 8% save for a non-medical emergency and 6%
save for education. The most popular reported uses of savings to respond to risks also
highlights the use case for larger savings for unplanned incidents: 8% report using savings to
cope with needs for medical attention in the household, 4% report using savings to cope
with harvest failure of crop loss, 3% report using savings to respond to drought, poor rainfall,
or lack of access to water for farming, and 6% have used savings to pay for unforeseen
education fees. These risks were also amongst the risks that respondent had experienced.
Saving in gold ornaments and jewellery is also used to meet needs for larger savings of a
longer duration, which may benefit from some restrictions on liquidity. As a physical asset
with greater restrictions on liquidity, this may be the more traditional use for savings in gold
and more relevant to higher income segments: as income levels increase, pawning gold may
not be a desired choice except in dire circumstances. At the same time, savings in gold may
become larger (bigger ornaments) and less divisible so they are considered as longer term
instruments. Savings accounts are the most popular banking product (though still small at
4% of adults in Myanmar), and this tool may also be used for building up savings for the
medium-term.
Use case 3: Compulsory savings for loans. MFIs and co-operatives collectively report around
1.1 million clients with compulsory savings (as requirement for accessing loans). These
entities report challenges in attracting voluntary savings from these same members. SFIs
such as MADB have also been most successful in mobilizing savings tied to the promise of
credit for agricultural inputs through their rural savers programmes. A total of 0.4% of
adults in Myanmar report holding an MADB account when surveyed but 3% report having an
MADB savings account in the past (presumably when MADB still offered this service). At the
level of take-up, MADB savings were the second most used regulated savings product, just
behind take-up of co-operative savings products. Similarly, savings in co-operatives are tied
to the promise of loans and are withdrawn when they are not required.
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Use case 4: Longer-term saving for investment and productive use. Focus group discussions
showed that respondents have a keen awareness of the difference between savings and
investment activity, and respondents felt that investment provided a much more lucrative
return than regulated savings. It was reported that 4% of adults save to start or expand their
business, and 4% save to buy farming equipment. Buying a home was not highlighted as one
of the reasons respondents save. However, of the adults surveyed that indicated that they
own the house they live in, 81% report that they bought their home with their own savings.
The demand for a long-term savings tool is illustrated by the high popularity of livestock as
an unregulated savings product: approximately 11% of the adult population currently save
through livestock. Of the total adult population 94% that buying livestock with surplus cash
is a profitable form of savings, 64% did not believe that buying livestock for savings was risky
and 94% were comfortable with selling livestock for cash when needed. As mentioned
above, gold may also be a long term form of savings. An interview with one household97
revealed that the household actively saved in gold over the longer term, in order to get
enough money to invest in building a dwelling from which they can receive rental income.
Investments in small businesses, which constitute a large part of Myanmars predominantly
informal economy, also seem to be a lucrative use of savings.
The range of use cases demonstrate a need for a variety of savings products offered by a
variety of providers that are explored later on in this section.

8.3.

Providers

Only banks and SFIs are allowed to mobilise savings from the general public. Though savings
mechanisms with self, family and friends are prevalent, the regulated financial sector commercial banks, SFIs, regulated MFIs, and financial co-operatives also offer savings and
deposit facilities. The FinScope survey results indicate that SFIs serve the largest group of
adults in terms of savings products (4% of adults save with an SFI), followed by MFIs (1%),
private banks (1%) and finally co-operatives (0.5%)98.

97

Demand side interview during a supply side consultation with an unregulated money lender
Please note: these four groups adds up to more than the regulated savers as per the savings access strand (6% of adults save
with regulated financial services providers) as there are overlaps between the 4 groups.
98

105

3.5%
SFI savers

1 377 737
1.4%

MFI savers

539 973
1.3%

Private bank savers

526 890
0.5%

Co-operative savers

191 691
0

200 000 400 000 600 000 800 000 1 000 000 1 200 000 1 400 000 1 600 000

number of adults

% of adult pop

Number of adults

Figure 29: Usage of regulated savings products

Source: FinScope 2013

Data from providers highlights the large number of accounts at private banks, which may be
indicative of clients holding multiple accounts, the presence of dormant accounts, and
corporate accounts at the private banks that may not be identified in the survey of
individuals.

Number of
accounts
Deposit volume
(K millions)

Commercial
banks

SFIs

MFIs

Cooperatives

Total

2 000 000

4 450 000

690 000

880 000

8 020 000

99

2 990 685

12 126

35 212

9 098 453

6 060 430

Table 24: Number of deposit accounts by provider type

Source: Authors estimates based on annual reports and interviews.

It is important to highlight that only the banks and SFIs are able to mobilize savings from the
general public, while MFIs and financial sector co-operatives are limited to taking deposits
from their members. Across the providers that offer deposit services, it is clear that low
income clients are more often served by the MFIs and co-operatives. To better understand
which client segments are served by which providers, we look at the average monthly
income of users/clients by regulated provider type (regulated and unregulated) as depicted
in the graph below. Users of MFIs and co-operatives report the lowest monthly income, on
average (lower than K 100 000 (USD 106) per month which falls both below the average
monthly income estimated for Myanmar and below the minimum wage for day labourers.
Banks and SFIs report average monthly incomes of K 275 241 (USD 291) and K 175 448 (USD
185) respectively, both much higher than the average income for Myanmar of K 93 527 (USD
99) per month. The low average income of MFI and co-operative clients is indicative that
these providers are serving a lower income market segment.
99

Author estimates for 2013 based on bank annual reports, supply side interviews, and 2012 CBM Annual report. Please note
the high growth rate of bank deposits as illustrated in Figure 25 in Section 7.3.2.

106

Average monthly income by provider saving groups

600 000

35%

489 291 30%

500 000

25%

Average income

400 000
20%
300 000

275 241
13.9%

15%

175 448 197 566

10.8%

200 000

PACT monthly wage

6.5%

97 624

100 000

76 544

0.5%

1.3%

10%
Average income for Myanmar

3.4%

79 203

1.4%

121 391 128 532

115 980

153 686

5%

"Min wage" for day labourers

2.3%

1.3%

0.1%

*Livestock and Gold also included in

family/friends/self

0%

Providers
% of pop

N=39 777 041

Average income

Figure 30: Average monthly income by savings groups.

Source: FinScope 2013

8.3.1. Commercial banks

Commercial banks largest deposit takers from largely high-income and urban population.
The FinScope survey indicates that approximately 526 890 adults hold accounts at
commercial banks. At the same time, estimates show that as a group, commercial banks
have the largest number of deposit accounts, numbering roughly 2 million. This discrepancy
is either a reflection of multiple account holders, the prevalence of corporate accounts, or
possibly reflecting some dormant accounts. Using total bank deposits as reported in the
CBM Annual Report 2011- 2012, we estimate the average deposit size in the private banking
sector is K 2.1 million (USD 2 262) a relatively high balance indicative of higher value
account holders.
Removal of regulatory constraint triggered commercial bank expansion to raise deposits. It is
important to note that the banking sector in Myanmar is dependent on deposits as their
primary source of funds (because of the lack of domestic capital markets). Still, to date they
have reached a limited segment of the population. Until recently, banks faced several
hurdles in increasing the outreach of deposit services. Until 2011, the banks faced regulatory
limits on the deposits they could mobilize relative to bank capital, which contained deposit
growth. Banks were only permitted to hold deposits equal to seven times their paid-up
capital. In turn, banks lending was constrained by a ceiling on banks loan to deposit ratio of
80%. Banks reached these limits as lending to corporate clients grew quickly and had to be
curbed due to capital constraints. After gradual decreases, the limit on the deposits a bank
could hold was abolished in 2011. Spurred by the removal of these limits and encouraged by
early successes, banks such as Yoma and KBZ are pursuing branch (and mini-branch)
107

% of adult population saving with institution

30.7%

Kyats, million

expansion strategies to townships to attract new depositors to fund their lending. Growth in
deposits of 86% and 64% year on year in 2010-11 and 2011-12 respectively appears to
confirm this strategy.
4 500 000
4 000 000
3 500 000
3 000 000
2 500 000
2 000 000
1 500 000
1 000 000
500 000
-

4 273 481

2 597 872
1 391 895
720 060

FY 2007-08

967 835

FY 2008-09

FY 2009-10

FY 2010-11

FY 2011-12

Bank Deposits by Financial Year (FY)

Figure 31: Private bank deposits

Source: CBM annual report

8.3.2. State Financial Institutions

MEB leverages branch infrastructure and brand to raise voluntary deposits. Wholly stateowned financial institutions, the MEB and MADB play a significant role in mobilizing savings
with 2.1% of adults (826 940 adults) report savings at an SFI (one of these two institutions).
However, supply side data from these two SFIs indicate a much larger client base: MEB
report approximately 1 million deposit accounts while MADB reported 3.45 million deposit
accounts and a saving deposit balance of K 14.7 billion (USD 15.5 million) in August 2013.
This may be a sign of a large number of dormant accounts, which may be explained by a
recent decrease in the savings held in MADB in particular. SFIs are not under the jurisdiction
of the CBM and are often subject to different regulations or accounting standards.
MADB recently faced a massive withdrawal of savings. MADB has an explicit mandate to
mobilize savings, however, it has succeeded mainly to mobilize compulsory deposits and
recently faced a collapse of savings in this area. In August 2013, MADB reported a savings
deposit balance of K 14.7 billion (USD 15.5 million), a significant decrease from the deposit
base of approximately K 87.6 billion (USD 92.6 million) reported at the end of 2011/12.
There are two reasons offered for the collapse in savings: The bulk of MADB deposits are
classified as rural savings deposits and collected by MADB under a 1993 scheme to
encourage farmers to open MADB savings accounts to mobilize rural savings. Under this
ongoing scheme savers are attracted by their ability to borrow a multiple of their savings to
finance farm development expenses such as fertilizer and machinery. In the early days 25%
of the loan amount had to be saved to access a loan but this ratio has changed over time.
Mobile savings units were instrumental in extending outreach to clients of the rural savers
program.
MADB indicates that in 2012 farmers faced low prices for their paddy and crop failures which
caused many of them to withdraw their savings. In addition, the Minister of Agriculture and
Irrigation decreased the 50% compulsory savings needed to take out a loan under this
108

scheme to 30% as a response to paddy crop failures, contributing to the massive withdrawal
of savings in 2011/12. This lower level of deposits is likely to persist: in 2012, the Ministry of
Irrigation and Agriculture decreased the interest rate on loans while maintaining the same
retail deposit interest rate, causing the MADBs interest margin to shrink from 5% to 0.5%
forcing MADB to curb its deposit mobilization and seek out funding through wholesale
deposits from MEB instead (World Bank, 2014b). This shift in the funding strategy has made
MADB reliant on MEB, which has not been able to provide enough funds for the loans for
farm development expenses. Furthermore, MADB indicates it is difficult to mobilize the
necessary voluntary savings to fund this scheme.
Client trust and access to loans has supported SFI deposit mobilization. MEB offers deposit
products on the same terms as the commercial banks and is not formally mandated to play a
role in mobilizing savings, but accredits this to its relatively large branch network and client
trust in state-owned banks. FinScope results seem to confirm the popularity of the SFIs:
when adults were asked what they would do with a large sum of money they could not
spend, 47% (the most popular option) responded that they would put it in a SFI. As noted
above with the rural savers program, the state banks have been most successful in
mobilizing savings when tied to credit, and an effort has been made to bring these services
closer to rural clients.

8.3.3. Co-operatives
Co-operatives are only attracting member savings through compulsory products. FinScope
results indicate that co-operatives are the least popular regulated savings provider by
proportion of adults: Only 0.5% of adults report using a co-operative to save. However, they
serve a low-income client base. The total number of financial co-operatives and agricultural
co-operatives who provide financial services is 7 635 (see Table 15: Infrastructure of cooperatives that provide financial services in Section 7.3.5) and its membership base is 873
000. Only members are able to save at co-operatives, but savings are mandatory only for
current loan clients, and it is therefore unclear exactly how many members currently save.
Co-operatives are not a significant source of savings mobilization in the rural areas where
banks are scarce.
Co-operatives report that clients do not accumulate savings at their co-operatives beyond
the amounts needed to graduate to larger loan sizes and compulsory savings from their
members which builds over time and loan cycles. Co-operatives offer useful compulsory
savings, but do not provide more sophisticated savings products or reach significant scale.
One of the objectives of the Ministry of Co-operatives is to encourage savings practices and
job creation. Seventy-five co-operatives have sought MF Licenses under the Microfinance
Law.

8.3.4. Microfinance Institutions

MMSE reports 691 860 Microfinance accounts and deposits of K 12.1 billion (12.8 million
USD). Slightly more than 1% of adults report they have savings at an MFI, representing 539
973 adults. The discrepancy may reflect co-operatives now licensed as MFIs by the MMSE, or
simply multiple account holders.

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MMSE does not allow MFIs to take deposit from non-borrowers. Both MFIs and co-operatives
have sought deposit taking licenses under the Microfinance Law to accept deposits from
their borrowers and the public to fund their loan portfolio. However, in implementation of
the law, the MMSE does not yet allow these institutions to take savings from non-borrowers,
and savings cannot be taken in amounts exceeding the clients loan. In the long term this will
be a significant challenge for mature MFIs that have the potential to be a key player in
providing savings services, and are likely to harm the sustainability of some newly-licensed
institutions by denying them a source of funds. From a market perspective, despite the
dispensation for deposit-taking microfinance, deposit taking MFIs are effectively unable to
mobilize deposits beyond their members, and will not be able to stir up competition
amongst providers of savings services. This is appropriate at this time, as most MFIs in
Myanmar are small, unprepared, and not mature enough to take deposits from the general
public and intermediate funds. However, there are signs of a small number of maturing MFIs
often with international experience that if properly regulated under a separate tier with
higher prudential standards should be able to mobilize deposits.

8.4.

Distribution

Extensive distribution networks are critical for regulated providers to cost-effectively meet
lower-income client needs to save frequently and conveniently in small amounts. In
Myanmar, all providers have limited physical outreach and distribution networks and have
been unable to leverage technology to lower costs. To date, expansion of a distribution
network into new areas has attracted more depositors, and banks branch expansion plans
for the next period indicate an understanding of this dynamic.
The current physical distribution network of regulated provider branches is limited and there
is a stark urban - rural divide. Financial co-operatives have the largest footprint (2 413
financial co-operatives, including CCS branches), followed by commercial banks (577
branches), SFIs (537 branches), and MFIs (418 branches). The commercial branch network
has been limited in part because of regulations requiring banks to increase paid-up capital
for each new branch and to seek approvals and on-site inspection for each new branch. As
such, to date they have been largely urban. SFIs have had a head start in building a larger
distribution network, as the MEB is exempt from these additional capital requirements. MEB
therefore have a large full-branch network which it uses to support the government and
disburse retail banking services and as such have had greater penetration into the rural
areas. MFIs are largely acknowledged to have the widest distribution outside of the cities,
both in the border areas and the interior of the country. However, MFI branches make up
only approximately 4% of the existing branch network.
On the other hand, financial co-operatives do not have branches and are found close to their
members and are limited to urban areas. For example, vendors at a particular bazaar or
neighbourhood are served by a local co-operative located within the market or
neighbourhood. CCS reports 2 413 financial co-operatives (including 73 CCS branches),
although 5 222 agricultural co-operatives have recently started on-lending to its members. It
is unclear at this stage whether, or to what extent, these agricultural co-operatives also
takes deposits from their members. Through the Government of Myanmars interest to have
a co-operative in each village, the distribution of financial co-operatives may increase,
however, as noted above, their contribution to providing savings services is limited to
compulsory savings.
110

Discrepancies in savings behaviour mimics the urban-rural divide in branch access points.
Savings levels are low in rural areas: Rural villages have the lowest level of savings in
regulated institutions at 4% of adults. In contrast, 11% of adults in urban areas save in
regulated institutions. The proximity of a branch, and hence the outreach of their branch
network in rural areas does influence take-up. FinScope results show that there is a high
correlation between proximity to a bank branch and the likelihood of being a commercial
bank client. Adults living within 5 minutes of a bank branch are 3 to 4 times more likely to be
a private bank client (than the average for Myanmar). Currently, 71% of commercial bank
clients are within 30 minutes of a bank branch. Yet, respondents still rank proximity barriers
below income related barriers to savings: of the 93% of adults that have never had a savings
account, only 3% indicate that banks are too far away or transport too difficult to have an
account. Physical proximity has also supported the MADB in the past: in the 1990s MADB
began using mobile vans to distribute its financial services in rural areas, and in particular to
launch a seemingly successful service for remote rural savers. It is likely that these
distribution systems have contributed to the large number of SFI depositors to date.
Banks are driving an expansion in deposits by growing their branch and distribution
networks. Banks have recognized the potential to increase their deposit base through an
expanded branch network. Regulatory limits on the amounts of deposits banks can hold
were lifted in 2011 and in early 2013 new regulations allowed for new, mini bank branches
with less onerous capital requirements that can accept deposits and open accounts. Both
these regulatory developments open the door to an expansion of the distribution network.
At the same time, banks seek to grow their deposit base to fuel growth of their loan
portfolios, which are currently limited by regulation to have a loan to deposit ratio of
approximately 80%. As a result, the banks appear to see the potential for deposit
mobilization in new and rural areas for their commercial sustainability, as many banks
reported they were close to this threshold. This mobilization will be driven by banks interest
in growing their loan portfolios. Both large banks such as KBZ and Co-operative Bank as well
as new growing banks such as Yoma have indicated that they have significant branch (and
mini-branch) expansion plans into the rural areas to grow deposits to fuel the growth of
their loan portfolios.
The use of information systems and payments technology to expand distribution and costeffectively manage small accounts is largely absent in the banking sector, but change is
underway. In May 2013 four of the commercial banks, driven by an interest in foreign
exchange transactions, were in the process of adopting core banking systems and were
transitioning to their use. At all other banks, branches are offline, except for a subset of
branches in particularly active commercial (urban) areas that were connected through
internal online platforms. This landscape is changing rapidly and will open the door for the
cost-effective, secure, administration of deposit accounts at scale and allow for the use of
online mini- branches or agents capable of performing real-time transactions.
To date, MADB and MEB have administered the largest number of savings accounts countrywide, without core banking systems. However, account management has been highlighted
as a challenge. Both MEB and MADB require significant government funding to update their
limited IT systems to install systems that will allow them to cost-effectively grow their retail
savings base and leverage their strengths: trust by the population, a significant existing
branch network, and favoured treatment on capital for bank branches. SFIs will struggle with

111

existing systems to contribute to a deliberate drive for savings mobilization without this
investment. Commercial banks may even eclipse their dominant position.
This lack of basic IT has also contributed to providers limited use of payments technology to
expand distribution or convenience for most clients. The current use of ATMs and POS
devices for accessing bank accounts is limited to urban areas (generally on site at the
branch) and only offered to account holders from urban branches. As such, ATMs and POS
are simply employed to provide convenience to limited urban customers (and foreign
visitors) rather than to make significant advancements in physical access that encourage
new clients and easy savings in small amounts. However, upcoming improvements in bank
information systems and payment systems infrastructure can expand the use of ATMs, POS,
and other payments channels such as the mobile phone and provide a platform for banks
entering the low income market. At this time, regulated MFIs are not permitted to be
members of the MPU (national switch) and as such their use of payments technologies to
enhance the convenience and utility of accounts for their deposit clients is limited.
Existing distribution partnerships are not leveraged for savings. Despite the limited
distribution network, the only evidence of partnerships amongst financial institutions to
enhance distribution networks has been in banks provision of remittance services. Banks
work with established partner banks to use their rural branch network to reach clients who
need to send or receive a remittance payment. These partnerships appear to work well, and
could potentially be used to support savings collection as well. However, currently,
remittance transfers are not account-based transactions, and remitters do not require a
store of value account, to perform the transfer.
The use of agents for mobile banking schemes shows promise for extending bank distribution
networks into the rural villages through the use of third party non-bank agents. Interviews
with CBM in May 2013 reveal that the draft mobile banking regulations allow banks to
engage with non-bank agents to offer banking services. The use of agents has the potential
to extend banks reach into the villages to perform bank account based transactions. Banks
have acted quickly to develop plans for this new service, and some banks have begun to
consider their selection criteria for agents. It is expected that qualified MFIs will be
permitted to serve as agents offering the potential for significant physical outreach once
MFIs are permitted to offer payments as allowed by law (see Section 5). Furthermore, the
integration of the electronic payment channel (mobile phone) into bank operations may take
considerable time given the banks current IT infrastructure.
Banks are taking initial steps to launch mobile banking and the use of agents to expand
distribution. Co-operative Bank plans to introduce bank agents in 2014 and is one of several
banks to launch a mobile banking application. They have identified and are training 100
retail agents, to be equipped with POS, pending CBM approval (as of March 2014).
Regulation permitted agents will provide cash-in / cash-out services as well as account
opening. Other banks have launched mobile banking through SMS, applications or USSD
channels and several, including Co-operative Bank, are in discussions with Telenor and
Oreedoo to partner.

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8.5.

Products

The use cases for savings developed above outlined the need for a variety of savings products
to meet consumer needs. Currently, savings such as livestock, gold, and in a piggybank at
home meet these needs, while regulated savings providers offer a limited range of basic
deposit or savings products that are not tailored with features that support these use cases
to attract new rural and low income clients. Co-operatives and MFIs savings products are
geared towards attaining loans. To drive adoption and usage and migrate these savings into
the regulated sector, providers will be challenged to improve their product offering as they
improve their physical outreach. In this section, we provide an understanding of the deposit
products available before considering their ability to meet the use case.
Regulated deposit product offering is limited. SFIs and commercial banks offer a full range
of similar deposit products savings, current, and fixed deposit accounts. SFIs report the
largest number of deposit accounts and client take-up of deposit products at SFIs is the
largest. Currently, MFIs (regulated and unregulated) are limited to taking savings from their
members and the savings products offered were not diverse. Non-deposit taking MFIs and
financial co-operatives are only permitted to take compulsory savings from their members.
However, even with this limited offering, FinScope results show they attract the largest
number of savers after SFIs. Table 25 below summarizes the type of deposit products
offered by different providers
SFIs and commercial banks offer three deposit products and they are identical. SFIs and
commercial banks offer identical deposit products with a fixed interest rate floor and there
are three main products: Current accounts, savings accounts, and fixed deposit accounts
with terms of 3, 6, 9, and 12 months. Banks report that the majority of their deposit
accounts are savings accounts (60 to 75% of accounts), 20% are current accounts, while fixed
deposit accounts make up only 10% of accounts. It was noted that current accounts are
mostly used by loan and business clients. Salary accounts are limited because of the
informal nature of most employment, though some industries are now experimenting with
accounts and on-site bank ATMs to disburse salaries to avoid cumbersome cash
transactions. However, these clients largely receive their salaries and withdraw the entire
amount rather than use the account to store funds. Some banks, such as CB Bank, increase
their outreach by providing group accounts for co-operatives. A few banks have youth
savings accounts, but these seem largely geared towards the children of existing clients.
Low-income savers face affordability and eligibility barriers to product take-up at the banks.
Banks do not offer basic bank accounts or similar no-frill accounts targeted at small savers
through specific product features such as low eligibility requirements, low fees, or no
balance requirements. At the commercial banks, many savings and fixed deposit accounts do
have minimum opening balance requirements ranging from K 500 to K 10 000 (USD 0.5 to
USD 11) at the discretion of the bank. At the higher end of this range, the minimum balance
is almost 10% of an estimated average monthly income of K 93 527 (USD 99). For the
average income level of an MFI client, even a mid-range fee of K 2 100 would translate to
2.7% of average monthly income of K 76 544 (USD 81). As such, this type of opening balance
at the bank may be prohibitive. For SFIs, there is no indication of such an opening balance, or
high fees. Transaction fees and the cost of account maintenance we found difficult to
investigate based on publicly available information. Given that adults largely cite income

113

barriers to savings, it is likely that consumers would be very sensitive to any fees or charges
related to savings.
According to regulation, a prospective bank client must have (1) two existing clients of the
bank serve as references to be able to open an account; (2) provide proof of household
residency from immigration department at the district level; and (3) present a photo ID
document which could be a national ID, passport, employee card, driving license or
household registration. In practice, commercial banks indicate that the two references rule,
which could be a major barrier to account opening, is not practiced. Rather, bank staff will
often serve as the references when needed. Though these requirements may only be
enforced selectively, they are likely to contribute to client perceptions that banks are for
high income clients or that there is too much red tape associated with opening a bank
account.

Current Account
Savings
Fixed deposit
Compulsory savings

Banks
All
All
All
-

SFIs
Yes
Yes
Yes
Yes

Deposit MFIs
No
Members only
Members only
Yes

MFIs
No
No
No
Yes

Co-operatives
No
No
No
Yes

Table 25: Savings Products by Provider

Source: Authors own

High fixed interest rates on savings are not enough to draw in small savers. Both banks and
deposit-taking MFIs offer a high return on savings and fixed deposit accounts. The interest
rate floors on bank savings products are set by regulation beginning June 1 2012, the CBM
set the interest rate on deposits to be no less than 8% per annum. As such, commercial
banks and SFIs offer rates of 8% per annum on savings accounts and 8.5% to 10% per annum
for fixed deposits (see Table 26 below). MFIs face a higher interest rate floor of 15% per
year, which is specified as not less than K 1.25 per month or K 15 per year on K 100.
Myanmars interest rates of 8 to 15% per annum appear high when compared
internationally to Indonesia of 5.94%, Cambodia 1.33% and the Philippines of 3.1%, though
they are similar to the 7.98% offered in Pakistan. However, clients in Myanmar may not find
these interest rates as attractive as they were subject to high, persistent inflation for 10-15
years prior to 2009 which made for real negative returns that would have wiped out and
discouraged savings in regulated institutions. Client perceptions should adjust if inflation
rates continue to stabilize in the medium term as expected. It should also be noted that
interest on savings accounts at banks and SFIs may be less attractive to clients as it is
accrued based on the account balance during the first five days of the month and credited to
the account only quarterly. New bank successes in mobilizing deposits in the rural areas may
already indicate this shift as physical access barriers are overcome.

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Account Type
MFI Savings Account
Bank Current Account
Bank Savings Account
Bank Fixed Deposit 3mths
Bank Fixed Deposit 6mths
Bank Fixed Deposit 9mths
Bank Fixed Deposit 12mths

Interest %
(May 2013)
15%
0%
8%
8.50%
9%
9.50%
10%

Table 26: Interest rates on bank deposits.

Source: Interviews with banks and MFI regulation

Despite these relatively high returns, many potential savers opt to intermediate funds
themselves and loan out their excess capital, both to friends and family or other members of
the community. Nearly all affluent focus group respondents reported that they earned
interest income from this type of unregulated intermediation of funds. As unregulated
lenders, individuals earn income at rates higher than the interest rates set for savings: for
friends and family interest ranged from 3% to 8% per month while for others in the
community, rates ranged from 10% to 30% per day. The sustained high interest rates for this
common unregulated intermediation, indicate a scarcity in the availability of capital for
intermediation in the regulated sector (please see Section 7). As such the interest rates on
savings may be artificially low. The existence of brokers in the market for unregulated
credit who are able to command high fees (10% of the interest) to introduce prospective
clients to unregulated moneylenders further highlights the true return that would be earned
on savings if interest rates on regulated credit and savings were not constrained.
Interest rates may also not compensate for other transaction costs or hurdles for client takeup and use of regulated accounts. Focus group discussions revealed that the interest earned
on savings did not appear to compensate for the effort involved in account opening.
Similarly, the low perceived security risk changes the clients perception of relative benefits
of using savings mechanisms that are not regulated. Limited physical outreach noted in the
previous section is also likely to contribute to high client transaction costs.
Providers can sustain current interest rates, but these do not support outreach to
underserved areas. Some interviewed banks were concerned about the high cost of servicing
small savings and deposit clients because of the high set floor on interest rates. However,
from a macro perspective the interest rate spread in Myanmar is high when compared to
other ASEAN countries such as Indonesia, Philippines, and Vietnam. Basic analysis of some
commercial bank annual financial statements show that interest payments make up more
than 70% of operating expenses, with interest payments on deposits representing the bulk
of bank liabilities (81%-92%). While this is high, the net interest margin (NIM) is still 5% to
7%. Though interest rates offered on savings are high, they do not seem to impact bank
performance in a way that would dissuade banks from taking savings. However, if high
investments in physical infrastructure are needed to expand deposits, provider margins may
disappear quickly in the short run.

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At MADB for 2010/11 interest paid on deposits is much lower as a percentage of total
operating expenses at approximately 26% and the NIM is higher at 9%. However, the
structure of MADB liabilities differs from the commercial banks: since 2011 MADB receives
significant subsidized funding (wholesale deposit) from MEB at 4% per year, which is likely to
create a disincentive to mobilizing deposits which must be paid at 8%+ per annum. In 2012,
MADB was further discouraged from mobilizing deposits when the ceiling on loan interest
rates was decreased to 8.5% per annum. This left, MADB with a very low interest margin,
barely sufficient to cover operating expenses and losses. Thus, interest rate floors on
deposits may curb any gains in savings mobilization through the SFIs, particularly where
increased physical outreach is required.

Figure 32: Interest Rate Spread of Selected ASEAN Countries, 2000-2010 (%)
Source: WB-WDI 2012

The analysis for MFIs is distinct from that for the banks because of the high transaction and
operational costs associated with serving rural areas. MFI lending rates are capped at 30%
per year while interest on deposits taken is set at 15% per year. Though the lending interest
rate does not diverge greatly from international norms, given inflation and the high
operational costs associated with reaching remote areas, the spread may be low.
Furthermore, MFIs face a limit on the portion of deposits that can be lent out and are unable
to earn interest on those funds that are not lent out (reserves), which further erodes MFI
margins. As such, MFIs may be discouraged from funding their loan portfolios via savings and
seek out other sources of funds, or MFIs may simply be unable to serve rural populations in
a sustainable way. This would explain why only one MFI, PACT, has strong rural outreach
upheld by subsidised wholesale funding100.
Synergies with other product lines such as remittances and credit can be developed to
promote savings. Despite gaining a significant portion on their revenue from remittances
fees, banks have not yet recognized the potential to convert their remittance clients into
savings or current accounts clients by encouraging account opening to send and/or receive
remittances. Bank incentives to continue non-account transfers are still unclear, but the
analysis above indicates that it is not related to the high interest rates. The use of accounts
100

Proximitys outreach is entirely rural, but very small compared to PACT.

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would allow savers to take advantage of the partnerships between banks that has created a
fairly robust distribution network for remittances, and would allow savers more proximate
locations to make deposits. As payments and remittances become digital or electronic,
account based remittances will become more viable as the costs of account administration
fall, and in turn, clients will have access to accessible store of value accounts that they can
use for small savings, and payments - if this vision is adopted by the sector. The remittance
receivers, accounting for roughly 1% of adults and part of the Informal consumer market
target group, would benefit from this transition. MFIs, co-operatives, and MADB have been
successful in mobilizing savings when they are tied to the provision of credit. As such, there
is potential to adapt new mobile credit products developed in other countries (such as MShwari in Kenya). These products promote savings by offering short-term credit based on
savings (and payments) behaviour over mobile money platforms. The credit offering is
determined using sophisticated scoring models.

8.6.

Regulatory constraints and enablers

The regulatory environment is critical for deposit-taking and savings mobilization. Expected
large-scale changes in the legal and regulatory environment will continue to transform the
existing landscape for the supply of deposit services from regulated providers. At this time
there are both existing constraints to savings mobilization and new changes that show
promise, particularly for increased outreach by the banks.
Banks were previously limited on the size of their deposit base and therefore their lending. As
highlighted above, until recently, private banks faced limits on the amount of deposits they
can hold. In the early 1990s banks were only allowed to hold seven- times their paid-up
capital. This was then increased to 10 times and finally 25 times their paid up capital before
the limit was abolished altogether in 2012. This has opened the door for banks to mobilize
more deposits. This mobilization will be driven by banks interest in growing their loan
portfolios, which are currently limited by a loan to deposit ratio of approximately 80%.
Interviews and bank balance sheets indicate that most banks are very close to this limit (75%
to 80%) and will benefit from additional deposits to increase their lending.
Branch expansion is critical for savings mobilization but still dis-incentivized due to capital
requirements and onerous licensing procedures. As mentioned above, thin margins may still
discourage savings mobilization (particular amongst smaller depositors) that requires
substantial new investments in distribution. Though the CBM encourages the expansion of
bank branches into the rural areas in principle, banks report that all new locations for banks
branches must be approved on-site by the CBM and additional capital deposited. However,
there are some promising changes. The permissions for new branches are now granted in as
quickly as 2 to 3 weeks. Banks are optimistic about the potential for a larger branch network
under new regulation for mini-branches released in the first half of 2013 that allow banks to
open mini-branches that can accept deposits for accounts formally maintained at the full
branch. Mini-branches are lower cost as the bank need not own the premises and they do
not require a vault. It is still too early to judge its impact.
Deposit-taking MFIs authorized under the microfinance law are treated in a uniform
manner and only permitted to take deposits from their loan clients. MFIs that have sought
out deposit taking microfinance licenses have not been permitted to mobilize deposits from
beyond their loan client base, despite their new legal status. MFIs are only able to take
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compulsory deposits, which amount to a form of collateral. This approach in implementation

of the law has been a source of confusion and challenges for some new entrants looking to
mobilize savings to fund growth in their loan portfolios. Existing players also expressed a
need for deposit growth in the longer term. The CBM has voiced concerns that MFIs will
engage in shadow banking if permitted to take deposits outside their membership base. It is
also likely that the CBM and MSE are not yet confident in the prudential soundness of the
MFIs which should be a precondition to any regulated body taking large scale deposits.
Developing the management and infrastructure capacity to take savings, may be beyond the
reach of many providers at this time. However, select experienced local and international
players in the MFI market may find this wait for deposit-taking unnecessary. A timeline for
the development of deposit-taking in the sector should be determined. Otherwise, here may
be a missed opportunity for MFIs to serve their low income target market with savings
services and without deposits as a source of funding, some MFIs may have trouble growing
their loan portfolios.
Furthermore, liquidity ratios applied to MFIs discourage savings mobilisation. MFIs have
reported varying but high liquidity ratios (loan to deposit ratios) required ranging from 50%
to 100%. The result is that, while MFIs must pay the high floor interest rate on all deposits,
they are only able to generate returns from lending out a proportion of deposits. In addition,
non-profit MFIs report that they are not allowed by the Ministry of Finance to earn interest
on deposits as non-profit organisations are not aimed at making money. As result, they
have to keep the liquidity reserve (as well as any other free cash) in a non-interest bearing
current account. The combination of these two factors serves as a significant deterrent for
MFIs to raise deposits, when they are permitted to taking more deposits. This topic should
be discussed with the industry when developing a plan for deposit mobilization by MFIs.
Take-up of deposit insurance is growing for small amounts. Deposit insurance has been
introduced by Myanmar Insurance which will be compulsory for commercial banks.
However, only 16 of the 19 private banks are currently offering deposit insurance101. The
product only covers small deposits up to K 1 million (USD 1 057). In May 2013, the premium
for insurance was 0.125%, which was down from the initial 0.25%. The banks would like a
further decrease in the premium. Deposit insurance may play an important role in restoring
small savers trust in keeping their funds in the private banks and support the growth of
small deposits if the public is aware of the insurance and how it works.

8.7.

Gaps and Opportunities

The above analysis of the landscape, use cases, providers, distribution, and regulatory
picture for increasing access to savings in Myanmar uncovers missing pieces and
opportunities for significant gain.
The four use cases outlined above provide a helpful guide for how client needs would
determine gaps and opportunities for increased savings:
Short-term savings for consumption smoothing: To compete with the convenience of athome savings in a piggy-bank, savings products must allow for easy and frequent access in
the form of proximity and low transaction fees. There are no limited transaction accounts
available in the market, and savings accounts at banks and SFIs are generally not proximate
101

According to Myanmar Insurance

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enough to meet the frequent cash needs under this use case, regardless of their product
offering. Checking accounts at the banks were largely used by corporates. Furthermore, fees
on banks savings products likely make them too costly for regular use, but SFIs may not
impose these costs, giving them a slight edge. Banks and SFIs have the opportunity to
capture savings by developing this type of a frequent use product if they are able to extend
their distribution networks to facilitate its use.
Larger, medium-term savings for unplanned eventualities or anticipated needs such as
education: Banks and SFIs savings accounts appear to be suitable for this use case which
should not require daily access or transactions. However, there is strong competition here
with savings in gold where the widespread network of pawnshops may be more convenient
than the bank or SFI branches. The bank and SFI networks will need to meet that level of
ubiquity at a minimum. Furthermore, consumer trust in the value of gold may surpass trust
in the banks and SFIs. Continued high interest rates on banks/SFI deposits may be needed to
encourage movement to the regulated sector, coupled with increased physical presence to
improve visibility and familiarity with banks and SFIs. Banks and SFIs have the potential to
target Employees of formal private companies and Formal enterprises (two of the target
groups explained in Section 4.2) with salary accounts to take advantage of their familiarity
with the formal sector, even if in the initial stages balances remain low.
Compulsory savings for loans: Co-operatives and MFIs are exclusively gathering compulsory
savings and increasing the number of savings accounts for many low income individuals by
leveraging their need for loans. Though the demand for voluntary savings via MFIs and cooperatives is still uncertain, MFIs and co-operatives are the only providers to have created a
relationship with this low income end of the market through loans, and as such present an
opportunity to build that relationship into voluntary savings. MFIs and co-operatives may
have the opportunity to serve as agents to collect savings as agents for the bank.
Alternatively, upgrades in capacity and regulatory change may allow certain mature MFIs to
mobilize savings too. Mobile credit products linked to savings behaviour may also encourage
increased savings.
Longer-term saving for investment and productive use: Bank and SFI fixed deposit products
with flexible durations beginning at 3 months would seemingly be a good regulated
substitute for saving in livestock which implies a restriction on liquidity, a larger value, and
longer duration of savings. However, these regulated sector products have faced a very low
take-up (based on supply side data). This low take-up may indicate an inability to meet
consumer needs, a lack of awareness, low understanding of these more complicated
products, or a heightened perception of risk if trust levels in regulated providers are indeed
low. Furthermore, livestock often provides non-monetary pay-outs such as milk, eggs,
offspring, transport etc. that improve the welfare of the household and farm that may go
beyond what monetary savings can offer so it should not be assumed that all savings in
livestock could be replaced. Notably, it does not seem that banks and SFIs are reaching the
same type of client that is saving in livestock: there is a market difference in the average
income level by user group, and banks will need to make a concerted effort to serve a new
client segment. Incremental house construction is sometimes also considered as a form of
savings, which would be hard to duplicate with a regulated savings product.
Existing regulated providers will play a critical role in attracting unregulated savings into
regulated institutions, and providing a useful place to save for the 62.7% of the population
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that do not save at all. Based on their current contributions and competencies, each of the
existing regulated providers has a role in meeting the needs identified in these use cases.
For MEB to maintain their dominant position and leverage their existing outreach to
mobilize more savings, they will require support from the government to renew their
mandate for savings mobilization, as well as to modernise. In particular, disincentives for
savings mobilization based on low interest margins for MEB must be contended with or
there will be no growth. With that, MEB will need to invest in their core banking platform to
power account management without which they may be weary of increasing their physical
presence or taking on more accounts. These updates are likely to be part of a more
comprehensive set of reforms aimed at the state banks.
Banks seem to be poised to mobilize significant deposits from higher-income groups102, but
may stop short of reaching beyond their traditional client groups without further changes.
The removal of limits on the size of banks deposit base coupled with new regulations
allowing mini branches are driving banks' interest in mobilizing savings in new geographic
areas through increased physical outreach of the banking sector into the townships.
However, bankers continued concerns about the low interest rate spread, driven by
imposed floor on savings interest rates and ceilings on lending rates, make it unlikely that
this expansion can be sustained into harder to reach areas that require substantial
investment. Furthermore, tight margins will not sustain servicing lower-income small savers
if the banks are reliant on high-cost traditional brick and mortar infrastructure and
rudimentary account management systems. Banks interested in mass savings mobilization
will likely need to gain efficiencies through appropriate technology to enable account
management and payments that will allow distribution to go further into un-reached, lowerincome areas.
New payments systems and providers have the potential to cost-effectively add
convenience and safety which is essential particularly for small savings clients. Mobile
banking and non-bank mobile money through agents shows great potential to serve bank
and SFI clients who are low-income, remote, and costly to serve with transactional accounts.
With small average monthly savings across the target groups, this is an opportunity to serve
a broad set of clients more profitably. Farmers, in particular, the smallest average monthly
savers located in the rural areas would greatly benefit from these services.
MFIs in Myanmar have a demonstrated interest in providing financial services to lower
income clients. A plan and timeline is needed for certain sound providers to be permitted to
offer savings outside their membership base in line with global good practice to safely bring
them into the regulated financial sector, under a new regulatory tier with higher prudential
requirements. Regulators concerns about unscrupulous MFIs, shadow banking, and
regulatory arbitrage should be addressed with effective but enabling regulation and
supervision. A diversity of regulated deposit taking institutions are instrumental in providing
accessible, appropriate savings services for lower income clients for whom they may already
be familiar or trusted institutions. In particular, largely rural target groups like Farmers and
Informal consumers would benefit from the outreach of microfinance providers who would
be well-placed to meet their needs for proximity and the development of specialized
products.
102

As indicated in section 8.3, FinScope results show that banks serve clients with the highest average monthly incomes (K 275
241 (USD 291). Only clients of Myanmar Insurance report higher monthly average incomes.

120

The fundamental challenge of building trust in the financial sector will only happen as
potential clients gain awareness and gain benefits from the savings products offered over
time.

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Market for payments

9.1.

Payments landscape and take-up

Cash-based society. The payments environment in Myanmar can be characterised by the

fact that nearly all retail payments are made in cash, by customers and businesses alike. Only
a small portion are made via domestic inter-bank transfers and even in these cases
payments are most often deposited by the sender in cash and withdrawn by the receiver in
cash. Due to the lack of infrastructure, there is virtually no explicit demand for electronic
retail payments. Customers suffer from an unreliable power grid, inconsistent
communications networks, and low penetration of electronic touch points (such as ATMs
and POS).
Use of family and friends the predominant method of remitting money. The landscape for
domestic retail payments is dominated by regulated and unregulated remittance payments,
occurring between geographic regions and serving a variety of industries. More than 7
million adults reported receiving remittances and 3.9 million reported sending remittances.
Bank transfers account for 38% of remittances received (despite a bank account penetration
of less than 5%, so most remittances is not account-based) and 41% receive remittances via
friends or family. A further 21% of payments are received via an unregulated network of
payment brokers, or hundis. Comparatively, of the remittance senders, 55% use bank
transfers, 36% friends or family, and 8% hundis. All of these transactions occur in cash.

% of adults who have sent remittances or adults who

have received remittances

9.

60%

55.0%

50%
40%

40.5%
36.3%

38.2%

30%

20.8%

20%
10%
0%

8.1%
0.5% 0.4% 0%0.1% 1.6% 0.5%

0% 0.3%

1.3% 0.8%
0% 0.1%

Remittance channel used

Remittances sent

Remittances received

Figure 33: Channels used to send and receive remittances

Source: FinScope 2013

Usage of remittances varies between target groups. Looking deeper into the origin of
domestic remittances, 7% of adults send remittances, of which Farmers and enterprises
(Formal enterprises and Informal enterprises) account for the bulk of total remittances sent.
However, Formal enterprises and the Formal consumer market have the highest proportion
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of adults sending remittances (25% and 14% of these two target groups reported sending
remittances). However, across all target groups there are a significant number of adults
sending remittances. This relative diversity in origin of payments begins to give shape to the
purpose of the remittance payments and highlights where efforts can be focused to create a
more efficient and robust payments system.

% of adults in target market who sent

remittances domestically

Who are sending remittances domestically?

30%
25%

25%

20%
14%

15%

11%

10%

7%
3%

5%

0%
Farmers

Formal
enterprises

Informal
enterprises

Formal
consumer
market

Informal
consumer
market

Target markets
Figure 34: Proportion of target groups sending remittances
Source: FinScope 2013

Rapid changing payments infrastructure will change payment behaviour. The landscape of
retail payments will rapidly change as improvements in the central power and
communications infrastructure enable investments in modern electronic payment
mechanisms. It is likely that this change will encourage providers to begin offering service
propositions that can deliver added value to existing cash based payment use cases. The
future of inclusive payment services in Myanmar lies in a shift from a cash only payment
network to one where customers have greater choices in how they send and receive money.
This will require an understanding of how customers currently make payments (use cases)
and from there identifying possible alternatives that are equal to or better than cash.

9.2.

Use case for payments

From the research conducted for this report we can identify several use cases103 for
electronic payments in Myanmar. These use cases can be described as an interaction
between a product and the retail market, where a clear demand from customers is reflected
in the usage of existing products or services. The use cases below are not exhaustive but
rather focused on those that have the greatest potential to achieve scale using electronic
payment platforms.
Use Case #1: Sending and receiving remittances (P2P; P2B). Myanmar has a large migrant
population who remit money either locally, between urban and rural areas, or
103

In other markets these use cases have been identified as potentially the greatest drivers of financial inclusion where it
leverages the payment channel as a means of access to a broader range of services. The infrastructure and business rules
required to make remittance and bill payments function effectively and affordably can be leveraged to catalyze other services
(such as savings and insurance) over the payment channel.

123

internationally from countries such as Thailand, Malaysia, Singapore and the United Arab
Emirates. These transfers were traditionally conducted through unregulated networks but
are increasingly occurring through regulated banking channels. Included in this use case are
payments to small businesses, by either individuals or other businesses.
Use Case #2: Bill payments services (P2B). There is an increasing need for electronic
payments for services such as electricity and mobile phone usage. These are currently done
in cash, with some banks and retailers offering these services in selected branches and
outlets104. In addition, payments to financial services providers (i.e. loan repayment and
insurance premiums) are currently conducted in cash at the financial services provider.
Use Case #3: Bulk payment disbursal (G2P; B2P). A significant portion of the population
receives regular salary payments from bulk payers, particularly government payments and
increasingly large private sector employers. Regular government payments to employees
and pensioners provides an opportunity to harness an existing payment process to not only
make payments electronically but also to incentivize investment in an electronic network for
cash disbursal (ATMs and cash merchants), paving the way for deeper penetration of epayment mechanisms, effectively subsidized by the government.
These use cases provide a context that allows the analysis to more easily identify how well
suited the current landscape is to meet the payment needs of the retail market. From this
base we can further organize the usage of payment services in Myanmar into four broad
categories: Person to Person (P2P) payments, Person to Business (P2B), Business to Business
(B2B) payments, and Government to Person (G2P) payments. The payment grid shown in
Figure 35 below shows how these categories relate to the spectrum of retail payment flows
seen in most economies.

PAYER
Government

Business

Person

B2B

P2B

Government

PAYEE

Business
Person

G2P

P2P

Figure 35: Payment Grid-Categories of payments in Myanmar

Source: Authors own

Together, these carry the bulk of regular payment transactions in Myanmar. Within P2P
payments we can further segment transactions into (i) domestic remittances particularly
from urban migrants to rural families, and (ii) cross border remittances to or from the
Burmese diaspora. P2B payments (person to business) include cases where a business is run
on a unregulated basis by individuals operating on their own account as well as bill payments
104

However, banks disclosed during supply side interviews that they generate limited revenue from bill payments. Most of the
utilities are government-owned and have not been willing to pay higher fees for banks to process payments.

124

where many payers remit funds to a single payee (e.g. electricity bill). B2B payments often
consist of higher value payments between regulated or better established businesses105 in
Myanmar. These payments are often made via bank transfer but may also cross borders,
with the highest volume completed on an unregulated basis on behalf of small independent
traders on either side of the border. The vast majority of G2P payments are made to civil
servants, military personnel and pensioners.
The use cases and categories of payments in Myanmar provide a foundational context from
which this analysis will be built. The following sections describe the types of providers
offering payment services in Myanmar and the respective products found in the market that
serve the use cases and categories noted previously. Embedded in the discussion of
providers is an overview of the current infrastructure in Myanmar. This provides a point of
reference for the description of the payment products found in Myanmar which are heavily
reliant on the nature and state of the infrastructure and distribution points. The analysis
then looks at the regulatory environment for payments, identifying its scope and focus. The
conclusion of the analysis provides a brief overview of the critical gaps and associated
opportunities for payment system development.

9.3.

Providers in Myanmar

Only three categories of payments providers. There is little variety among the regulated
payment service providers in Myanmar. Other than the government, there are only two
categories of providers in Myanmar who provide retail payments services to clients. One of
these is regulated, and the other is unregulated. Each of these is discussed here and
depicted in Figure 36 below.
Government the largest payments providers. The largest payment provider in the country is
the government, with 960 000 adults reporting to receive their main source of income from
government wages. Government payments are also made to pensioners, thought to total
roughly 400 000 people. Government payments are largely distributed via the branch
network of MEB, whose large, subsidized network constitutes about 29.5% of total branches
in Myanmar. This enables extensive coverage of the country to serve those who qualify for
government disbursements. Salary payments have the highest frequency (monthly) while
pension payments are less frequent (quarterly or biannually). Government payments are
primarily outgoing only and made almost entirely106 in cash.
Commercial banks the only regulated payments provider. Commercial banks are the only
regulated payment provider in the country, enabled by their geographic coverage of
branches to allow for payment transfers for retail customers. The banking industry has
organized itself into various networks and alliances to allow customers to transfer between
banks of the same network, thus leveraging their respective infrastructure. In addition to
these domestic partnerships, several international remittance agents (e.g. Western Union,
Xpress Money, etc.) have partnered with banks in Myanmar to facilitate mainly international
transfers. There are no international banks operating within Myanmar that provide payment
services.

105

We make this distinction in order to segment individuals running small enterprises with one or two employees and larger
entities that employ more staff and require higher value working capital in order to manage their respective business practice.
106
Some government employees are paid directly into bank accounts at MEB, however the precise number was not provided
during interviews.

125

Hundi network a pervasive provider of payments. The only other active provider of payments
in Myanmar are hundis, which are an unregulated network of citizens who offer unregulated
payment services to clients for personal and business needs. Hundi networks are located
throughout Myanmar as well as in certain countries to service the overseas diaspora107. All
hundis have a primary business that is not payment services and only do payments as an
alternative revenue stream that most often leverages the nature of the primary business
(e.g. shipping). Hundis use a variety of regulated and unregulated mechanisms to provide
payment services to clients, often acting as a payment broker where regulated
mechanisms are unavailable108 or unsuitable. Unregulated mechanisms use existing physical
road infrastructure to conduct the transportation of funds in cash between locations. For
example, hundis interviewed for this study noted that they would use shipping lanes
between cities, where cash would be transferred alongside commercial goods (often durable
items such as furniture or appliances). In these circumstances the owner of the shipping
business would create additional revenue from money transfer services.
A second form of transfer among hundi networks is a balance of payments between two
hundis located with the payer and payee, respectively. Here the payers hundi will organize a
disbursal of cash by the payees hundi directly to the payee. After the transfer is made, the
two hundis will settle between them, either in cash or for goods or services in kind,
depending on the nature of the hundis primary businesses. A relatively common
characteristic of this balance of payment transfers is that the hundis in question would use
bank branches to facilitate the transfer109. This adds a degree of convenience to the transfers
but is ultimately limited to the geographic coverage of the bank branches. In this latter
regard, hundis provide additional value to the customer by bringing the cash payment to a
location more proximate to the customer than the bank branch. For example, interviews
with hundis revealed that for payments to more remote locations, the payees hundi will
receive the cash payment from the bank branch and then physically take the funds to the
payee. In some cases, the cash will be delivered directly to their home or another convenient
location, such as the hundis primary business location. This sort of service delivery is
unmatched by any regulated provider in Myanmar and is only enabled by enough demand
that a hundi can conduct transactions in bulk at the bank branch.
In late 2013 the first third-party mobile payments service was granted approval and
launched using a strictly mobile money platform. Mobile Money Myanmar has mixed private
and corporate ownership and is linked with Innwa Bank, Ltd. to provide mobile wallets (mwallets or e-wallets) salary and pension disbursements, airtime top ups and cash-in / cashout services. Myanmar Mobile Money is a small company, but is well linked and partially
owned by a few companies and conglomerates that own a range of financial and nonfinancial businesses in Myanmar. As noted earlier, there is the intent of Telenor and
Oreedoo to do the same.

107

Hundis are known to operate in neighbouring countries such as Thailand, China, and Bangladesh, as well as farther afield in
the United Arab Emirates, Philippines and Japan.
108
For example when individual cannot make it to the bank during operating hours they would use a hundi.
109
Although the specific location of hundis in Myanmar is unknown, it is likely that they share the same socio-geographic
footprint of banks within any common payments consortium/network plus the wider footprint of the correspondent
relationships of the hundis and could also possibly bridge groupings of banks.

126

REGULATED PAYERS

PAYMENT
PROVIDERS

PAYMENT
INFRASTRUCTURE
Domestic
ATM
Payment Switch

Government
Banked Individuals

(Myanmar Payments
Union)

Domestic
Banks

Banked Businesses

PAYEE

POS

Banked
(4.8% of
population)

Clearing House
(manual @ EOD)

Unregulated
Payment
Network

Hundis

Cash

Network of
Hundi agents

Cash

Unbanked

Figure 36: Overview of the payment landscape in Myanmar

Source: Authors own
Box 7: Role of MFIs in payment services

MFIs are enabled by regulation to facilitate remittances payments however this service is
prohibited by CBM directive. MFIs are only licensed with permission to conduct a limited
scope of the full activities referenced in the legal framework. Remittances are not one of the
permitted activities. The rationale behind the restriction is unclear. However the
microfinance industry in Myanmar is still nascent with limited branch infrastructure and little
evidence of the systems in place to manage payment transfers in the manner of banks (on a
regulated basis).

Reaching scale through regulated payment services

Payment network will require scale and a diversity of players. Payment services could
potentially have the most impact on financial inclusion once they can reach a scale where a
critical mass of customers catalyze the network effects necessary to drive volume. A
common characteristic of markets that have achieved scale is a diversity of payment service
providers, who together provide the required issuance and acceptance networks for
payment instruments that allow services to be affordable and convenient. Markets such as
Kenya, Brasil, South Africa, and Pakistan demonstrate this diversity of providers to various
degrees. The current landscape of payment providers in Myanmar does not demonstrate the
diversity found in these markets, as participation is limited to commercial banks and
prohibited for MFIs.
In this section we will address other payment service business models that can improve the
feasibility of reaching large scale penetration of regulated payment services in Myanmar.
These models involve non-bank payment providers and the various roles they can play in
enabling payment services to reach scale. Non-bank payment service providers are not
permitted to offer retail payment services in Myanmar as there is no regulatory framework
for such activity or service proposition. Under the Central Bank of Myanmar Law (2013), the
CBM has the specific objective of development of efficient payment and settlement systems
and the authority to issue licenses to payments systems providers. The law does not state
127

the type of institutions that can be licensed, which allows the CBM the freedom to consider
the introduction of non-bank providers to enable models of electronic payment services that
would be new to Myanmar.
Payment Processors
The CBM is in the process of creating a legal framework for payment processors to facilitate
inter-bank payments as well as retail electronic payments in Myanmar. At the moment,
banks can only clear and settle inter-bank payments at end of day using a manual process
that is time consuming and poses higher systemic risk, particularly without clearing rules and
security agreements in place. Payment processors would alleviate some of the
administrative burden by clearing retail payments via proprietary electronic payment
processing platforms. These platforms will also enable banks to issue electronic payment
instruments that can be used at ATMs, POS devices, and on the internet. International
payment processors such as Visa and MasterCard are currently limited to only acquiring and
are not allowed to issue payment instruments domestically, thus creating a market which
the CBM intends to address with local institutions. The bulk of investment in the electronic
retail payment system infrastructure (ATMs and POS) is geared towards serving the
developing tourism industry. Tourism will likely subsidize some of the initial investment in
payment acceptance and cash disbursal terminals in Myanmar, but in turn is limited in its
ability110 to reach the bulk of the population.
Licenses for payment processing have not been awarded to date, but may emerge by 2014.
Currently, there are few providers who may benefit from this license. A notable possibility is
Oway, a local business that currently facilitates international payments for tourists wishing
to visit Myanmar and purchase services in advance via the internet. Oway works with local
tourism operators to create payment applications that can enable efficient and convenient
retail payment services for customer. Through this experience, Oway has been in
consultation with the CBM regarding the issuance of regulations for the payment processors
in Myanmar. These regulations would stipulate the necessary conditions for a non-bank
provider to partner with other regulated institutions (i.e. banks) and allow them to issue
electronic payment instruments directly to domestic customers.
The emergence of payment processors would improve the likelihood that existing electronic
payment acceptance devices (such as ATMs or POS) benefit from a sufficient volume of
issued instruments to improve their efficiency, and thus increase the likelihood of greater
usage and penetration in Myanmar. Payment processors can also improve the efficiency of
banks by lowering operating costs as banks shift to electronic platforms and seek to accept
and issue payments to other financial institutions. As such, payment processors are an
example of an institution that would form a part of the payment system backbone that
enables proliferation of large scale payment services, particularly given the low penetration
of international card associations who would apply international payments card standards
more consistently across the market. Regardless, international standards should ideally be
upheld in any card related system so that development in the domestic electronic payment
card industry can easily adapt once international card associations begin to establish in the
country.

110

Few banks are currently issuing debit cards for cash withdrawal or electronic payments and as such most users of the early
stage payment infrastructure will likely be tourists using cards issued internationally.

128

Non-bank payment service providers

The more generic category of payment service providers (PSP) covers the various customer
facing aspects of the payment services. As noted previously, there is no legal framework for
PSPs in Myanmar, although the CBM is currently in discussions for the development of a
license to enable payments through the use of the mobile phone. It is likely that such a
regulation would necessitate the creation of a regulated entity that could facilitate retail
payments using stored value accounts either independently or on behalf of a financial
institution such as a bank. Stored value accounts are those that hold customer funds under
conservative prudential conditions (e.g. 100% reserve capital) and limits their investment
options. These accounts are often an alternative to full deposit taking accounts and enable
highly transactional payment services that focus on replicating regular cash payments (i.e.
low value, high volume).
The significance of PSPs in retail payment service development can be identified through
observation of international precedents where large scale payment services are common.
Markets such as Kenya, Brasil, and Pakistan have allowed various forms of PSPs to operate
functions which were previously restricted to banks. These include the issuance of electronic
payment instruments, collection and disbursal of cash payments, and management of cash
merchant networks. While these functions can be offered via a banking license, it is often
prohibitively expensive for banks that do not have an explicit retail banking strategy coupled
with a large geographic presence. As such PSPs offer an opportunity to fill this gap, either on
behalf of banks or independently, depending on the scope of legal authorization.
PSPs also carry the capacity to serve more than one financial institution and enable
payments across various platforms. These characteristics can enable improvements in the
interconnection111 of payments across providers, giving financial institutions more reach and
customers more choice (CGAP, 2012). Both of these outcomes can contribute to
improvements in the number of customers served in Myanmar.

111

Interconnection isdefined with reference to the PTA Telecommunication Rules of 2000 at (Sec 2(h)): the
physical and logical connection of two operator's connectable systems thereby allowing customers of one
system to connect with customers of the other system, or to access telecommunication services provided from
the other system. While interconnection is a term more commonly found in telecommunications than in
financial services (where interoperability is more commonly used as the financial equivalent), this definition
clearly identifies the components necessary for interconnection as physical and logical connections between
connectable systems. A system must therefore first have the ability to connect, then have the physical interfaces
necessary to do, backed by the logical interfacesincluding the interconnection agreements which define
business rulesto lead to a state in which customers of one service can connect to customers of another
service. (CGAP, 2012).

129

DOMESTIC
PAYMENT
PROVIDERS
Regulated PAYERS

Bank A
Bank B

Government
Banked Individuals

PAYMENT
INFRASTRUCTURE

Payment
Processor A

Bank C

Banked Businesses

Bank D
Stored Value
Account Holder

Non-Bank A

Payment
Processor B

PAYEE

ATM
Domestic
Payment Switch

POS

Credit

(Myanmar
Payments Union)

Account
Holder

Non-Bank B

Figure 37: Role of Non-Bank PSPs and Payment Processors in the payment ecosystem.
Source: Authors own

Table 27 below revisits the Payment Grid discussed previously and summarises the providers
active in Myanmar in relation to their corresponding use case:

PAYER
Government

PAYEE

Business

Person

Business

Person

Commercial banks serve the formal

business community by providing
interbank transfer services,
particularly for high value payments.

Similar to the B2B category,

commercial banks and hundis service
the individual payment to businesses
(P2B) market.

Hundis serve the both the formal and

informal business community where
they either do not have access to
commercial bank services or need to
leverage the hundi network. In many
cases the respective hundis may
themselves be formal businesses who
provide an unregulated service to
business counterparties.

The limited bill payment services

available in Myanmar are understood
to be largely run through commercial
bank branches.

The government as
payment service
provider is limited to
salary and pension
disbursements via
the commercial bank
branch network
(mainly MEB)

For P2P payments hundis appear to be

the main source of payment service for
individuals in Myanmar. This is likely
due to their accessibility and
availability as compared to commercial
banks.
Commercial banks also service
domestic remittances for walk in
customers.

Table 27: Payment Grid- Providers of payments in Myanmar.

Source: Authors own

130

Infrastructure
There is currently no electronic interbank payment settlement infrastructure, although there
are plans for the installation of a Real Time Gross Settlement System (RTGS) and Automated
Clearing House (ACH) through the technical support of the Japanese development agency,
(JICA). Currently, settlement occurs manually at end of day within the CBM offices in Yangon.
There is no real time network connectivity between banks or the CBM to facilitate more
regular settlement, whether it is retail or wholesale. Several banks are in the process of
procuring core banking systems for the purposes of enabling international remittances
(without which electronic remittances would not meet international standards). The
instalment of core banking systems across the respective banks would create a more robust
platform from which electronic clearance and settlement of retail and wholesale payments
can be enabled. However, instalment of core banking systems is not simple to do and may
therefore be some time before international remittances can benefit from it.
Retail touch points
The lack of physical retail payment infrastructure is a significant obstacle to the development
of an accessible and convenient payment environment in Myanmar. Although there is likely
to be rapid growth of retail touch points given the low base, high-level government interest
and a historical precedent of infrastructure investment112. Figure 38 below show the number
Exhibit
of touch points per 100 000 people for ATM,
POS,3 and bank branches.

1000

941

900

90

800

80

700

70

600

60

500

POS devices

50

400

40

300

30

200
1.9

ATMs

20.03

20

120

100

77.95

10

36

0.6

0
Myanmar

Cambodia

Indonesia

12

Malaysia

Myanmar

Thailand

Vietnam

11.3
10.5

10
8
6

Commercial bank
branches

4.3
4

1.7

0
Myanmar

Cambodia

Malaysia

Thailand

Note: all diagrams indicate

number per hundred thousand
adults

Figure 38: Pentration of payment touchpoints in Myanmar

Source: Various
112

Research interviews discovered that in the 1990s there was an initial increase of ATM penetration in Myanmar. However
infrastructure challenges (power, communications) contributed to low usage and these terminals fell into disuse.

131

The implications of such low penetration of payment touch points are clear from the
perspective of increasing the volume of electronic payments in Myanmar. In addition to this,
there is also the consideration that the potential for electronic services to begin the
displacement of cash is also greatly inhibited. A markets propensity to shift113 from cash to
electronic payments is commonly driven by a wide network of acceptance points for cash
deposits (cash in), mirrored by a sufficiently large network of distribution points (cash out).
The cash in/cash out dynamic has been well demonstrated in markets such as Kenya and
Brazil, where large retail networks have enabled the reduction of cash usage by a wide
network of locations that can convert cash into electronic form.
There is potential to broaden the available touch points beyond the current set depicted
above, if mobile phone networks enable the use of other retail channels to act as service
outlets for a limited set of financial services (e.g. cash in and cash out). Examples of such
channels would post offices, retail grocers, pawn shops or even dedicated financial service
agents. The role of mobile phone networks in establishing the infrastructure needed to
expand payment touch points is discussed in the following section.
Significance of Mobile Phone Networks
Mobile phone penetration in Myanmar has skyrocketed in the past five years since the
market has liberalized and allowed greater access to network services. This growth is only
expected to continue in the coming years, especially in consideration of the recent award of
licenses to Norways Telenor and Qatars Ooredoo Telenor which have a particular history
of integrating mobile payments into its operations as evidenced by its operations in Pakistan
(Easypaisa, 2014).

20%

20%

18%
16%
14%
12%

10%

10%

8%
6%
4%

2%

2%
0%

2000

2001

0.28%

0.15%

0.03% 0.05%
2002

2003

2004

2005

1.05% 1.24%

0.53%
2006

2007

2008

2009

2010

2011

2012

2013

Figure 39: Mobile phone growth in Myanmar

Source: International Telecommunication Union, 2013

113

Better Than Cash Alliance, Empowering people through electronic payments. [Online]
Available at: http://betterthancash.org/ [Accessed December 2013].

132

The mobile phone offers two opportunities to address critical infrastructure gaps in
Myanmar. Firstly, mobile networks operate on real time connectivity, for voice and data
traffic. There is currently no comprehensive and reliable real time connectivity between
financial institutions in Myanmar. This further exacerbates the obstacles facing the
development of a RTGS and usage of core banking systems by commercial banks. Providing
this connectivity alone will transform the way financial services are offered in Myanmar.
Payment services in particular are likely to benefit significantly, particularly where electronic
transactions are expected to be a viable alternative to cash. The immediacy of in-person
cash transactions is an important characteristic that electronic payments must seek to
replicate in order to become a viable alternative to cash.
The second opportunity is in the mobile device itself, which provides all the functions of a
POS device without the need of a separate card. This enables customers to issue payments
instructions themselves, check balances and receive confirmations (i.e. payment sent or
received). This brings the payment terminal that traditionally has required a bank branch or
merchant outlet into the hands of the customer, providing control, convenience and
accessibility similar to that of cash. Thus it increases the likelihood that customers will adopt
electronic payment services. An additional attribute is that the mobile phone is commonly
purchased by the customer, thus reducing the infrastructure costs114 normally taken on by
financial institutions.
The mobile phone and its accompanying networks are not replacements of the existing
infrastructure such as ATMs, POS and Bank Branches (with the former and latter still heavily
reliant on cash, requiring cash management and distribution). Rather, mobile infrastructure
provides an alternative means in which customers can engage in the payment system. Such
a diversity of options (coupled with a diversity of providers) sets the stage for a payment
system that can serve market demand in an efficient and cost effective manner, allowing
customers and providers to choose the means that suits their respective needs.
Box 8: Myanmar Payment Union: Role and significance to NPS development

The banking sector has organized an industry association, the MPU with the encouragement
of the CBM to facilitate the introduction of electronic retails payment infrastructure in
Myanmar, in particular card technologies for use at ATM and POS networks. The MPU
project was initiated by the CBM in 2011 for the main purpose of creating a domestic card
acceptance network for domestic payments.
The MPU runs the domestic payments switch from the CBM offices in Yangon enabling all
banks in Myanmar with ATM and POS to connect to a central processing location. The
switching platform was procured with the help the Chinese as part of Myanmars
modernization efforts. All of the cards issued in Myanmar are MPU branded, with 200 000 in
total. However, the system experiences heavy down time (up to 90% for POS) and struggles
with capacity issues, particularly for merchants untrained in the use of POS devices.
The CBMs leadership in the MPU was critical from its inception, reflected by its chairmanship
of the MPU Steering committee. In 2012 the CBM pulled out of its direct leadership role,
leaving the member banks to run the organization. This transition signifies a more industry
led development of the retail payment system, although the CBM still provides guidance in
114

For example liquidity in the banking system is freed up as the local cash is circulated more effectively, while the daily float
maintained at the respective financial institutions keeps track of transactional balances electronically.

133

its role as the payment system regulator.

A notable example of the CBMs involvement in the policies set by the MPU relate to
transaction fees for ATMs and POS. With the CBM as chair, the MPU agreed that a single
interchange fee will be charged for POS and ATM transaction (1% and 0.1% respectively).
The purpose of this fixed fee is to ensure that the cost of electronic payments services is
provided as a viable alternative to cash. There are too few transactions in Myanmar to judge
the consequences of a fixed interchange fee115. It is also unknown to what degree these are
passed on to the customer. Providers are however likely to generate much of their fee
income from ATM and POS usage by tourists via Visa and MasterCard transactions, who pay
additional transaction fees to the owners of the terminals. There are several challenges
faced by the MPU and inhibiting effective growth in the card network. Most importantly is
the limited communications network which is further handicapped by the relatively
unreliable electricity grid. In addition the MPU does not have permanent staff; instead
rotating secondees from the various member banks fulfil this role. This reduces the depth of
expertise with the organization and impacts the quality of service. Due to international
sanctions, it has also been difficult to get quality vendors to provide physical or online
technical support to the MPU (for both hardware and software matters). And lastly, the
decision making process can be inefficient as few member banks are active participants in
the governance of the Union. As a result the MPU struggles to take timely action due to the
committee structure and lack of permanent staff.

9.4.

Products

The payment products offered by regulated financial institutions (i.e. banks) in Myanmar are
limited to internal transfers, either between accounts or between branches of partner bank
networks and some bill payments. Customers can walk in at any bank branch and send funds
to any other branch within the respective network. This product allows Burmese citizens
access to personal remittance payments as well as retail payments to (or from) businesses. It
is important to note that remittances are a major revenue source for banks (between 10%
and 20% of total income) due to the demand for regulated payments and ease of sending
between bank branches.
Remittance services offered by hundis are arguably more convenient as they are more
proximate to the customer, on both the sending and receiving side. For senders, a hundi can
often be found in the local community, near residential and business areas. It is similar for
receivers, who can then easily and conveniently locate the hundi to collect expected
payments. In some cases hundis will bring funds directly to the receiver of the payment, thus
completing a full door to door service.
Currently, electronic payment services offered to retail customers are limited to ATM
withdrawals and POS payments. There are currently 200 000 debit cards issued to bank
account holders for use only on domestic channels (i.e.: 250 ATMs and 722 POS devices).
There are no credit cards or pre-paid cards issued by providers in Myanmar.

115

A fixed low interchange fee, coupled with an industry lead MPU could possibly work against the implementation of card
based payments infrastructure by commercial banks. It would be valuable to estimate the ATM and POS business case for a
bank in that market compared to the central banks workings underpinning the interchange rates, if that is at all possible. An
artificially low rate in a developing market may not be sufficient to warrant the initial long term capital required.

134

Visa and MasterCard transactions can be honoured at some places of business and ATMs,
mainly within Yangon. These cards must all be issued by foreign banks outside of Myanmar
as none of the domestic banks are currently issuers of any international payment network
cards. For this reason, the Visa and MasterCard network is largely only accessible to tourists
and the Burmese diaspora with foreign accounts.
As noted in Section 9.3, a single mobile wallet solution was launched in early 2014 which is
closely linked to Innwa Bank, Ltd. Mobile Money Myanmar is permitted to provide the full
range of services. It was launched to assist with salary disbursement through a network of
50 agents under the new Mobile Banking Directive. The company is small, with a mixture of
corporate and individual shareholders.
Foreign exchange services in Myanmar are hamstrung by international sanctions and the
lack of appropriate systems within banks to administer international payments. International
sanctions have made it increasingly difficult for banks to access payments from abroad due
to Myanmars inability to adhere to international standards for anti-money laundering. Aside
from the due diligence and governance requirements, banks are also required to have an
electronic core banking system in order to facilitate international transfers. Currently no
bank in Myanmar has a core banking system (although several are in the process of acquiring
systems). Due to these conditions, most international remittances are forced through
unregulated cross border channels, most often in the form of cash exchanged in the
unregulated market. Once banks have systems in place and sanctions are lifted, it is likely
that Myanmar will experience a significant increase in cross border remittances through
regulated banking channels. These are likely to be higher value payments at first until the
extensive diaspora are offered products that can compete with unregulated channels
offering lower value payment services.
Cost of common retail payment services in Myanmar
Table 28 below outlines the cost per transaction of payment services noted previously. The
pricing for interbank transfers and hundi services may vary slightly by provider, although
interviews with banks and hundis indicated that the prices set out in this table are within the
average. Card transaction rates are fixed by the MPU.
Category

Service

Cost

Card

ATM withdrawal

Free116

POS payment

1% of total value paid117

Interchange fee

0.1% of total value withdrawn

Within bank partner network

0.15% of total value sent

Interbank transfer

116

It is worth noting that free withdrawal of cash implies that the cost of cash handling is offset elsewhere in the value chain.
Given the low cost of cash handling in Myanmar this is unlikely to be a significant offset. However if cash handling increases in
the future it may put pressure on providers of the ATM network.
117
This cost is often carried by the merchant. It is unknown to what degree this is passed on to the customer.

135

Category

Service

Cost

Hundis

Less than K 500 000 (USD 529)

1% of total value sent

More than K 500 000 (USD 529)

0.5% of total value sent

Table 28: Payment Service Fees.

Source: Interviews with providers

An interesting characteristic of the financial services environment in Myanmar is the

common pricing standards across nearly all providers of electronic payment services. This is
a legacy of the centralized decision making process employed by the CBM across many of its
financial services policies (including for example interest and lending margins). Fixed rates
for card transactions, particularly interchange fees, are particularly interesting as these may
have implications for the development of innovative business models in electronic banking.
It is worth noting that that hundis are considerably more expensive than the alternatives;
however they remain popular due to their availability and accessibility.
The rationale for the fixed rates was to keep fees low enough to compete with the cost of
cash. In other words, the fees reflect an explicit strategy to keep electronic payment services
affordable and encourage customer usage. While this aspect is encouraging from the view of
financial inclusion, it is uncertain what impact this will have on providers should the market
liberalize. In a more competitive market pricing differentiation is often one way for providers
to distinguish themselves from one another to offer a more compelling service to customers.
In addition, the investment in infrastructure for electronic payment acceptance (ATMs, POS,
mobile money agents, etc.) will incur maintenance and operating costs that are traditionally
covered in these fees (e.g. ATM withdrawal). The low margin transactions may be a
disincentive for providers to commit to investment in distribution networks needed to drive
scale.
Table 29 below revisits the Payment Grid discussed previously and summarise the products
available in Myanmar in relation to their corresponding use case:

PAYER
Government

PAYEE

Business

Business

Person

There is not a lot of variety of

products available for
businesses.

Individuals with bank accounts have

a slightly wider set of payment
options, namely inter-bank transfers,
card payments at POS, cash
payments at bank branches and
hundis.

Interbank transfers (account to

account) are only available for
the small proportion of the
population with bank accounts.
It is likely that hundis serve the
greater need of B2B payments

Those without bank accounts are

limited to the unregulated network
in order to make payments to formal

136

via its unregulated network.

This is particularly the case with
international remittances for
small and medium businesses.

Person

The government
as payment
service provider is
limited to salary
and pension
disbursements via
nominated banks
(such as MEB).

businesses.

Similar to the B2B category, there is

not a lot of variety of products
available for P2P payments,
particularly for those without banks
accounts.
Bank account holders can use
interbank transfers to pay other
account holders, but otherwise must
revert to hundis to make unregulated
payments.

Table 29: Payment Grid- Payment Products in Myanmar.

Source: Authors own

9.5.

Regulatory constraints and enablers

Regulatory framework for payments is under development. The regulatory framework for
payment systems in Myanmar is currently under development and comprehensive guidance
has yet to be issued to the market. The CBM is authorized to oversee the efficiency of the
payments system, including the clearing of payment transactions under the Central Bank of
Myanmar Law (2013)118. The Payment Systems Department at the CBM is tasked with the
execution of this role, with direct oversight of the payment system.
Bilateral guidelines for interbank settlement. The implications of the absence of a payment
systems law is that only banks have access to the framework that outlines the rules for end
of day interbank net settlement or other similar coordinating measures needed to ensure
the national payment system operates efficiently. The CBM has issued guidelines for end of
day net settlement bilaterally to all financial institutions. These guidelines are not publicly
available and currently only relate to the analogue (paper based) processes that currently
occur at end of day at the CBM offices in Yangon.
Rules for retail transfers remain in demand. Similarly publicly available rules on the
conditions for retail transfers, issued by or on behalf of individual clients or businesses, have
yet to be released to the market. Such rules would cover redress mechanisms in case of
transaction failure, payment processing time, account information requirements for
payer/payee, etc. It is unknown whether the CBM has issued guidelines to banks bilaterally
to standardize retail transfers in Myanmar.
Electronic Transactions Law may not fully address retail payments. The CBM has issued the
Electronic Transactions Law, 2004 which apply to any kind of electronic record and
electronic data message used in the context of commercial and non-commercial activities
118

Chapter II (Establishment and Aim) Section 6(b).

137

including domestic and international dealings, transactions, arrangements, agreements,

contracts and exchanges and storage of information119. This law does not deal directly with
payments but does set a foundation from which electronic payment transactions may
operate. Most importantly, this law sets out the conditions around electronic signatures,
contracts and agreements120. All of these matters are critical components of financial
transactions that might leverage electronic technologies (such as personal computing
devices or mobile phones), particularly in the process of account opening and authorisation
of financial services121. Therefore the Electronic Transactions Law may need to provide
guidance tailored to emerging models of retail payment transactions, particularly if there is a
strategic interest to develop new distribution channels or stored value payment instruments
(such as agents and e-wallets, respectively).
In 2013, CBM issued the Directive on Mobile Banking, which offers an initial way forward for
a mobile money solution. However, it does not permit the type of mobile network operatorled mobile money solutions such as M-Pesa in Kenya. The initial guidelines were focused on
enabling a bank to launch services or a bank-linked solution and require a high degree of
involvement and responsibility by a bank or financial institution with support from a mobile
network operator.

Regulatory constraints

Use cases impacted by

constraints

NPS Strategy
There is no centralised National Payment System (NPS)
strategy with which to manage the complexity of
coordinating developments across this variety of services
and providers. In the place of a strategy there are several
concurrent government sponsored initiatives intended to
"modernize" the CBM's technical capacity and infrastructure.
The creation of a more efficient payment system may rely
heavily on the displacement of cash payments, which the
country is heavily reliant on at the moment. A NPS strategy
would provide the CBM an opportunity to identify priority
activities which would sequence the development of
infrastructure and creation of incentives for businesses and
customers in an appropriate fashion.

All use cases are impacted.

For example, a national
strategy can help leverage
government payment
distribution by creating an
acceptance network for
business and person
payments.

Mobile Payment Framework

The CBM has expressed interest in mobile solutions and
provided guidelines to permit a limited form of mobile
financials services. This early advice necessitates a bank or a
heavily involved bank partner. This includes requiring full
know-your-customer procedures and subjecting the service
to most banking laws. However, the initial guidance did

P2B and P2B are

particularly impacted as
more individuals obtain
mobile phones and
communication

119

Chapter III (Application), Section 4(a), Electronic Transactions Law, 2004

Chapter VIII (Electronic Record, Data Message and Electronic Signature), Section 19(a), Electronic Transactions Law, 2004
121
This is not limited to payments, as insurance and credit services would also heavily rely on efficient means of contract and
signature authorizations to acquire new customers at scale.
120

138

Regulatory constraints

Use cases impacted by

constraints

permit the creation of electronic wallets (as distinct from infrastructure improves.
individual bank accounts), the collective balance of which
must be held on deposit in a regulated bank. It also enables
non-banks to effectively provide the service if a partner bank
is willing to assume a significant level of liability for the
providers operations, including responsibility for verifying
customers identity and have the ultimate liability for the
provider liabilities and those of their agents (i.e. in case of
fraud or negligence). The CBM noted in discussions that
these regulations were the first step and it was interested in
enabling the non-banks to play a greater role.
The Ministry of Communication and Telecommunication has
indicated that mobile financial services are a high priority.
More important, the CBM itself has publicly noted that
ultimately regulations will include both financial institutions
and mobile network operators and they see the need for a
role for mobile solutions not only in payments, but also in
deposit-taking, loan disbursements and loan recovery,
although the particulars of this are unknown. At present
there is also little communication infrastructure in place to
support the use of electronic payments, nor is there a clear
policy direction/objective that indicates channel or service
priority.

139

Regulatory constraints

Use cases impacted by

constraints

MFIs cannot complement existing distribution network

As noted previously, MFIs are legally permitted to provide
remittance services, but this provision is not activated in
the approvals and authorization process, thereby limiting
MFIs from using their distribution network to compliment
the bank branch remittance network. It may not be
appropriate for MFIs to offer payment services themselves,
as this would require operational capacity beyond the
current resources of MFIs. However there may be
opportunities for MFIs to act as agents of payment services
providers (such as banks) and thus focus on payment
acceptance and disbursal to being services closer to
customers and reduce the reliance on unregulated channels
and services.

P2P and P2B, as MFIs have

access to the low income
segments and can serve as
cash merchants for low
value disbursals and an
acceptance network for P
and B payments.

Unclear guidance on use of new distribution channels

Operational requirements for non-branch based distribution
(i.e. payment agents or cash merchants) are currently
unclear as there are no published rules on ATM or POS
usage. In regards to the use of payment agents there are no
rules or guidance available publicly. The use of minibranches by banks which offer reduced services to
customers in more remote locations may be used as a proxy
to measure the intention of the CBM to encourage outreach;
however it is unclear how this may change with increasing
penetration of mobile phones and entrance of new mobile
operators into the market.

All use cases are impacted.

Each use case will benefit
from a wider variety of
payments outlets and
providers of infrastructure
can determine the best
outlet for their respective
business model.

Table 30: Payments regulatory constraints

Source: Authors own

9.6.

Gaps and opportunities

Payments system development in Myanmar is in its early stages but will likely proceed
rapidly in the coming months and years. Here we have highlighted four critical priorities that
need to be addressed in order to enable a national network of payment services that can
support retail and wholesale payments at scale, ultimately leading to less dependence on
cash:
10. The priority for payment system development in Myanmar should be its electronic
infrastructure for real time settlement of interbank payments as well as distribution of
retail payment networks. This includes RTGS and ACH systems (wholesale) and real time
processing and switching platforms (retail).

140

11. To avoid ad-hoc development of the sector, a National Payment System Strategy and
associated system standards should be considered. It is important that the CBM, as
supervisor of the payment system, balances the development of service infrastructure
with incentives for businesses and customers who would operate within the system. In
this way, the CBM can best support critical retail payment use cases via improved
efficiency, cost and convenience.
12. There is an opportunity to create a foundation for new technologies, such as mobile
phones, to leverage existing card and planned RTGS platforms. Future public policy
guidance can catalyse market development by acknowledging and preparing for a
national retail payment platform that can operate in real time using instruments that
allow customers to directly issue and manage payment instructions (e.g. via mobile
phone or internet interfaces).
13. The MPU should be leveraged as an industry body with a mandate to engage in a
consultative dialogue with the CBM regarding the business case for payment system
development. In addition to adequate regulation the business drivers and incentives for
delivery of retail payment services should be understood and developed in order to
create sustainable growth in the payment market. Providers are only now investing in
the necessary platforms to serve existing customers electronically. Therefore, public and
private stakeholders should engage in a transparent consultative process to understand
the cost and benefit of infrastructure developments and associated the business case for
nationwide service delivery to a new customer base.
Each of the aforementioned priorities fall within the jurisdiction of CBM, as regulator of the
payment system. The CBM is moving forward on several of these fronts, most notably in the
development of an electronic infrastructure for interbank payments, support of the MPU
and consideration of a framework for mobile phone enabled payment services. These are all
promising endeavours that will likely have significant impact on the future of retail
payments.
In light of these priorities, it is worth noting that due care should be taken to appropriately
sequence and develop the various components of the payments services environment, in
particular where specific issues will enable others. For example, what infrastructure is
necessary for mobile phone based services to flourish? How much volume must pass
through the RTGS or ACH before banks are efficiently running their core banking systems
and thus have the capacity to manage high volume retail payments? Questions such as these
take some consideration and dedicated resources on the part of the planning authority
(public, private or combined) to ensure the development of the system is efficient, safe and
effective. It is here that a National Payment System Strategy can help to determine the
appropriate sequence of priorities, in turn providing more certainty to the market and
allowing all stakeholders to more efficiently dedicate resources.
In conclusion, we have learned from global precedents that modern payment systems will
evolve as the characteristics of the market change. For example, customer demand shifts or
new technologies become available that disrupt traditional service channels. In addition to a
clear market development strategy, a solution to the management of the evolution of the
payments system is the use of regular market diagnostics to assess and measure
developments. Dedicating resources to conduct regular diagnostics can provide an evidence
base from which to engage with the industry, inform policy and keep pace with a dynamic
payment services sector that can underpin wider access to financial services in Myanmar.
141

10.

Market for Insurance

The following section aims to capture the market for insurance in totality and as it relates to
the priority target groups as identified in Section 4.2. This includes providing an overview of
current usage, description of the providers and describing the products that they offer.
This section also provides a few of the key challenges and opportunities the market for
insurance faces in further meeting the needs of the target groups.

10.1. Insurance landscape and take-up

Low levels of regulated insurance penetration. Only 3% of adults in Myanmar (1.26 million)
indicated that they have an insurance product from an insurance company. Regulated takeup was highest in urban areas with 7% of adults in metropolitan areas (353 000) reporting
take-up of a regulated insurance product. Usage of regulated insurance is very low in rural
areas with only 1.5% of adults (410 000) reporting the use regulated insurance.
3.2%
Total

4.4%

33.5%

59.0%

1.5%
Rural

37.6%

5.8%

55.1%

1.2%
Urban

7.0%

0%

24.3%

10%

20%

67.6%

30%

40%

50%

60%

70%

80%

90%

100%

% of Total, Rural or Urban adults

Regulated insurance

Unregulated insurance only

Self mitigation only (saving or borrow)

No mitigation

Figure 40: Usage of insurance by source of provision

Source: FinScope 2013

Unregulated risk cover exceeds that of regulated. Unregulated insurance (insurance not
obtained from an insurance company) comprise of adults who borrow from or have savings
with MFIs as well as adults who reported belonging to an unregulated risk mitigation group
like a funeral aid association or social welfare association. Overall take-up of unregulated
insurance was reported as higher than take-up of regulated insurance products. The total
number of adults who reported to use regulated insurance products account for 3% of the
adult population. The highest take-up of unregulated insurance (both unregulated only as
well as those who have a regulated and unregulated product), both in absolute and relative
terms, is in rural areas (1.7 million adults, or 6% of adults). Almost no adults in metropolitan
and semi-urban areas have unregulated insurance (see Figure 41 below).

142

High rates of reactionary mitigation to risk experienced. A large number of respondents

reported to have used credit or savings to mitigate risk that has been realised. These
respondents are classified as individuals who mitigate their own risk and can be seen as a
proxy for insurance demand. As shown in Figure 40, above, there is a large degree of
reactionary mitigation (self-mitigation after the risk has been experienced) in Myanmar, with
34% only using self-mitigating when experiencing an actual insurable risk (or 37% in total).
Self-mitigation is highest in rural areas where 38% of adults only made use of self-mitigating
options when faced with a risk (or 42% total self-mitigation) and lowest in metropolitan
areas with only 12% reverting to self-mitigating options (or 14% total self-mitigation in
metropolitan areas).

Figure 41: Take-up of regulated, unregulated and total insurance by urban/rural areas
Source: FinScope 2013

Large degree of vulnerability for those who experienced insurable risks. A large proportion of
adults (across all target groups) who experienced insurable risks reported that they could do
nothing122 to mitigate these risks once they occurred. Figure 42 below illustrates the six
biggest insurable risks experienced along with the percentage of adults who experienced
each risk reporting that they either used credit or savings in response in order to mitigate
the risk, or that they could do nothing. Four of the six largest insurable risks experienced
related to agriculture. Excluding illness, between 23% and 47% of adults who experienced
the six most prominent risks reported that they could do nothing in response to mitigate the
risk.

122

Respondents could choose between using insurance, using savings, borrowing money, selling something, cutting down on
expenses or not being able to do anything

143

35%

69%

70%
60%
47%

50%
40%

39% 40%

27%

20%

9%
6%

30%
25%

22%
21%

38%

30%

10%

53%

49%

48%

31%

20%
15%

29%
23%

6%

10%
4%

0%

5%
0%

Death or illness
of livestock

Flooding /
storms

Loss/failure of Drought, poor Harvest failure or Illness within

your business rainfall or loss of losses of crop your household
access to water harvest (incl.
or family that
for farming
plant disease) requires medical
expenses
Risks experienced vs. response mechanisms

Used savings or borrowed money

Could do nothing

% of population who experienced insurable event

Figure 42: Largest insurable risks experienced versus risk mitigation response
Source: FinScope 2013

Significant variation of take-up between target groups. All target groups showed very low
take-up of insurance products. There is however a significant variation between the take-up
and sources of insurance between the target groups (as identified in Section 4.2). Table 31,
below, provides take-up figures of each of the target groups. The main points relevant to the
analysis are:
1) Informal consumer market and Farmers have the lowest take-up of regulated
insurance products. Farmers (2% take-up) and the informal consumer market (2%
take-up) indicated that they have obtained insurance from an insurance company.
2) Formal consumer market has the highest take-up of regulated insurance (13%)
followed by Formal enterprises (11%).
3) Farmers and the Informal consumer market both indicated high reliance on savings
and credit to respond to risk events. Five million adults or 42% of farmers rely on
credit and savings to react to risk events. Of the Informal consumer market, 31% (2.7
million adults) indicated that they rely on credit and savings to respond to risk
events.
4) Farmers and Informal enterprises had the highest take-up of insurance products
from unregulated providers.

144

% of adults

% od adults who experienced risk

80%

Target group

Economic group

Regulated

Unregulated
only

Reactionary risk Excluded

mitigation only

Farmers
12.1m adults
Formal enterprises
2.5m adults

Farmers

2.4%

6%

41.9%

49.7%

Formal
enterprises

11%

1.3%

21.3%

66.4%

Informal enterprises
4.7m adults

Informal
enterprises

3.3%

4.6%

29.5%

62.6%

Formal
consumer Employees of
market
formal private
1.7m adults
companies and
Government
employees

13.2%

3.7%

20.8%

62.3%

Informal consumer Farm workers,

market
Salaried private
8.5m adults
individuals,
Piece and casual
workers,
Remittance
dependents

1.5%

4.5%

31.3%

62.7%

Table 31. Take-up of insurance by target group

Source: FinScope 2013

10.2. Use cases

The most important use cases for insurance were identified during the qualitative demandside research, quantitative segmentation exercise (see Section 4.2) and supply-side
interviews. The FinScope survey revealed high risk exposure of respondents to insurable
risks. Of the 15 insurable risks covered in the questionnaire, 58% of adults (almost 23 million
adults) experienced at least one of these events. Qualitative research indicated that
insurance as a concept is virtually unknown, except for a few government employees who
had life insurance. However, unregulated risk mitigating groups, community structures or
charities seems to be prevalent and assist community members with medical expenses,
funeral expenses or burials.
There are a number of use cases that illustrate the demand for risk cover and could be
explored as opportunities to extend cover. We summarise these briefly below:
Health insurance. The most prominent risk event reported by FinScope is illness within the
household or family that requires medical attention (see Figure 42 above). Of the individuals
surveyed, 31% indicated that this risk has affected them in the past and 88% believe this to
be a potential risk. This was supported by qualitative demand-side respondents who
indicated health risks as a prominent concern. Of those who have experience this risk event

145

the majority of individuals have relied on credit (48%) followed by the sale of assets or
reduced expenditure (27%) or have relied on savings (22%).
Agricultural insurance. Weather risk is a prominent issue undermining the extension of
agricultural credit and ranked as the second most prominent risk by adults in Myanmar. Of
the 12 million farmers whose main income is from farming (Farmer target group), 48%
indicated they have experience losses of crop or harvest failures and 43% indicated that they
experienced drought, poor rainfall or loss of access to water. In addition, 8% of farmers
indicated that they experienced flooding and storms and 10% death or illness of livestock. In
the absence of insurance products, 40% of farmers who have experienced these risks relied
on credit, 10% on savings and 22% will sell assets or reduce expenditure. In addition to the
risk faced by farmers, agricultural finance companies face risk of default due to risk events.
One of the last remaining rice-specialisation companies to offer loans noted that they have a
large outstanding loan book due to floods in the previous year. As a result of the floods, one
third of their borrowers lost their crops and was unable to repay their loans. The importance
of risk cover was also echoed by other players in the agricultural value chain. A number of
these value chain players have large client bases and can act as aggregators for agricultural
and other insurance products.
Life, funeral insurance and disability insurance. Approximately 2.3 million adults (6% of
adults) reported experiencing the death or debilitation of a family member. Savings and
credit have to-date been the largest coping mechanism followed by the sale of assist or
reducing expenditure. The unregulated products provided by MFIs and co-operatives reveal
that there is a need for products that can manage this risk (both from clients and credit
providers perspective). The use of informal funeral societies further illustrates this.
Credit life insurance. Myanma Insurance does not offer credit life insurance. Apart from the
evidence of MFIs and co-operatives developing their own cover, the expansion of credit by
commercial banks and SFIs will also create a need for such cover.

10.3. Providers
There are currently three categories of insurance providers to be considered in Myanmar:
Regulated insurers, regulated financial services providers who are unregulated for the
provision of insurance and unregulated societies. Below are emerging trends and
developments related to the provision of insurance in Myanmar.
Myanma Insurance had a monopoly for the past 50 years. As of May 2013, Myanmar only
had one government-owned insurer, Myanma Insurance. It was the only insurer in Myanmar
for over 50 years and has 39 regional, state or district offices, but customers can also use
MEB branches (329) to make premium payments. Myanma Insurance has 996 staff
members123 and uses an additional agency force of 700 agents to distribute its products.
Twelve new domestic insurers licenced in 2013. In May 2013, five new licences have been
issued for domestic insurers124 with a further four licensed later in the year (Horn, 2013).
Two of the five licenses granted in May were for life insurance only, the remainder of the
123

They are allowed a maximum of 1 394 staff, but government are currently restricting them their staff budget and they
therefore only have 996 staff members at the moment.
124
May 2013, 3 life 2 composite

146

twelve are all for composite business (life and asset insurance). All of these insurers are
affiliated to large domestic holding companies whose portfolios include other financial
service providers in their grouping (mostly commercial banks) as well as a diverse set of
other business (e.g. tourism, construction, oil, etc.). The new insurers will only be allowed to
underwrite six insurance products to start with. These are life, fire, motor, cash in vault, cash
in transit and fidelity insurance.
Insurance Company
First National
IKBZ
Excellent Fortune
Capital Life
Grand Guardian Insurance
Public
Global World
Young Insurance
Aung Thitsaar Oo.
Pillar of Truth
Citizen Business Insurance
Ayeyar Myanma Insurance
Aung Myint Moe Min

Holding group
Asia Green Development Bank
Kanbawza Ban

Status
Operational
Operational

Capital Diamond Star Group

Operational

Shwe Taung Business Group

Asia World
Young Investment Group
Myawaddy Bank
Oil and Gas
Co-operative Bank
Max-Myanmar
The Myanmar Economic Corporation

Operational

Licensed
Operational
Operational
Operational

Licence
Composite
Composite
Not Finalised
Life
Composite
Not Finalised
Composite
Composite
Not Finalised
Life
Composite
Composite

Table 32: New private insurance licenses granted in 2013

Source: The Irrawaddy (2012) and Orixinsuarance (2013)

Very low Insurance penetration in Myanmar. Myanmar insurance premium data for 2013
indicates total premiums of K 35.5 billion (USD 37.5 million), which is 0.1% of Myanmars
GDP - estimated by the IMF at K 44.6 trillion/USD 41.1 billion for 2012/2013 (IMF, 2012). This
is very low compared to the Asian emerging markets average of 2.7% and compared to
regional neighbours like the Philippines, Vietnam and Indonesia who have insurance
penetration (premiums as a percentage of GDP) of between 1.2% and 1.8% (See Figure 43
below).

147

Premiums as % of GDP (2012)

6%
5%
4%
3%

5.02%

4.80%

3.96%
2.96%

2.96%

2.65%
1.77%

2%

1.42%

1%

1.40%

1.20%
0.08%

0%

Premiums as % of GDP (2012)

Figure 43: Insurance penetration comparison (Premiums as % of GDP)

Source: Sigma, No3/2013: World Insurance in 2012

Strong premium income growth driven by asset insurance. According to premium data
received from Myanma Insurance for 1991, 1996, 2001 and 2005125 insurance premiums
have grown steadily between 1991 and 2005 at an average rate of 19% per year. Growth in
insurance premiums averaged 20% from 2005 to 2010 (2010 premiums of K 14 billion/USD
14.1 million), thereafter growth accelerated at an average of 36% for the last three years
(2011 to 2013). The bulk of the growth since 2005 has come from fire and third-party liability
insurance.

125

K 494 million, K 993 million, K 1 818.7 million and K 5 660.6 million

148

40000

35 556

35000

33 824

Kyats million

30000
24 103

25000

19 643

20000

14 073

15000

9 679

10000

5000

5 661
451 863

5 082 5 805

22 558
18 259

11 85412 873
7 401 8 712

1 732

Total

Asset insurance

Life Insurance

Figure 44: Myanma Insurance premium income

Source: Myanma Insurance data as reported by CSO

Insurance penetration (as % of GDP) declined for two decades before rebounding in 2011.
Despite steady premium growth over the last two decades (1991 to 2011), the insurance
sector remains very small and has not kept up with economic growth in Myanmar over this
period. As a result, insurance penetration (insurance premiums as a percentage of GDP)
declined from an already low 0.3% in 1990 to 0.05% in 2011. This trend was reversed from
2011 onwards (with an average premium growth of 37% per year) increasing insurance
penetration to 0.08% of GDP in 2013126 (IMF, 2012).
Myanma Insurances business is dominated by small number of corporate asset insurance
policies. Myanma Insurance offers 43 product lines. Fire insurance made up 56% of all
premiums in the financial year ending March 2013. This represented a decreased
contribution from 75% in 2011. Compulsory third party liability contributed 19% of
premiums and marine, aviation and comprehensive insurance lines contributed a further
17%. There were 2.4 million third party liability policies in 2013 with the remainder of the
other asset insurance lines contributing fewer than 75 000 policies (Figure 45 below shows
product line contribution to Myanma Insurance premiums).

126

Based on IMF GDP estimate for 2012/2013 (IMF, 2012).

149

100%

90%

10%

8%

7%

5%

7%

5%

4%

4%
12%
19%

% of total premiums

80%

Third Party

70%

Miscellaneous

60%
50%

Comprehensive

66%

68%

65%

67%

68%

72%

75%

67%

40%

Engineering
56%

Fire

30%

Air travel

20%

Aviation

10%
0%

10%

11%

11%

10%

8%

9%

7%

6%

5%

Marine
Life Insurance

Figure 45: Contribution of product lines to total Myanma Insurance premiums

Source: Myanma Insurance data reported by CSO

Life insurance contribution to total premiums low. Life insurance made up 5% of premiums in
2013, down from 11% in 2007. The bulk of these policies are made up of compulsory
endowment policies provided to government employees. Voluntary term life insurance
contributes a small proportion of premiums.
Large number of personal accident travel insurance policies. Myanma Insurance reports that
99% of policies under the miscellaneous category127 are travel insurance policies sold
through bus and other travel companies. These policies are voluntary and only cover
accidents for one trip. The biggest portion of the travel insurance premium comes from
Travel Insurance for Highway Express Bus Lines. These policies are sold through some nongovernment organisations appointed as agencies and demonstrate the ability to leverage
distribution partners to distribute large volumes of small premium policies.
Although profitable and growing, Myanma Insurance provides declining value to policy
holders. Myanma Insurance has consistently reported profits over the last decade and is one
the most profitable SFIs contributing about K 11.5 billion (USD 12.2 million) to the state
budget in 2011. These surpluses have, however, come at the cost of value to policyholders.
Figure 46 below shows that the strong growth in premiums coincided with low and
systematically reducing claims ratios. Only in one of the last ten years did the total claims
ratio for Myanma Insurance exceed 20%128. Claims ratios for life insurance shows better
performance but has decreased over the last ten years. The latest figures show a slight
increase in claims ratios to just below 50% but the average for the last five years is 35%.

127
128

Reported as 19.8 million policies

It was 50% in 2008-09 driven by a 130% claims ratio for marine insurance.

150

Fire

1800

90%

1600

80%

1400

70%

1200

60%
60%

35000
600
30000
400

50%

200
25000
0
20000
15000

40000

40%
30%
20%
10%

All insurance policies

0%

25000
20000
15000
10000
5000
0

40%
15000
30%

40%

10000

30%
20%

5000

10%
0%

60% 1600

All insurance
policies
1400

35000
30000

50%

20000

50%

10000
5000

60%

40000.00
35000.00
30000.00
25000.00
20000.00
15000.00
10000.00
5000.00
0.00

50%
40%

1200
1000

30%
20%
10%
0%

Product line premiums (Kyats million)

1000
40000
800

25000

800
600
400

20%
60%
10%
50%

40000
35000
30000

0%
40%

25000

20000
15000

30%

Travel
10000

20%

policies

10%
14%

5000
0

0%
12%

60%

10%

50%
40%

8%

30%

6%

20%

4%

10%

200

2%

0%

0%

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Premium

Claims ratio

Figure 46. Premium and claims performance for selected product lines
Source: Myanma Insurance data reported by CSO (2013)

All investments held in government Treasury bills. All Myanma Insurance assets are held in
government Treasury bills. This means that Myanma Insurance does not only contribute to
the state budget through its profits but also provides loan financing to government
operations.
INGO MFIs offer unregulated compulsory insurance cover. The use of unregulated welfare
or provident funds to provide some type of risk cover seems to be widespread amongst
INGO MFIs and the majority of the 690 000 MFI clients are covered by these funds. These
funds cover a variety of risks including life, household structure and crop risks. PACT is the
largest contributor and covers all of its credit clients (more than 450 000) with a compulsory
policy that covers their outstanding debt, provides additional life benefits and also cover
crop and household assets for fire, flood and storm damage (see Section 10.5 for more
details). This product was developed on a trial-and-error basis without actuarial support on
design and pricing. PACT reported that this product recently managed to cover expenses,
although it is not clear whether expenses include management costs or only claims paid. If it
only includes claims paid it suggests PACTs products have a claims ratio of close to 100%.
Based on loan disbursement data it is estimated that the annual contributions to the welfare
fund could exceed K 1.5 billion (USD 1.6 million), which brings it close to the Myanma
Insurance life premiums in 2013 of K 1.7 billion (USD 1.8 million).

151

Claims ration for product line

100%

Claims ration for product line

Product line premiums (Kyats million)

Life insurance
2000

Entity
Myanma
Insurance:
Life policies

Contributions
Policyholders
(K million)
1 732

800 000

CCS Welfare
fund

158

40 205

PACT
Welfare
fund

1 524

>510 057

World
Vision
welfare
fund

19

18 946

Claims ratio
49%

Product covers
Life (main member) and
endowment

Life (main member: Debt + K

100k ), health (K30-K50k),
20%
disability (K 100k) and disaster
cover for housing (K 100k)
Life (main member: Debt + K
Could be as high 100k), crop (K 50k) (Fire, flood,
as 100%
storm), housing (K 50k) (fire,
flood, storm)
20%

Life of main member (debt + K

70k), spouse (K 50k), child (K 30k)

Figure 47. Comparison of Myanma Insurance life business and "welfare" funds
Source: Myanma Insurance data, interviews.

Co-operative borrowers covered by voluntary scheme initiated by CCS. The Central Cooperative Society (CCS) initiated an insurance product in 2011129 that is offered through
member co-operatives. As of March 2013, the scheme reported to cover in excess of 40 000
lives and received premiums of K 158 million (USD 167 019) during that year. Claims ratios
are reported to be between 20% and 30%. Details are provided in the Section 10.5, but the
product covers life, health and asset risks. A basic level of cover is included in the loan with
additional benefits offered on a voluntary basis.
Other co-operatives may have own cover copied from CCS scheme. Although information is
not available for all co-operatives, the co-operatives interviewed during this project showed
similarly structured risk funds derived from a product originally designed by the CCS. At least
one co-operative reported to have established a smaller group of at least ten co-operatives
to manage their own risk pool with a product copied from the CCS scheme. These schemes
do not have the technical skills to price and manage the risk of such a product and still apply
the product structure and pricing proposed by the CCS scheme even though the risk pool is
much smaller. It is not clear what proportion of co-operative members is covered by nonCCS cover.
Widespread risk management through unregulated societies. Qualitative research indicated
that regulated insurance as a concept is virtually unknown, except for a few government
employees who had life insurance. However, unregulated risk mitigating groups, community
structures or charities seem to be prevalent and assist community members with medical
expenses, funeral expenses and other risk events. Such unregulated risk mitigation seems to
be wide spread (like the Free Funeral Service Society).

129

CCS Pink Book (1 December 2011) CCS commenced the General Provident Fund

152

10.4. Distribution
Myanma Insurance distributes its products through 700 agents. These agents receive an
upfront sales commission of between 10% (on life policies; 20% for term life) and 18% (on
marine policies) with no commissions paid on renewals. Agents are not employees of
Myanma Insurance and typically sell insurance on a part-time basis. Myanma Insurance
reports that a typical agent holds a basic graduate degree and goes through a two month
training session before being allowed to sell insurance. They also receive refresher training
(two weeks) every year. These agents can sell all Myanma Insurance products. Newly
licensed insurers are required to use agents trained by Myanma Insurance (see discussion in
Section 10.7) and the demand and competition for these agents is likely to increase
substantially. Myanma Insurance reports that they can train up to 100 agents at a time, and
up to a maximum of 730 agents per year.
Travel policies distributed through travel companies. Travel policies are distributed through a
range of travel companies (non-government companies that are appointed as agencies), but
the biggest proportion of policies sold come from Highway Express Bus Lines.
Limited experience with mass distribution of retail policies. Given that the bulk of life
products are compulsory, there is limited experience with retail distribution of voluntary
insurance at scale. The only exception is travel insurance policies, which may provide useful
experience to consider other alternative distribution channels in future. Apart from travel
companies, Myanma Insurance does not leverage any distribution partners. Myanma
Insurance could leverage distribution channels such as SFIs, private banks or MFIs and other
aggregators for distribution.
Premium payments collection done in cash or by cheque. Premiums of Myanma Insurance
policies are made at Myanma Insurance offices or at MEB branches and are done in cash or
by cheque. Premiums are mostly paid annually but government policyholders tend to pay
monthly using cheques. Policyholders of voluntary policies have the option of paying
quarterly or annually. There are no debit order payments and agents do not typically collect
premiums. The lack of premium payment infrastructure may present problems for the
development of smaller-premium policies to reach out to the wider population.

10.5. Products
10.5.1.

Myanma Insurance

Usage of regulated insurance driven by compulsory products. Regulated use of insurance by

individuals in Myanmar is very low and is driven by compulsory government employee life
insurance as well as compulsory third party liability insurance. Based on data provided by
Myanma Insurance, approximately 2% of adults have life and 6%130 have third party
insurance from Myanma Insurance. The bulk of these policies are made up of compulsory
endowment policies for government employees. These are very small policies with low
premiums and benefit levels. Voluntary term life insurance (one year term) contributes a
small proportion of total policies. Owners of motor vehicles are required to have third party
liability insurance with around 2.4 million policies currently.
130

Assume that number of third party insurance policies represent unique policyholders.

153

Deposit insurance rolled out in last year. Myanma Insurance initiated deposit insurance in
2012. It is compulsory for all commercial banks and covers deposits of less than K 1 million.
As discussed in Section 8.6, it is expected that only a small fraction of bank deposits will fall
under this limit as estimated average deposits for private banks is K 120 million (USD
126 850). Premium started at 0.25% but has subsequently been reduced to 0.13%.
Limited regulated retail product offering. Myanma Insurance currently does not offer credit
life, funeral, health or agricultural insurance. The five new private insurers will not be
allowed offer any of these products either, although insurers indicated that they will be
allowed to apply for additional product lines if their businesses prove to be successful. As an
illustration of potential demand, the Myanmar Rice Federation approached Myanma
Insurance for the underwriting of agricultural risks but Myanma Insurance felt it was not
possible for them to respond currently. Myanma Insurance also does not offer any insurance
products tailored to enterprises.
Myanma Insurance already offering microinsurance policies. It is interesting to note that
Myanma Insurance is already offering a number of low-premium products. Even though
largely restricted to government employees, life policies are reported to have very low
premiums (estimate from CSO data suggests K 2 165 per annum- approximately USD 2.3).
Travel insurance policies sold through bus agents are already said to reach a substantial
number of low-income households. Myanma Insurances snake bite insurance policies are
another interesting attempt to reach low-income farmers although little take-up has been
achieved to date. The available information does not allow analysis of the detailed
performance of these products, but it demonstrates interest and some ability to manage
large volume, low-income policies even within the current paper-based environment.

10.5.2.

PACT

Unregulated insurance products, by regulated credit providers, cover a wider variety of risks
As noted above, a number of INGO MFIs and co-operatives are providing unregulated risk
cover to a large number of their clients and members. These products cover the outstanding
debt in the case of the death of the borrower, but also cover a number of other risks. Three
examples are: PACT, World Vision and the CCS welfare fund.
PACT includes compulsory risk cover on all of its credit clients 510 000 active clients
reported in April 2013. The premium is set at 1% of the original loan value and this pricing
was derived by trial and error without any actuarial input. It provides the following cover:

Life cover: The outstanding debt is settled and it also pays an additional benefit of K 100
000 (USD 106) to the family. Cover is limited to the borrower only and there is no option
available to cover other family members.
Crop failure: This benefit covers loans to members for damages to their crops resulting
from fire, floods and storms. The local credit committee has to assess the damage and
makes the decision on whether to grant a write-off. The loan write-off amount is based
on the value of the loss experienced, but by definition would not exceed the loan
amount.
House reconstruction: Damage to the borrowers house due to fire, floods or storms is
covered for a lump-sum of K 50 000 (USD 53).

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10.5.3.

World Vision

World Vision reported 19 000 borrowers in March 2013, all with compulsory risk cover. The
cover was also not designed with actuarial inputs, but the premium is charged at a K 1 000
(USD 1) flat charge on all loans (except for borrowers with educational loans only), which
amounts to 0.43% of the average value of loans disbursed. The policy provides life cover for
the borrower (outstanding debt plus K 70 000/USD 74), their spouse (K 50 000/USD 53) and
child (K 30 000/USD 32). This cover is subject to a three month waiting period (exclusion
period) from commencement of the loan, and the average loan term is only about seven
months, so the borrower is effectively only covered for four months. Catastrophe cover is
excluded from the insurance contract as World Visions policy is to cancel the outstanding
debt (up to a maximum of K 600 000/USD 634) in case of catastrophe. While this approach
may work in principle, it may be less transparent than coverage through an insurance
contract.

10.5.4.

CCS

The CCS provident fund provides risk cover to members of selected co-operatives. The cover
consists of two components:
Enhanced loan loss reserve: 2% of loan value is transferred to this reserve for all borrowers.
This is not an insurance premium but the normal risk reserve to cover adverse portfolio
experience. Unlike typical risk reserves, however, it is not only the ultimate reserve to cover
defaults but explicitly writes off the outstanding loan in case of death of the borrower or
natural disaster.
General provident fund: This is a voluntary component over and above the enhanced loan
loss reserve. For an additional contribution of K 4 200 (USD 4) per annum (0.7% of reported
typical disbursement of K 600 000 (USD 634) per member per annum), the member qualifies
for an enhanced benefit. The general provident fund currently covers about 40 000
members131. The cover includes:
a) Life - Outstanding loan is settled plus an additional benefit of K 100 000 (USD 106) is
paid on the death of the borrower.
b) Health - Main member is covered for between K 30 000 and K 100 000 (USD 32 and
USD 106) on different health events (see below). Similar benefits are provided on
family health events but is provided as an interest free loan and not an insurance
benefit. Covered procedures/events include delivery (normal K 30 000, abortion K 50
000, caesarean K 50 000), other major operations (K 50 000/USD 53), fracture (K 30
000) amputee (K 50 000) and permanent disability (K 100 000).
c) Natural disaster - A benefit of K 100 000 is paid if a member becomes homeless due
to a natural disaster.
d) Education - A K 45 000 (USD 48) education benefit is available to members as an
interest-free loan.

131

Please note, this figure is as reported by CCS. However, CCS documentation for October 2012 reports this figure as 263 324,
indicating a substantial decrease in the number of members who subscribe to this fund.

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10.5.5.

Unregulated providers

Unregulated products are also available from community based self-help groups (see
Section 10.3) and include funeral services, health services, and general assistance from
donation groups to those in need. Details on unregulated provision could only be extracted
from qualitative research conducted. It was found that most individuals indicated that they
would rely on collective structures to assist others if unforeseen or adverse events occurred.
The collective structures that emerged from the qualitative research were: ward-based
funeral assistance groups, voluntary health assistance organisations and self-help medical
assistance groups as well as need-based donation mobilization within communities (such as
in the case of fire and natural disasters). Many of these structures are mobilized by monks
and community leaders. In most cases, they rely on member contributions and donations
and the benefits are not exclusive to members. The success of these collective structures can
be attributed to the fact that community members are usually willing to donate money, as
such actions result in merit which carries on to the next life in accordance with Buddhist
beliefs. Some qualitative respondents mentioned examples such as: the Optical Charity
Society, Free Funeral Society and Thuhka Charity Clinic. The latter two relied on donations
while the first relied on member contributions which were made on a monthly basis. Table
33 below describes some of the features of unregulated provision that emerged from the
qualitative research.
Unregulated group/mechanism

Features of unregulated provision

Religious contributions/
donations for disaster assistance

Monks mobilize relief for victims of fire, natural disasters, etc.,

by encouraging people to donate in cash or kind. People
willingly donate for such causes, as it brings merit in this life
and carries forward into their next life.

Ward-based funeral assistance

groups

This typically takes place in a ward, though more than one of

these systems could function within a ward. Details of the
systems differs, but in principle everybody who can afford to,
pays a small sum (e.g. K 1000/USD 1 once a month) towards
funeral assistance; upon death, these contributions are then
used towards covering the funeral costs.

Voluntary health assistance

organizations

Monks and community leaders have founded voluntary health

assistance organizations in urban areas. Blood donations,
doctors consultation fees, and pharmaceutical expenses were
some of the services provided by these
associations/organizations.

Self-help health assistance

Within small societies such as people who are from the same
profession (teachers, alumni), from the same birth place
(township association) and same community (ward). They
seem to function under the guidance of a monk in a specific
area. Anybody can contribute, but benefits are not exclusive to
contributors.

Table 33: Unregulated groups/mitigation mechanisms that emerged from qualitative research.
Source: MAP qualitative demand-side research

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10.6. Attitudes and awareness of the target market towards insurance

The qualitative research revealed that regulated insurance was unknown to many
respondents and was rarely used. It also revealed that those who were aware of insurance
were mostly government employees such as military officials who had compulsory life cover,
some small business owners and regulated finance users whom banks had required to
obtain insurance in order to safeguard their collateral. Apart from these few who had
insurance cover, there were a few respondents who were aware of insurance through
having family members that worked for the government or through relatives who lived
abroad and had insurance cover.
The qualitative analysis furthermore showed that knowledge of insurance did not
automatically translate into demand. It appeared that those who had insurance cover did
not always value it, and did not anticipate obtaining additional cover beyond what was
compulsory. In the few cases where respondents reported interest in insurance, there was
little knowledge on how to go about obtaining cover.

10.7. Regulatory constraints and enablers

New insurance legislation is currently in the process of being drafted. The research team did
not have access to the draft legislation, so the analysis is based on what was conveyed
during meetings with Myanma Insurance and new industry players. Based on these
consultations, the following are the key identifiable elements of regulation that will impact
on the development of the insurance market moving forward.
New insurance regulation dictating business model. In an unusual attempt to manage the
risk of new inexperienced entrants, the proposed regulation will require new insurers to
copy Myanma Insurances model and policies in all aspects. Policies will be identical in design
and price, and distribution needs to happen through agents trained by Myanma Insurance.
Given the limited retail portfolio of Myanma Insurance, these constraints will undermine the
ability of new insurers to innovate and will lock the market into the current portfolio and
value proposition of Myanma Insurance.
New insurance regulation limits distribution to traditional agent model. Distribution is a key
driver of the success or failure of microinsurance business models. In particular, distribution
requires going beyond traditional agents and partnering with various institutions and groups
that can provide access to sufficiently large numbers of clients to make it attractive and
viable. Current indications are that the new regulation will, however, require insurers to
follow the same agent-based distribution model used by Myanma Insurance. This includes
high entry requirements for agents (requiring a university degree), which will increase the
cost of distribution and make it difficult to find large numbers of suitable agents. Agents
have to be trained by Myanma Insurance, which will further limit the potential pool of
agents available to the industry (although Myanma Insurance has indicated that they could
train up to 730 new agents a year). Agents are currently recruited and trained to sell all
Myanma Insurance products. This requires agents to be able to deal with complex asset
insurance products at the same time as selling more simple life products. Going forward, it
may be appropriate to allow for agents that may only sell simpler life and low-premium
policies for which the requirements and training can be adapted. It is also not clear whether
the new regulation will accommodate using entities such as banks, MFIs and other
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aggregators as corporate agents. The current regulatory approach is likely to undermine

innovation and will result in high-levels of competition for existing agents. Along with the
general increase in demand for university graduates (as the result of all sectors growing),
this is likely to fuel increasing staff costs.
Compulsory risk pooling. Another element proposed in the new regulation to manage the
risk of inexperienced new entrants is that a limit will be placed on the risks that any
individual insurer may underwrite. At this stage the indications are that the maximum risk
exposure that an insurer will be allowed to carry will be K 500 million. Any risk beyond this
level will be equally distributed amongst all the insurers. The details of the proposed risksharing mechanism were not available at the time of this study but, based on current
indications, there are a number of potential distorting effects that may arise. It may mean
that all insurers will be forced to absorb the risk of the faster growing insurers. The fastest
growing insurers will, therefore, determine the level of risks adopted by the industry. It is
also not clear whether the proposed risk sharing will be done within product segments. If
not, an insurer focusing on one product line may be forced to take on risks of a different
product line. Insurers may also be dis-incentivised to grow beyond the capped amount as
they will not benefit from growth in the portfolio beyond the limited liability amount.
Careful consideration of this mechanism is required given the substantial impact it will have
on market development and the growth appetite of individual insurers.
High entry capital requirements. New licences require an unusually high minimum capital
level; K 6 billion (USD 6.3 million) for life insurance, K 40 billion (USD 42.3 million) for general
insurance and K 46 billion (USD 48.6 million) for composite insurers. This seems out of line
with the nature of risks that some of the new insurers are likely to underwrite and will
impede entry into the market. There is currently no provision for a lower tier of registration
and capital for microinsurance providers. Combined with the potential restrictions on
distribution, the proposed regulatory regime does not facilitate bringing the current
unregulated insurance products into the regulated sector and this is not currently one of the
supervisors priorities.
New insurers limited to six product lines. Private insurers will only be allowed to offer six
insurance products to start with. These are life, fire, motor, cash in vault, cash in transit and
fidelity insurance. At the same time, there are demands for a wider set of products (see
Section 10.8 below). The capacity of insurers to underwrite more complicated products
would need to be considered, particularly as the new regulation is proposing to prohibit the
employment of foreign staff by insurers.
Compulsory 3rd party not included in product lines to be offered by new insurers. 3rd party
insurance is not included in the product lines allowed for new insurers. Given its compulsory
nature, it is typical for new insurers to build their initial operations and scale around this
product. Based on the scale achieved, they can then continue to develop other product lines.
Not making this available to new insurers may therefore impede the development of the
overall market.
Investments restricted to Treasury bills. Currently all Myanma Insurance assets are invested
in Treasury bills and the same requirement are proposed for new insurers. In the absence of
a stock exchange, consideration may be given to how the substantial assets base that the

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sector will accumulate which could also be used to channel longer-term funding into the
banking sector.
Regulation does not accommodate co-operatives. As noted above, co-operatives are already
providing some kind of risk cover to the low-income market. Current regulation does not
accommodate the formalisation of such programmes as co-operatives insurers are not
allowed. It is also not clear that the current approach to intermediation will accommodate
co-operatives as intermediaries.
Foreign entrants and partnerships not yet allowed. Foreign entrants are not yet allowed into
the insurance market and partnerships with foreign insurers are not yet accommodated.
Given the limited technical experience and capacity in the industry, the inability to bring in
foreign expertise through partnerships may be detrimental to the development of the
insurance sector.

10.8. Gaps and opportunities

Institutions opportunities
Retail insurance capacity limited. Regulated insurance take up has been driven almost
exclusively by compulsory products. As result there is little demonstrated capacity to
intermediate small premium policies on a voluntary basis. The main exception is the
personal accident cover distributed through bus companies.
Market liberalization will drive rapid expansion of traditional insurance lines. The recent
opening of the insurance market for new domestic entrants will drive expansion. This
expansion however is not likely to focus on the low-income market (but some of the
traditional market is likely to be low-income e.g. government employees). Given the
current monopolized nature and low take-up of insurance in Myanmar, there will be
countless opportunities for newly licensed insurers to pursue, especially if current efforts to
liberalise the market continue. The current restriction of insurance lines will further
reinforce the focus of insurers on traditional lines of insurance.
Cost of insurance delivery likely to increase substantially. Cost of delivery is likely to increase
substantially and will place further pressure on value. Distribution costs are likely to increase
substantially if new insurers will compete for business. Overall staff cost also likely to
increase as new insurers complete for existing skills and new skills from other growth sector.
Opportunity for additional players to underwrite insurance. There is a significant opportunity
to underwrite insurance in the easier to reach, higher-income and urban segments. It is
unlikely that insurers will extend products to less profitable target groups. In addition, high
capital requirements will exclude or disincentive institutions looking to provide regulated
microinsurance. The apparent successful provision of microinsurance by financial institutions
conducting microfinance business (CCS, PACT, and other MFIs) demonstrates the role that
these institutions can play in providing risk mitigation. These institutions currently cover a
substantial number of clients and providing a formalisation path or increased operation
certainty for these institutions will likely be the biggest short-term contribution to increased
penetration in the low-income market.

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Growth in the insurance sector will generate capital for investment. Further growth will
require consideration of investment opportunities and mandates. If successful, government
may not be able to absorb increased investments in Treasury-bills. At the same time, it may
not want to divert all of the Treasury-bill investment into private sector intermediation.
Investment options also need to take into consideration the risks and returns to ensure that
insurers offer value to consumers.
Product opportunities
Health insurance. There is currently no regulated health insurance product available in
Myanmar. More than 12 million adults (31%) indicated that they or a member in their family
has experienced an illness that required unexpected medical expenses. These respondents
heavily relied on savings, sale of assets and obtaining credit to cover the cost associated to
illness. While health care provision needs are universal, products can be tailored to the
specific circumstances and associated distribution challenges to reach the target groups. The
provision of this product by insurers will require amendments to the product classes
currently permitted under law. Regulated insurers will for, the foreseeable future, not target
groups with irregular income or who are predominantly rural (Farmers, Informal Consumer
market, Informal enterprises).
Agricultural/crop insurance. As of March 2013, no regulated agricultural insurance products
were available to farmers132. Of the 12.1 million adults in the Farmers target group, more
than 5 million indicated that they experience risk which they have mitigated through the sale
of assets, savings, credit or reduced consumption. Agricultural production related risks were
the most prominent risk category for Farmers. While Farmers are almost exclusively rural,
existing financial services providers (MADB, PACT, Awba see Section 7) provide a large
opportunity for a distribution channel.
Credit insurance. Credit life is usually one of the first products to be developed in insurance
markets, and have a positive impact on the development of demand driven economic
growth in a country (through increased consumer credit provision). The lack of credit
insurance could be one of the factors accounting for a constrained commercial credit market
in Myanmar.
AD&D mobile insurance. There is an opportunity for basic insurance linked to mobile phone
subscribers. New models are being developed where a large percentage of mobile network
operators subscriber bases can enrol or are enrolled automatically in a group policy. These
policies are usually limited to accidental death and disability. Because they can capture a
large group diversified risk pool, these policies can provide a low-cost way to provide the
experience of insurance to a large group of users. Some policies are also covering previously
excluded pre-existing conditions, such as HIV/AIDS and vehicle accidents.

132

Deputy Minister of Finance, Maung Maung Thein, indicated in January 2014 that Credit guarantee and Agricultural insurance
will be added as a category of insurance during 2014.

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11.

Market findings by theme

The following section will outline six themes that emerged as part of the MAP Myanmar
research and stakeholder engagement exercise. These themes serve to provide the market
context to inform the opportunities and subsequent recommendations that have emerged
from the MAP diagnostic.

11.1. Myanmar population is thinly-served by financial services

Majority of adults with access to regulated133,134 financial services only make use of one
product class. Although 30% of adults reported to use at least one financial service from a
regulated financial service provider, only 6% make use of more than one regulated financial
product class (a combination of credit, savings, insurance or payments). The remaining, 24%
of adults (9.4 million) reported only using one financial product class from regulated
financial services providers. Figure 48 below shows this breakdown of adults using financial
services from regulated financial services providers and classifies adults that make use of
more than one financial service as broadly served and those who only make use of one
financial service from a regulated provider as thinly served. This highlights that most adults
that are considered to be served by regulated financial service providers are only thinly
served and are still candidates for financial inclusion.

133

Regulated financial services providers are registered legal entities that are regulated for the provision of financial services.
If a financial services provider is registered with a public authority and its activities are subject to regulation which permits it to
provide financial services, whether a public authority supervises its provision of financial services from a prudential or market
conduct perspective or not, it is considered a regulated financial services provider.
Regulated uptake by product class is defined as follows: Credit - Having a loan product or credit account with an SFI,
commercial bank, formal (non-bank) financial institution, MFI, government scheme, co-operative or pawnshop. Savings - Saving
with or having a savings account with an SFI, commercial bank, formal (non-bank) financial institution, MFI or co-operative.
Insurance - Any formal insurance product (like motor vehicle insurance) with an insurance company or bank. Payments Having sent or received remittances in the last 12 months via bank transfer (or paying into a bank account), ATM, the Post
Office, Western Union, MoneyGram, internet/online banking or mobile phone or having one of the following
accounts/products from a commercial bank: Debit Card/ATM card/MPU card, current/cheque account, foreign currency
account, bank account outside the country, internet/online banking.
134
Unregulated financial services providers are not registered with any public authority and are not subject to any institutional,
prudential or market conduct supervision in their provision of financial services. Even though legislation or regulation may exist
that govern their provision of financial services, unregulated providers do not comply with such regulation and are therefore
not subject to any public supervision or control. Likewise, if an entity is registered with a public authority, but no regulation
exists that govern their provision of financial services the entity will be an unregulated provider.

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Figure 48: Nature of financial services usage

Source: FinScope 2013

The chart shows thinly served driven largely by regulated borrowing without an account and
non-account based payments. Of the 24% of total adults identified as thinly served in Figure
48, 61% (or 5.8 million adults) only borrow from regulated financial services providers and
27% (2.5 million adults) use only payment services from regulated financial services
providers. Adults who report only borrowing from regulated financial services providers are
largely rural farmers who access agricultural credit only from MADB. Adults who report using
only payments from a regulated service provider consists almost entirely of adults who indicated
that they use a bank to send or receive remittances, but do not report having a bank
account. These two services (adults only borrowing from regulated financial services
providers and adults using only payments from regulated financial services providers)
services make up 88% of the thinly served category.
Regulated financial services reach even the lowest-income categories. While take-up of
regulated financial services correlates with income, regulated financial services reach into even
the lowest-income categories. FinScope reported that 19% of adults earning less than USD 1 per
day use at least one financial product or service from a regulated financial institution. This
increases to 27% for those earning between USD 1 and USD 2 per day and to 31% for those
earning between USD 3 and USD 4 per day.
State provision of credit drives higher take-up in rural areas. The majority of the adult
population in Myanmar (69%) live in rural areas. Figure 48 shows that despite the
distribution challenges associated with rural provision in Myanmar, rural usage of financial
services is significant with 53% of rural adults reporting to use either regulated and/or
unregulated financial services, while 30% of rural adults reported using at least one financial

162

service from a regulated financial provider. Financial access in rural areas is driven largely by
access to credit which is significantly higher than access to credit in urban areas135.

11.2. High levels of informality throughout economy

Large unregulated financial sector. The majority of economic activity is conducted outside of
the formal sector in Myanmar. A global study examining 162 countries ranked Myanmar as
having the 9th highest level of informal activity as a ratio of total economic activity (F
Scheinder et. al., 2010). The financial sector is no exception, with a large proportion of
services provided through entities not regulated for the provision of financial services. Of the
51% of adults who use either regulated or unregulated financial services, 64% (or 30% of
adults) make use of unregulated financial services and 41% (or 21% of adults) make use of
unregulated services only.
Pervasive use of cash. Nearly all transactions in Myanmar are conducted in cash, by
customers and businesses alike and only a small portion are made via domestic inter-bank
transfers. Furthermore, in the case of the latter, payments are most often deposited by the
sender in cash and withdrawn by the receiver in cash, with neither having an account
relationship with the bank. The development of electronic retail payments is undermined by
inadequate infrastructure, which is characterised by an unreliable power grid, inconsistent
communications networks and low penetration of electronic touch points (such as ATMs and
POS).
Unregulated financial institutions constitute the largest source of borrowing. Figure 49
shows that 9.2 million adults reported to have a loan from an unregulated financial services
provider, with an estimated total outstanding debt as high as K 5.4 trillion (USD 5.7 billion).
Of these adults, 5.9 million adults (64% have a loan with an unregulated provider) indicated
that they currently have outstanding loans from a money lender. The total outstanding debt
provided by unregulated money lenders is estimated to be as high as K 3.7 trillion (USD 3.9
billion). In size, this compares with the outstanding loan book of the commercial banking
sector, which is estimated to have 60 000 credit clients. Money lenders are therefore
providing a significant proportion of loans to the market.

135

FinScope reports that 44% of rural adults have outstanding debt from either a regulated or unregulated financial services provider.
This is significantly higher than urban areas where only 19% of adults currently have credit from regulated or unregulated institutions.

163

Figure 49: Unregulated credit activity by number of loans and outstanding loan stock
Source: FinScope 2013

Positive consumer perception of financial services offered by unregulated institutions. Focus

Group Discussions (FGDs) respondents revealed positive perceptions about using financial
services offered by unregulated financial services providers such as money lenders,
(unregistered) pawnshops, savings groups and hundis because they felt that these were
more convenient and that the requirements set by regulated financial institutions excluded
low-income earners. Respondents indicated that although unregulated providers charged
high interest rates for credit, they were the preferred choice because of their proximity,
flexible operating hours, immediate relief and negotiable borrowing terms.
Pervasive and sophisticated unregulated financial sector. Based on a conservative estimate
of an average of 15 outstanding loans per money lender, FinScope take-up data136 would
suggests that there are about 400 000 money lenders (constituting 1% of the adult
population) operating in Myanmar137. This is nearly 100 moneylenders for every 100 000
adults, which represents the largest distribution density of any credit provider in Myanmar.
Money-lenders include potential savers who opt to intermediate funds themselves by
loaning out their excess capital to friends, family and other community members.
Sometimes, money lenders make use of unregulated brokers who charge high fees (e.g.
10% of the interest) to introduce them to prospective clients. In the market for unregulated
payments, payment brokers or hundis also exist where regulated providers are unavailable
or unsuitable. Hundi networks are located throughout Myanmar and they provide payments
services to augment and leverage their primary business (e.g. shipping). Hundis use a variety
of regulated and unregulated mechanisms to provide domestic and cross-border payment
services payment services to clients.

136

Indicating 5.9 million adults with a loan from a money lender

Even if a much higher estimate of 50 loans per money lender on average is used, the number of moneylenders in Myanmar
would still be substantial at 117 000.
137

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11.3. Capital constrained regulated retail financial sector

Capital constraints restrict the extension of regulated retail credit. The regulated retail credit
market is restricted by the limited capital available for on-lending. Some MFIs reported
bureaucratic hurdles in getting foreign donor capital into the country. Outside of the
microfinance sector, foreign ownership in the financial sector is not yet allowed and with it,
foreign direct investment and capital. Furthermore a number of constraints also limit the
nature and availability of domestic capital. These constraints can be attributed to policy,
regulatory and business model features (as discussed below) and the absence of a capital
market in Myanmar138. As result, the regulated financial sector is currently completely
dependent on short-term deposits as sources of capital. In addition, restrictions on the use
of available capital, such as the loan to deposit ratio restriction for commercial banks 139,
have further restricted the availability of funding for on-lending. At the time of this analysis,
the funds available for on-lending was practically fully utilised triggering branch expansion
strategies by commercial banks to raise more deposits.
Scarcity of capital dictates institutional focus and product offering. As a consequence of the
scarcity of capital, institutions without a specific low-income client mandate will direct
capital to more lucrative opportunities in the high-income and corporate markets (for
instance see commercial banks below). At the same time those institutions that have a lowincome mandate can only serve a small proportion of the potential market. From a
consumer perspective, clients who are unable to access regulated credit are resorting to
more expensive financial services from unregulated institutions. Given the short-term nature
of deposits funding loan portfolios, no long-term credit products are offered.
Commercial banks are unlikely to direct capital towards the lower-income retail market soon
despite being well positioned. Only commercial banks and MEB have proven able to attract
voluntary deposits. Although commercial banks have the largest loan portfolio140, the bulk
of this is being directed to corporate clients and to some degree the high-income retail
market141. Given the high-income and corporate opportunities available, it is, however,
unlikely that this capital will find its way to the low-income market in the near future. The
recent introduction of hire purchase loans could potentially open a channel for commercial
bank capital to flow to the lower-income retail market (e.g. through financing products of
relevance to this market, e.g. scooters or farming machinery). However, take up of hire
purchase has not proven to be significant so far. Outside of hire purchase loans, banks do
not have the lending tools appropriate to lower-income consumers particularly as
unsecured lending is not allowed -and have no experience in this market. In theory (and, if
regulation permits) banks may be able to provide wholesale funding to MFIs, but given
current high-income and corporate opportunities, there is little incentive for banks to pursue
this market.
Significance of directed capital to the lower-income retail market. Outside of pawnshops, the
largest proportion of capital funding for regulated low-income credit are under policy
direction (52% excl. pawnshops142) and consists of MEB providing wholesale funding to
138

There is currently no private capital market, but the passing of the Securities and Exchange Law opens the way for the
establishment of a stock exchange.
139
The deposit-capital ratios for commercial banks have been abolished but loan to deposit ratios of 80% remain in place.
140
Commercial banks provide almost 80% of regulated outstanding loans by loan volume.
141
FinScope found the average monthly income of commercial bank credit clients to be almost 9 times as high as the average
income in Myanmar, while the average loan was around 1000 times higher than most other categories of providers.
142
Compared to current outstanding loans of MADB, all co-operatives, MFIs and Rice Specialisation Companies.

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MADB143, as well as the foreign funding raised by government that is channelled to

agricultural co-operatives144. The largest component is flowing through MADB, making
them the primary vehicle for directed lending. Another 25% of capital funding to the
regulated low-income credit market is MFIs (if pawnshops are excluded), the largest part of
which is directed donor capital.
Scope to increase policy directed retail capital reticulation. MEB currently lends out only 11%
of its deposits with the remainder understood to be held in government treasury bonds. MIC
is required to keep all its assets in government bonds and the same requirement is being
applied to newly-registered private insurers. This represents a substantial amount of capital
that is under the control of government, but not yet intermediated into the credit market.
Policy consideration would have to be given to whether government is willing and able to
reduce its reliance on this capital for budgetary funding in favour of growth in the credit
market. In addition, the state has been able to raise additional capital directly from foreign
sources. Most recently, the government raised a USD 600 million loan from China that is
used to provide wholesale funding to extend the reach of co-operatives.
MFIs play a smaller but important role given scarcity of other sources of capital. Capital
reticulation through MFIs only make up an estimated 11% of the retail credit market (25% if
pawnshops are excluded) and are largely donor funded. Regulation restricts their ability to
raise capital through deposits as deposits may only be taken from loan clients and to the
value of the loan, while the current interest spread on deposits also render it unviable as a
source of funding. MFIs have also reported challenges in obtaining regulatory permission to
raise more foreign donor capital. This has proven to be a primary constraint inhibiting the
extension of credit, as recent growth seems to be driven more by the availability and/or
release of funding rather than explicit expansion strategies. If the barriers to raising more
donor capital could be removed, MFIs could play a more significant role.
Challenges in mobilising capital from unregulated market. The size of the unregulated credit
market highlights the magnitude of liquidity housed outside of regulated financial
institutions. Unregulated money lenders are estimated to have in excess of 5.9 million clients
with an outstanding loan volume as high as K 3.7 trillion (USD 3.9 billion). Unregulated
provision represents surplus capital in the unregulated market which is being reticulated
there because of higher returns. At present, MEB and commercial banks are the only
regulated institutions that could potentially target the capital in the unregulated financial
services market. MEB is unlikely to leverage this opportunity (given its lack of an MIS system
and current specialisation as a wholesale capital provider), while commercial banks do not
currently offer convenient products that are likely to attract this capital, although they are
attracting more deposits when opening new branches.
Limited human capital for the financial sector to draw upon. McKinsey estimates that the
financial services sector could contribute up to USD 11.1 billion to GDP by 2030 and generate
400 000 jobs (McKinsey & Company, 2013). The financial sector is heavily dependent on
skilled labour, particularly the nascent insurance industry and it is doubtful whether
Myanmar can produce enough skilled labour to meet this demand. FinScope revealed that
only 7% of respondents reported having higher education. This is supported by McKinseys
143

Current outstanding loans for MADB (2013) was K 193 billion while K 543 billion was disbursed in loans to MADB in 2013
and, at the end of that financial year, it constituted just over half of MEBs loan portfolio.
144
Current outstanding loans by agricultural co-operatives as at July 2013 was K 23.8 billion. China and the Government of
Myanmar agreed to finance USD 600 million in the next 3 years for agriculture, to be disbursed through co-operatives.

166

study which found that only 5% of the countrys workers had tertiary and higher education
credentials in 2010, and only 15% had finished secondary education. This is extremely low
compared with other developing countries in the region145 and has the potential to restrict
growth of the financial sector.

11.4. Limited infrastructure constraining business model and product

offering
Severe physical infrastructure inadequacies amplify distribution challenges. Inadequate
infrastructure limits the reach of existing financial service offerings by creating barriers and
increasing transaction cost for consumers and limiting the viable expansion of financial
service operators. In 2010, Myanmar had the lowest road density in Southeast Asia with 41.3
km of road per 1000 m2 and only 11.9% of the 27 000 km of road network was paved
(UNESCAP, 2012). Furthermore, Myanmar has the lowest per capita electricity production in
Southeast Asia with 104 kWh per capita. It is estimated that only 48% (UNDP IHLCA, 2010) of
households have access to electricity, which suffers regular black-outs. There is a sharp rural
urban divide with 89% of urban households having electricity compared with only 34% of
rural households. According to FinScope, 3% of adults used the internet in the month prior
to the survey (Sept 2013).
Financial services providers in the early stages of adopting electronic management systems.
Financial services players are at different but early stages of modernising their Management
Information Systems (MIS). Most institutions are still heavily reliant on onerous paper-based
or other manual processing of product origination, payments, account management and
reporting.

Commercial Banks. As of May 2013, four of the private banks, driven by an interest in
foreign exchange transactions, were in the process of adopting core banking systems
and were transitioning to their use. Most banks branches were also offline except for a
subset of branches in particularly active commercial (urban) areas that were connected
through internal online platforms.
SFIs: Despite serving the largest number of retail clients, none of the SFIs have electronic
MIS systems and their branches are not connected. For example, MADBs operations are
almost entirely paper based yet it has the largest loan client base in Myanmar. Similarly,
MEB holds the largest number of voluntary deposits in Myanmar but does not operate
on a core banking system.
MFIs: INGO MFIs operate on a variety of MIS systems ranging from largely paper-based
(e.g. GRET) and Excel-based systems (Myanmar Microfinance, Save the Children and
Private Agencies Collaborating Together (PACT) who are looking to move to a more
advanced MIS system) to more advanced MIS systems (World Vision installed the Kredits
MIS system in late 2012). Some of the domestic MFIs have also obtained donor support
to implement microfinance MIS systems (e.g. MicroBanker Win).
Insurers: MIC is in the process of transitioning to an electronic MIS system but is
currently still largely paper based. Conversion to the MIS system is done by product line.
3rd party insurance was the first line to be transitioned to the MIS system and fire and
life insurance was planned for the next phase. The system was locally developed in a
joint venture with the Ministry of Communications and Information Technology.

145

Thirty percent of workers in Vietnam and Thailand have a secondary education; in Indonesia, the share is almost 50 percent,
and in China and Malaysia, it is about 60 percent (McKinsey Global Institute, 2013).

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Limited supporting financial sector infrastructure. Myanmar authorities are moving towards
building supporting infrastructure. This is evidenced by the development of a national
payments network and other planned initiatives.

Credit bureau: Myanmar currently has no credit bureau, which means that there is no
formal mechanism to establish indebtedness of credit applicants. Plans are however
underway for the establishment of a credit bureau by the Central Bank of Myanmar
(CBM) with the assistance of Credit Bureau Singapore (The Irrawaddy, 2014a).
Payments systems: Payments infrastructure is still underdeveloped (current POS devices
have a 90% down time) but it is slowly being redressed, through efforts by the Myanmar
Payment Union (MPU) and the CBM. Recent developments include a national switch for
ATMs that started operating in December 2012 (operated by MPU, and POS devices
have been in operation since March 2013. All banks are required to join the switch. In
the near future, a private payments processor will be appointed and a Real Time Gross
Settlement (RTGS) system will also be operated by the CBM to replace the current
manual payments clearing system. Moreover, Association of Southeast Asian Nations
(ASEAN) aims to achieve financial integration by 2015 (ADB 2013) and this would also
require Myanmars integration into the ASEAN Payment and Settlement System.
Capital market: There is currently no formalised capital market in Myanmar, and
businesses rely solely on banks to raise capital (in the form of debt). The new Securities
and Exchange Law that was passed in July 2013 allows for the establishment of the
Yangon Stock Exchange, which is expected to be operational by the second half of 2015
(The Irrawaddy, 2014b).
Foreign exchange market: Although Myanmar has a regulated foreign exchange market;
it is still in the early stage of development. Fourteen private banks were licensed to
become authorised dealers of the US dollar, Euro and Singapore dollar in October 2011
(Global Times, 2013). In April 2012, Myanmar converted to a managed float exchange
regime after having had a dual exchange rate regime for decades and efforts are
underway to further liberalise to a free floating exchange regime. Despite the
developments, industry consultations revealed that accounting for the amount of
foreign currency in the country at any time is still problematic.

Inadequate infrastructure hinders business models from achieving scale. The combined
limitations on infrastructure and rudimentary MIS systems will take time to resolve and
require substantial business model and process adjustments from the financial service
providers. It is likely to continue to restrict the nature of business models and product
offerings in the medium term146. These restrictions increases costs and inefficiencies and
create absolute barriers for some models and products. As a result, it undermines the scale,
variety and value of existing offerings. Given that it will take time to resolve these issues,
there are still opportunities to further leverage the limited business models that have been
successful under the current constraints. In the short-term, this will favour decentralised and
group-based credit models but with the continued limitation that this model is only suitable
to simple credit products for particular market segments. In the longer term, however,
146

While MADB and PACT has been able to achieve scale despite these restrictions, this has been achieved on a subsidised basis
and their product offerings have been restricted to group-based products where the risks are assessed through decentralised
village credit committees. They are unable to viably offer more advanced credit products and particularly those that require
individualised credit assessment and management. For the credit market in general, more advanced credit products can only
evolve once the bank systems and credit bureau is in place. As result, the CBM has determined that banks will only be allowed
to enter the unsecured lending market once the credit bureau is established. Real- or near-real-time transactions are virtually
completely absent in the market. The absence of such payment infrastructure has undermined transaction flows and
particularly the development of the insurance market, which rely on the collection of frequent low-value premiums.

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business models utilising electronic networks and centralised processing will gain advantage
as they allow for a more advanced and tailored product offering.
Mobile payments have the ability to bridge current infrastructure challenges. Following
market liberalization, mobile phone penetration in Myanmar has rapidly expanded from
0.15% in 2003 to more than 23% of the adult population (approximately 15% of the total
population) in 2013 (FinScope 2013). This growth is expected to continue in the coming
years, especially in consideration of the recent award of licenses to Norways Telenor and
Qatars Ooredoo which have a particular history of integrating mobile payments into its
operations as evidenced147 by its operations in Pakistan. The two mobile network operators
have committed to reaching 50% coverage by 2015 (teledensity) and 90% population and
80% geographic by 2019. Both have also committed to providing mobile financial services
and are preparing to launch these services in late 2014 or early 2015.
The mobile phone offers multiple benefits that will address critical infrastructure gaps in
Myanmar. These include:

Firstly, mobile networks enable real time connectivity, for voice and data traffic. There
is currently no comprehensive and reliable real time connectivity between financial
institutions in Myanmar. This further exacerbates the obstacles facing the development
of a RTGS system and usage of core banking systems by commercial banks. Providing this
connectivity alone will transform the way financial services are offered in Myanmar.
Payment services in particular are likely to benefit significantly, particularly where
electronic transactions are expected to become a viable alternative to cash. The
immediacy of in-person cash transactions is an important characteristic that electronic
payments must seek to replicate in order to become a viable alternative to cash.
The second opportunity is in the mobile device itself, which provides all the functions
of a POS device without the need of a separate card. This enables customers to issue
payments instructions themselves, check balances and receive confirmations (i.e. payment
sent or received). This brings the payment terminal that traditionally has required a bank
branch or merchant outlet into the hands of the customer, providing control, convenience
and accessibility similar to that of cash. Thus it increases the likelihood that customers will
adopt electronic payment services. An additional attribute is that the mobile phone is
commonly purchased by the customer, thus reducing the infrastructure costs148 normally
taken on by financial institutions.

Mobile phones do not void the need to invest in traditional payments infrastructure. Mobile
phones are not a complete replacement of the existing infrastructure such as ATMs, POS and
bank branches and will, in fact, rely on much of this infrastructure for cash distribution and
management. Rather, mobile infrastructure provides an alternative means in which
customers can engage in the payment system. This allows for a more diverse set of business
models that can service the target markets for financial inclusion.

147

http://www.easypaisa.com.pk/index.php/en/about/about-easypaisa
For example liquidity in the banking system is freed up as the local cash is circulated more effectively, while the daily float
maintained at the respective financial institutions keeps track of transactional balances electronically.
148

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11.5. Constrained product offerings undermines value to customers

Constrained product offerings do not meet consumer needs. The combined effect of market
and regulatory constraints discussed above restrict the availability of products and their
features. Consequently, consumers resort to using either unregulated products or regulated
products that do not adequately match their financial needs.
Two types of mismatches between product and needs are of particular relevance for this
discussion:
1. Using the incorrect financial service type: This occurs when a particular financial
product category is used when in fact a different category may be more efficient to
address the particular financial need. For example using credit to mitigate insurable risks
where insurance may have offered a more efficient solution.
2. Using the appropriate financial product category but incorrect product: This occurs
when the correct product category is used but the product features of the particular
product are not suited to deal with the financial need the user is seeking to address. For
example using short-term credit to finance long-term investments.
Examples of such mismatches in Myanmar include:
Credit and savings being used to mitigate risks. Few individuals in Myanmar have either a
regulated or unregulated insurance product (3% regulated and 4% unregulated only). As
result, for example, a substantial proportion of Farmers (42%) had to resort to using credit or
savings to cope financially after having experienced an insurable risk for which they did not
have a regulated or unregulated insurance product. The use of credit or savings to deal with
these risks is more costly and less efficient than if, for example, an insurance product was to
be offered to all MADB clients. In addition, it means that credit is directed to risk
management instead of the productive purposes for which it was obtained. Using savings, in
turn, reduces the assets accumulated by households and leaves them more vulnerable for
future shocks.
In this case, the absence of insurance reflects the underdeveloped market as well as
regulatory restrictions on the types of insurance products that may be provided. Currently
Four of the six main insurable risks149 reported to be experienced by the largest proportion
of adults are agricultural related, while the most commonly reported risk is related to
medical expenses. Between 38% and 69% of adults who experienced these 6 largest risks
reported using savings or credit as response mechanisms (see Figure 50 below). Yet MIC
does not offer agriculture or health insurance and it is also not included in the product lines
allowed by regulation for newly registered private insurers.

149

Risks that normally would be considered insurable or for which insurance products exists in well-functioning insurance
markets.

170

35%

69%

70%
60%
47%

50%
40%

39% 40%

27%

20%

9%
6%

6%

30%
25%

22%
21%

38%

30%

10%

53%

49%

48%

31%

20%
15%

29%
23%

% of adults

% od adults who experienced risk

80%

10%
4%

0%

5%
0%

Death or illness
of livestock

Flooding /
storms

Loss/failure of Drought, poor Harvest failure or Illness within

your business rainfall or loss of losses of crop your household
access to water harvest (incl.
or family that
for farming
plant disease) requires medical
expenses
Risks experienced vs. response mechanisms

Used savings or borrowed money

Could do nothing

% of population who experienced insurable event

Figure 50: The most commonly reported insurable risks experienced versus risk mitigation
responses
Source: FinScope 2013

Product and service features of regulated products do not match consumer needs. There are
a number of issues with the product and service features of regulated financial products that
do not adequately address the intended use. These include:

Timing of delivery and repayment of MADB loans: Qualitative research revealed that
MADB loans are often not dispersed in time to finance the necessary preparations for
the planting season and loan repayment is due when the crop prices are at their lowest
(immediately after the harvest). Consequently, farmers are often forced to source
additional credit, mostly from unregulated money lenders, at a high cost as an interim
financing measure. Until recently, these loans were also too small to address the
financing needs of farmers, resulting in farmers having to finance the gap through
unregulated money lenders. This has been partially addressed through the introduction
of incremental increases in loan sizes over the last few years.
Low-income retail credit products not suited for asset financing or longer-term
investment: Current co-operative and MFI loan products are best suited to finance
working capital for high-turnover trade businesses (typically small traders) that can
manage high repayment frequencies (daily, weekly or bi-weekly). Loan values are very
low, terms are short and group guarantee structures renders it unsuitable for more
advanced and individualised businesses150. These loans are useful for high turnover
traders as they enable these to grow to larger micro-enterprises but these will then
require larger, longer-term and arguably individualised loans to grow further. These
loans are not suited for investment in equipment or for businesses with slower turnover
cycles.
Restricted payments functionality and infrastructure undermines value and utilisation
of bank accounts: Only 5% of adults have a bank account. Consultations with the banks

150

However, there is limited graduation of co-operative and MFI loan clients, with some MFI loan clients (although very few)
becoming eligible for individual loans. As the market develops it is anticipated that MFIs will introduce asset finance.

171

have revealed that a large proportion of account holders only use the account to receive
their salary and withdraw the full amount in cash. Given the limited payments
infrastructure, bank accounts are not yet a useful or viable transaction tool for
consumers. While the banking infrastructure is expanding, physical proximity remains an
issue, particularly for deposits. The transaction cost and effort incurred in accessing a
bank branch to withdraw or deposit money renders it unviable as a useful tool for
collecting small amounts of regular savings. FinScope data have shown that consumers
are willing to travel longer distances to obtain loans (e.g. only 20% of MADB clients are
within 30 minutes of a branch) but adults who have taken-up a deposit facility are found
in much closer vicinity to bank branches (71% of bank clients are within 30 minutes); its
likely that proximity is a key terminate in take-up decision. This may, in part, explain why
MADB is unable to raise voluntary deposits, but commercial banks are. The development
of the mobile payments market will greatly enhance this but it will also require revisions
to the banking products and model.
Unregulated products provide features required by key target group at a higher cost. As
noted above, there are various market and regulatory constraints resulting in regulated
products either not being available or with features not suited to the needs of consumers. In
such cases, consumers resort to using unregulated products to meet their needs. These
unregulated alternatives come at a higher cost, bear more risk and are less efficient. The
following examples have been identified:

Agricultural credit features and requirements not meeting all needs in the agricultural
market. There are a number of features of agricultural credit products which exclude
certain groups of farmers and/or limits the degree to which the product matches
financing needs. As result, these farmers have to utilise high-cost unregulated credit to
make up the gaps. These features include:

Size of farm: In most cases, regulated financial institutions provide partial finance
based on farm size. MADB provides a set rate of finance per acre for farmers with
land of up to 10 acres. Co-operatives covers up to a maximum of 5 acres for farmers
with up to 10 acres of land and a maximum of 50% of acres for farmers with over 10
acres. PACT restricts its credit to farms of up to a maximum of 5 acres in size. A large
proportion of farmers have farm that are 10 acres or larger151, with a large proportion
of them also being relatively low income152. Therefore, a large group of potential lowincome retail credit clients are therefore excluded (or partially excluded) from
accessing regulated credit for agricultural production.
Size of loan: MADB currently provide loans up to K 100 000 (USD 106) per acre. There
are differences of opinion about whether this address (or even exceeds) the full
financing requirement per acre with estimated financing requirement ranging from
K120 000 (USD 127) to K 300 000 (USD 317) per acre to cover production costs. The
financing requirement is highly dependent on the quality of seed used and the
production method applied. If current loan amounts are insufficient to cover
production costs, individuals would also be forced to supplement regulated credit
with unregulated credit to meet their financing needs.

151

There are 2.1 million adults (698 000 households) involved in farming who indicated that they have farms that are 10 acres
or larger
152
46.5% of these adults indicated that they earn less than USD 5 per day

172

Restrictions on crop: The bulk of MADB loans are earmarked for paddy production.
As result, farmers who are not involved in paddy have much lower access to credit153. Only
12% of farmers farming only beans and pulses (but who are not also involved in
paddy or cereals) have MADB loans.

Regulated loan sizes not catering to the needs of all MSMEs: There is a substantial gap
in the credit market between commercial banks and MFIs in terms of loan sizes. MSME
credit through MFIs is has been limited by regulation to K 500 000 (USD 529)154 while the
average loan issued by commercial banks are in excess of K 70 million (USD 73 996) and
mostly inaccessible to the lower-income and small business market155. This leaves a
substantial gap between K 500 000 and K 70 million, which is only serviced by
unregulated money lenders. FinScope data confirms this as the average loan size
reported by those who have a loan from an unregulated money lender only is K 635 000
(USD 671). Hire purchase products recently introduced by the banks can potentially
narrow this gap, but its impact is yet to be seen.

Uncollateralised individual loans accessed through unregulated sector: A prominent

feature of regulated credit products is that all loans are either dependent on collateral
(commercial banks and pawn shops) or are group-based (MFIs, co-operatives and the
MADB). Small and Medium Industrial Development Bank (SMIDB) receive discounted
funding for loan provision to MSMEs from MEB, but indicated that the requirement of
collateral was a major constrained in their extension of loans to MSMEs. INGO MFIs do
provide a limited amount of individualised loans, but these are small in both value and
number and do not make a significant contribution to the market. In reality, the only
source for uncollateralised individual-based loans is unregulated money lenders.

153

Only 12% of those who are not involved in paddy or cereals, but are involved in beans and pulses have MADB loans, while
only 12.7% of those who are not involved in paddy or beans and pulses, but who are involved in cereals have MADB loans.
154
Co-operatives only provide loans up to K 300 000 (USD 329). MFIs mostly provide loans of up to K 500 000 due to
Government focus on implementing a cap at this level, but with some isolated cases of loans as high as K 1.7 million (USD 1
797).
155
Although banks now have introduced a product that start as low as K 100 000 (USD 106), average bank loans is estimated
around K 70m (USD 73 996) suggesting that the bulk of loans are at very high values.

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11.6. Current regulatory environment not enabling expansion of rural

provision and discouraging delivery to urban poor
Government has identified rural delivery as a key target market for FI. As noted in Section
2.2, the Myanmar Government recognises rural poverty as an area that needs addressing
and has set a goal to reduce poverty to 16% by 2015. Financial services have been identified
as an important tool for achieving this goal.
Rural markets challenging to serve on sustainable basis. Enabling the sustainable delivery of
appropriate financial services to rural markets remains a challenge in the most conducive of
environments. In Myanmar, the combination of severely limited infrastructure (see Section
11.4) and the underdeveloped nature of financial services models and products (particularly
the absence of payments system); see Section 11.1 and Section 11.5, makes rural delivery
particularly challenging. Given the scarcity of capital (see Section 11.3) and resources and
the abundance of urban, high-income opportunities, resources, unless mandated otherwise,
will not be channelled to rural and low-income markets.
Rural take-up of financial services relatively high, but substantial needs remain unaddressed.
As noted in Section 11.1, rural markets in Myanmar show a relatively high take-up of
regulated financial services and, in particular, credit. At the same time, it is clear that much
of the rural financial services need remains unaddressed or insufficiently addressed (see
Section 4.3). Further expansion is, therefore, required.
Current rural models driven by mandated capital and subsidised operations. The current rural
penetration is driven exclusively by subsidised state and donor models which are funded
almost exclusively by mandated wholesale funding (i.e. MADB and PACT156). No purely
commercial offering have achieved any significant scale and there is no evidence that any
provider is poised to do so for the foreseeable future. No privately controlled capital has
found its way into low-income or rural financial services.
Constraints introduced in regulation will deter even mandated and subsidised operations
from challenging rural markets. Even for these mandated and subsidised models, rural
delivery remains a challenge. Despite their mandate and subsidy, the current interest rate
caps, loan size and capital regulations and the higher cost of rural provision are resulting in a
withdrawal of certain NGO MFIs from more challenging low-income and particularly rural
markets. This is particularly the case for smaller and newer entrants who have not yet
achieved the level of scale and experience to be able to operate under these challenging
conditions.
Policy stance discourages urban delivery. Although urban consumers on average have higher
incomes, there are still significant numbers of low-income consumers located in urban areas
(e.g. 48% of Informal enterprises). Furthermore, the productive opportunities given access
to financial services is arguably higher in urban areas than in rural. There is therefore both a
significant need for poverty alleviation as well as efficient opportunities to impact on poverty
alleviation (through employment creation) in urban areas. However, the regulatory
implementation emphasis on rural areas are discouraging MFIs from urban areas.

156

Both government and donors have mandated the delivery of services to low-income and rural consumers.

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12.

Opportunities to increase access to financial services

MAP identified seven priority opportunities to extend financial access to the people of
Myanmar.

12.1. Dramatically increase the supply and availability of electronic

payments
Pervasive use of cash across all target markets. The vast majority of the people of Myanmar
use nothing else than cash for payments. In most countries the majority of formal
employees would use electronic payment instruments. However, in Myanmar, only 21% of
Formal consumers use regulated payments, not all of which is electronic. For Farmers,
electronic payments are almost non-existent as 92% of Farmers that report making
payments, make payments using cash only. The main reason for this limited use of electronic
payments is the absence of electronic payments infrastructure, especially in rural areas
where there is virtually no points of access for electronic payment instruments. ATMs, POS
devices and the like are available in urban areas only but even there the networks are still
severely restricted. The largest current use of regulated payments is for remittances, for
which 38% is made via bank transfers. However, even these transfers can be considered
cash-based, as adults need to physically bring cash to the bank and little effort is made by
banks to convert these into account clients. This represents a lost opportunity for banks to
reduce cost of processing cash-based payments and sell adjacent products to remitters.
Furthermore, almost all cross-border payments are made through unregulated hundis. This
applies to retail as well as corporate clients. This presents an opportunity for commercial
banks to add a major source of income if they are able to attract these clients.
Efficient electronic payments required to enable transactions and savings. The need for
electronic payments is growing rapidly. The most immediate and pressing demand for retail
electronic payments will flow from the need to buy pre-paid airtime electronically in the
wake of the roll-out of mobile services. This will follow the pattern in other countries.
However, much of the future development of regulated financial services depends on the
introduction of accessible, low cost, electronic payments. Migrating savings from outside of
regulated institutions to regulated institutions will not happen unless households can save
and withdraw small amounts regularly, conveniently and cheaply. Given the current limited
branch infrastructure outside urban areas, this will not happen without remote electronic
access. Similarly, the extension of low-value credit and the collection of small insurance
premiums become commercially viable on the back of low-cost electronic payments.
In order to expedite the development of the payments system and optimise its benefits for
low-income consumers, the following options can be considered:
Fast-track introduction of electronic MIS systems for commercial banks, SFIs and other
providers. The first hurdle to cross on the road to a ubiquitous electronic payments
infrastructure is a systems one. Most banks, including state banks, do not have automated
electronic core banking systems. Installing such systems, a current priority for all banks, is
the first step. It is particularly important that MEB also install such systems since it currently
is one of the largest payment providers in Myanmar.

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Pursue the coordinated development of payments infrastructure under the guidance of a

National Payment System Strategy. In tandem with the internal systems of financial service
providers, it is necessary to install national electronic infrastructure for real time settlement
of interbank payments as well as retail payment networks (see Section 11.4). Several
components of the system are in the process of being developed under the guidance of the
CBM. To mitigate the risk of ad hoc development and the emergence of proprietary payment
networks that are not interlinked, it is necessary to develop a National Payment System
Strategy to guide participants in the emerging Myanmar payment system (see Section 11.4).
Consider the space for non-bank third party payment providers. Commercial banks and the
MEB are currently the only providers of retail electronic payments, with commercial banks
having installed virtually all ATMs and POS devices. The extension of this network will be
gradual and probably branch-linked. Should the space for non-bank third party payment
providers be created, Myanmar could follow the lead of other developing countries that
have leveraged the distribution networks of convenience stores and pawnshops. This will of
course require real-time connectivity of these stores.
Mobile payments provide biggest opportunity for extension of retail electronic payments.
The opportunity for a quantum leap in access to electronic payments lies in the emerging
market for mobile payments. The adoption of the Directive on Mobile Banking in December
2013 opens the way for banks and financial institutions to deliver financial services through
mobile banking. It is too early to predict the manner in which banks and mobile network
operators will co-operate to deliver such services. However, the parameters set by the
Directive would seem to create ample space for the emergence of a mobile payments
network that can become the front end of the retail financial sector. Of particular
importance will be the establishment of agent networks to convert cash into electronic
money and vice versa. Cash-handling retail entities like the Post Office and grocery or
convenience stores can play a role in this regard. The role of the MEB as the current cash
manager of the country will also be important. This makes modernising the MEBs systems a
top priority.

12.2. Provide low-cost savings vehicles for short term savings

Need for store of value as key driver to attract savings into regulated sector. Myanmar has a
great need to draw whatever savings is available into the regulated sector to improve the
level of financial intermediation. However, much of current savings is held outside of
regulated financial sector in the form of cash or assets. For every one person that saves in a
regulated institution, five persons save in an unregulated institution or at home.
Unregulated moneylender loans is more than four times the value of the current estimated
retail credit market and reflects savings that individuals opt to privately intermediate. More
than 10% of adults noted that they save in gold. The largest savings need is for consumption
smoothing, particularly to put money away for the rainy season when incomes generally
decrease. This savings demand is simply to store value over time and to be able to access it
quickly, conveniently and at low cost. Current savings products from regulated service
providers offer poor functionality and convenience. Keeping it hidden at home has for many
been the best option given the current limited financial infrastructure and low crime levels.
Leverage emerging retail payments network and agents to enable convenient store of value.
There is an opportunity to provide low-cost savings vehicles to offer a safe and convenient
176

store of value to consumers and draw some of these savings into the regulated sector. To do
so successfully will depend entirely on the ability of providers to enable frequent low-cost
deposits and withdrawals close to the client. In the absence of a branch in every village, it is
difficult to conceive of this possibility other than through the roll-out of low-cost retail
electronic payment networks and its subsequent agent networks. Since the Directive on
Mobile Banking provides for the payment or interest on balances in mobile payments
accounts, the regulator has already opened the door for mobile-based savings, a door that
remains closed in most countries where mobile payments have taken off.

12.3. Extend the availability of account-based savings options

Pent-up demand for regulated savings. The need to formalise the current high levels of
unregulated savings is critical for Myanmars ability to grow its industrial base and formal
economic sector. Although much of this will come from corporate deposits, retail deposits
will also play a role. Recently commercial banks started to aggressively extend their branch
networks, driven by the need to mobilise deposits to feed the demand for corporate credit.
Without any other changes, this has resulted in a marked increase in deposits, mainly from
middle and high income adults, proving that there is a substantial demand for bank-based
savings amongst certain target groups. Yet, still less than 5% of adults currently have bank
accounts. The recent success in deposit-raising suggests the following options to expand
regulated savings:
Improve transaction functionality and proximity to entice savings into the regulated sector.
Many bank account holders only use these as post boxes, i.e. deposits are immediately
withdrawn. This is not surprising given poor transaction functionality and lack of
convenience currently offered by banks resulting in the still pervasive use of cash. The
retention of such savings could be substantially improved through the enhanced payments
infrastructure and functionality being developed.
Leverage urban opportunity for bank-based deposits. The pent-up demand for medium term
savings is for both unplanned events, such as health emergencies, and anticipated needs
such as education. Formal enterprises, 75% of which are urban-based, have the highest
demand for such savings with half of them currently using unregulated savings or saving at
home. The Informal enterprise target groups and Formal consumers have comparable
needs. An opportunity thus exists in the urban space to extend bank-based savings. Subject
to the necessary regulatory amendments, there is potential that some of this capital may
flow as wholesale funding to MFIs.
Modernise and strengthen MEB to continue its role in deposit mobilisation. Currently, only
banks and SFIs are permitted to mobilise voluntary savings. MFIs and co-operatives can only
raise compulsory savings linked to loans. Of the SFIs, MEB is clearly trusted by consumers
with voluntary deposits. MEBs deposits also come from higher-income clients. Its ability to
extend its deposit-raising capacity will be determined by the modernisation of its internal
systems and the extension of its branch and electronic footprint, particularly in rural areas
where it has a head start.
Explore the use of village level savings associations to extend MADBs footprint and enable
voluntary savings. FinScope finds that 72% of MADB (mostly credit) clients are more than 30
minutes away from their nearest branch. Conversely 71% of commercial bank (mostly
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savings) clients are within 30 minutes of their branch. To overcome the proximity challenge
MADB, which is a particular deterrent to savings mobilisation, can consider revisiting the use
of village level savings associations or equivalent structures. MADB used these in the 1990s,
but limited information is available on their performance. Currently, several MFIs report to
be using community or village based associations as a vehicle to extend their footprint.
While savings mobilised in this manner is unlikely to provide a substantial funding source to
MADB it could offer value to rural consumers.
Leverage mobile payments to extend banks interest beyond high-income savers. Banks seem
to be poised to move the needle on deposits amongst higher- income groups. The removal
of limits on the size of the deposit base coupled with new regulations allowing mini branches
are driving banks' interest in mobilizing savings in new geographic areas through increased
physical outreach. However, the floor on savings interest rates may limit banks incentive for
savings mobilization amongst small value savers as the cost of servicing the account and the
interest payment combined may make it too expensive to serve these clients. The
opportunity to dramatically improve efficiency and reduce cost through a mobile payments
front end can change the equation and enable deposit mobilisation deeper into all target
markets.

12.4. Improve quantity, terms and risk profile of agricultural input

credit
Improving quantity, terms and availability of agricultural credit can impact on as many as 19
million adults. Farmers are the largest target market identified in Myanmar with 12.1 million
adults. An additional 7 million adults indicated that they or a member of their household
derive income from farming. The vast majority of Farmers rely on credit to finance inputs
and thus production. There is extensive opportunity to improve the availability, service
quality and terms upon which agricultural credit is extended which will not only improve
household welfare, but also increase production. The 17% of Farmers who currently borrow
from unregulated money lenders will benefit from access to regulated input credit.
To increase agricultural input credit at scale, a major priority for the Myanmar government,
will require a concerted effort involving all the current providers. In order to expand the
delivery of agricultural credit, the following options can be considered:

Extend MADB coverage and improve quality and features. With its extensive rural
footprint and proven community-based group loan methodology, MADB will remain the
lead provider for some time to come. Although MADB, the largest provider of
agricultural input credit, currently serves more than 2 million households, an estimated
3.4 million Farmers are not able to produce a certificate to prove their right of use of the
land (a prerequisite for obtaining an MADB loan) and remain unserved. MADB finances
up to a maximum of 10 acres and focuses their loans on paddy production, which
excludes many Farmers. Farmers who do obtain loans indicate that the loans for some
may still be too small to cover production expenses, are often disbursed late (due to
administrative hurdles or difficulty in obtaining land title certificates) and have to be
repaid immediately after harvest when commodity prices are lowest.
Extend wholesale funding to MADB through MEB. To increase its loan portfolio, MADB
will require more funding. This is unlikely to come from deposits and will probably

178

require increased wholesale funding from MEB which is trusted to hold deposits and can
allocate these funds at the discretion of government.
Return to higher interest rates and shift MEB subsidy to modernising systems and
improving service quality. MADB has the space to gradually increase interest rates to
the more market-based levels it charged five years ago. Given the short-term nature of
loans, the debt servicing relief from lower interest rates are quite low. For example,
increasing the interest from the current 8.5% to 12% on a 6 month loan that is to be
repaid in a lump sum at the end of the loan period, increases the payment by only 2%157.
The subsidy implicit in the reduced interest rate paid by MADB to MEB could then be
directed to modernising its internal systems and improving service delivery, without
which it will not be able to diversify its product portfolio beyond the short term, group
loan mediated by decentralised credit committees. In addition, resources can be
invested to increase the productive impact of its loans by improving its service levels and
adjusting the terms of loans to better suit the agricultural cycle.
Diversification requires modernisation. The MAP analysis suggests that MADBs systems
work well despite some deficiencies in management and the absence of an electronic
MIS system. Through a combination of leveraging village committees as decentralised
credit committees and a simple product that is able to be delivered through group
guarantees, MADB has been able to manage its risks to date and reports low rates of
non-performing loans. This mechanism works well for the simple group-based seasonal
loans that make up the bulk of their portfolio. The same mechanism may not work well
for more advanced or individualised loan products. While MADB has done well on a
particular portfolio of loans, and should continue to be leveraged for this purpose, any
diversification outside of the parameters of its existing portfolio needs to be carefully
considered as it is likely to require enhanced MIS and management to manage and
monitor risks. It is not clear how or whether such a modernisation process will unfold for
MADB or whether it will be successful in adapting to the changing demands and
environment. As a result, there is space for others, including MFIs to play in this market
and potentially offer more complex products. Some MFIs are extending their range of
agricultural credit products (e.g. through agricultural leasing) but with limited reach to
date.

Furthermore other input credit providers play an important, but more limited role.
Recommendations to leverage these players for expanded financial inclusion include:

Better understanding of agricultural input credit required to consider their position in

the regulated credit market. Agricultural companies offer small value input credit to at
least 1.5 million Farmers, but are vulnerable to crop risks which have also contributed to
the demise of the rice specialisation companies. They will continue to provide unsecured
supplier credit provided they are not exposed to catastrophic losses. Credit-linked crop
insurance can play a major role to mitigate this risk (see Section 12.6 below).
Agricultural input providers currently fall outside of the regulated credit market. Given
the potential important role of these companies, it would be important to gain a better
understanding of their products and performance and consider their position in the
regulated space.
Improve information on agricultural co-operatives and consider their place in the
regulated market. Given the limited information available at the time of this research,

157

Calculated on a principal of K 1 million (USD 1 057) at 8.5% and 12% interest per month over 6 months. Total repayment
under 8.5% is K 1 043 260 (USD 1 103) and under 12% is K 1 061 520 (USD 1 122), a difference of less than 2%.

179

the role of agricultural co-operatives remains uncertain, but they can meet part of the
need provided they have access to capital and their credit processes are not too
cumbersome. Early indications are that the extension of input credit by agricultural cooperatives has grown rapidly and could play a substantial role. With the exception of
agricultural input companies, all credit providers in this market rely on wholesale
funding to extend credit and currently suffer capital constraints. Given the potential
important role of these co-operatives, it would be important to gain a better
understanding of their products and performance.
Take care to monitor rapid expansion of co-operatives. Section 11.3 reveals that the
Export-Import Bank of China has agreed with the Government of Myanmar to finance
USD 600 million over the next three years for agriculture production. This funding will be
disbursed from the Ministry of Co-operatives to CCS and is set to expand agricultural cooperative credit by more than twenty times. Prior to this funding injection, the extension
of credit through agricultural co-operatives has already increased from USD 1.7 million
and 10 900 members in January 2013 to USD 27.9 million and 400 000 members as of
July 2013. This is equivalent to 60% of the reported MFI client base (for which PACT
represents the largest proportion). Given the substantial increase this represents to the
co-operative sector, it will require careful monitoring to ensure that rapid expansion can
be managed by the co-operatives and accompanied by appropriate supervision.
Beyond PACT, MFIs are likely to play limited but important role and could be expanded
if regulatory hurdles are addressed. MFIs may not play a major role in the provision of
input credit in the near term. PACT is currently the only MFI with substantial rural reach
and does among others provide agricultural loans. In the future, however, other
organizations could have the potential to increase their reach. The cap on interest rates
makes it difficult to undertake expensive rural distribution. PACT is the only provider that
can significantly contribute to this opportunity under the current regulatory environment.
An increase in the interest rate ceiling can open the opportunity for more providers. Given
that MFIs have longer-term wholesale funding and are installing MIS systems, it is possible
that they could in future evolve to fulfil the need for more advanced credit products alongside MADBs simpler credit products.
Monitor indebtedness and improve agricultural productivity with expanding credit.
The extension of input credit, however, should not be unlimited. There are signals that
debt is a problem for at least some groups of Farmers. Farm yield will be a key
determinant of whether current debt levels are problematic or not. At lower yield
assumptions current debt levels appears problematic for a broad range of Farmers. At
higher yield assumptions, the situation improves but remains concerning for Farmers on
plots of less than 6 acres. Increasing credit to Farmers must go hand in hand with
measures to improve agricultural productivity, manage macroeconomic conditions so
that farm yields are not undermined, and land tenure policies that promote long-term
investment.

12.5. Increase availability of unsecured credit

Limited collateral requires unsecured financing solutions. Financial institutions, excluding
those operating under the Microfinance Law, can only lend against the provision of
collateral. Most citizens and small enterprises cannot offer acceptable collateral, and must
therefore turn to unregulated money lenders or the few providers who can legally offer
unsecured credit. Particularly hard hit are the 4.7 million Informal enterprises that draw on
family and friends and unregulated money lenders for three quarters of their credit needs
180

and 7.5 million Informal consumers who make even more use of unregulated credit.
However, the need for credit also exists for the higher-income Formal enterprises that
currently have to fund their growth primarily from cash revenues. A similar need exists for
the Formal consumers who form the kernel of Myanmars emerging consumer class. They
will certainly demand more consumer credit in future.
In order to expand the provision of credit to rural and more challenging SME markets, the
following options need to be considered:

Reconsider interest rate and loan caps and remove stumbling blocks to raising capital
in order to enable MFIs and co-operatives to move beyond urban and survivalist
markets. MFIs, including financial co-operatives registered as MFIs, are legally
permitted to extend unsecured loans. They must ideally play a central role in meeting
this need. To date they have extended in the order of 700 000 loans. Their ability to
meet this opportunity is, however, constrained. Perhaps their biggest challenge is access
to capital due to supervisory complications in sourcing both foreign and domestic
capital. Regulatory practice currently requires MMSE to approve all increases in capital,
for which approval is not always readily forthcoming. Deposit-taking MFIs are also
limited in their ability to use deposits as funding for loans. The interest rate cap at 2.5%
per month challenges the commercial sustainability of all but the largest, most
established MFIs. It will continue to confine their activities to urban areas where there
certainly is a huge need. The recent cap on loan size at K 500 000 runs the risk of further
undermining outreach, poverty impact and sustainability. It is estimated that about 10%
of current MFI clients will be excluded by the loan cap. It will also exclude MFIs from
funding the larger enterprises which have a higher employment potential but are not yet
able to access commercial bank loans. The combination of the interest rate cap and the
loan cap is likely to keep the larger donor-funded MFIs reliant on subsidised funding and
to delay the commercialisation of these providers. A relaxation of these regulatory and
supervisory constraints will at least ensure that this category of providers optimise their
contribution to extend access to regulated finance. In addition, a donor or private
funded wholesale lending facility could support and strengthen promising implementer
and give strategic direction to the sector.
Explore leveraging payroll credit. The ability and appetite of commercial banks to make
a substantial contribution to the extension of unsecured consumer credit at this point is
limited, but should not be excluded. There are moves to relax the absolute restriction on
unsecured loans, but this will only be implemented once a credit bureau able to provide
reliable credit information on retail customers is established. In the interim there is an
opportunity for payroll lending, which can be performed under a limited regulatory
exemption. Some registered MFIs are interested in exploring this market, while banks
targeting corporate customers will look to provide payroll services as part of the
package. Once the infrastructure for electronic payments exist, it will be easy for banks
to extend payroll loans to employees of their corporate clients. It is a low-cost
methodology that functions well in the absence of collateral, provided the necessary
consumer protection measures are in place. Since about 37% of Government employees
receive additional income from an enterprise, this can also become an easy channel for
credit for Informal enterprises.

181

12.6. Grow insurance product portfolio to meet risk mitigation needs

of households
Reported risk experience reflects need for insurance. The people of Myanmar do not use
insurance to mitigate their risks, largely because it is not available and they are not aware of
its existence. The 3% that do have insurance have it only because it is compulsory for certain
categories of government employees and vehicle owners. That means that the voluntary
retail insurance market in Myanmar is effectively non-existent. It does, however, not mean
that the people do not experience risks that they have to deal with. They certainly do, but
they mitigate these through savings, credit, or community-based self-help groups, like
funeral aid societies. Alternatively, they sell assets or simply do nothing. Most of these risk
mitigation tools are more costly mechanisms than insurance, and results in reducing the
welfare of households. There is thus a significant opportunity for the development of retail
insurance. There are a number of options to develop the low-income insurance market:

Enable and develop health and funeral (life) insurance. The priority needs expressed in
FinScope are for health, funeral and agricultural (dealt with in Section 12.7) insurance.
There is currently no regulated health insurance product available in Myanmar. More
than 12 million adults indicated that they or a family member experienced an illness that
required medical attention during the previous 12 months. They relied on savings, the
sale of assets and credit to cover the treatment costs. Since the provision of health
services are uneven, insurance products will have to be tailored to what is available.
Insurance legislation does not currently permit insurers to offer health insurance. An
amendment will thus be required to offer this product. It is likely that the Formal
enterprise target market and Formal consumers will be pioneer users of this product.
Funeral insurance is an anchor product for many emerging retail insurance markets.
Such insurance is not constrained to funding the cost of the funeral but can provide
financial assistance for the family to deal with other expenses, debts and the potential
loss of income. The extensive use of informal funeral assistance mechanisms suggests
that it is no different in Myanmar and that an opportunity exists to offer this product to
all target markets, provided the distribution challenges can be solved.
Remove regulatory constraints on new entrants to enable innovation. The monopoly of
the MIC was lifted in 2013, opening the market for a number of new commercial insurance
companies. However, for the time being these companies are required to follow MICs
business model and product offering, and to follow the same agent-based distribution
model used by MIC. They will also be subject to compulsory risk pooling. These regulatory
restraints will effectively prevent these companies from offering products able to meet
most of the consumer needs. Regulatory change will be necessary to facilitate business
model and product innovation. Even though the low-income market is unlikely to be an
immediate priority market for the new insurers, removing the regulatory constraints may
enable innovation and potential interesting partnerships between insurers and existing
players in the low-income market such as SFIs and MFIs. Given the income profile of
Myanmar, it is likely that many employees of corporate clients may fall within the lowincome market. In the first instance, MIC can build on their current life insurance portfolio,
which is made up of small-premium compulsory products to government employees. This
demonstrates the reach of employee-based programmes and the fact that these are
serving low-income employed workers taking up microinsurance-type products. MIC can
build on this experience to enhance the benefits and value of these policies to government
employees.
182

Enable and leverage existing and emerging aggregators. Cost-effective distribution is a

key challenge for insurers and particularly for low-premium insurance products. Current
regulation restricts new insurers to the same agent-based distribution model followed
by MIC and imposes a number of potential barriers for the development of lower-cost
distribution models (e.g. the fact that agents are required to have a degree). Regulation
should be adjusted to enable insurers to explore a variety of distribution channels and
should not predetermine their business model. There are a number of interesting
aggregators that may present interesting opportunities for the distribution of insurance.
These include the new mobile network operators, MFIs, SFIs and agricultural input
providers and value chain companies.
Create a pathway for the formalisation of unregulated insurance offered by MFIs and
co-operatives. There is a substantial and diverse insurance portfolio offered through
MFIs and co-operatives on an unregulated basis. These products are tailored to the
needs of their clients and cover life, disability, health and asset risks. Their combined
portfolio cover at least 600 000 clients with premiums of similar magnitude to MICs life
portfolio. Providing a formalisation path for these institutions can, therefore, facilitate
the rapid growth of a formal microinsurance market and ensure the protection of
consumers currently covered under unregulated products.

12.7. Develop insurance products to provide security for credit

extension and protection for consumers, particularly for agriculture
Credit-linked insurance to facilitate credit extension and protect borrowers. Insurance linked
to credit most often leads to the extension of regulated insurance provision to low-income
markets. The most prominent type of this cover is credit life, which insures the outstanding
debt against the death of the borrower. In some cases the cover may be enhanced to cover
other family members or add additional cover such as funeral insurance or disability cover.
Given the particular risks faced within the agricultural industry, much attention has also
been given to the ability of insurance to manage weather-related risks affecting agricultural
production. In particular, the use of weather-index products has received much attention
given the simplicity of the mechanism. Such credit insurance products are typically triggered
by the lender to cover the risk of non-payment, rather than the borrower. Borrowers are
typically also compelled to take some form of credit insurance to obtain a loan. While this
provides a powerful and low-cost mechanism for the expansion of insurance in low-income
market, careful monitoring is required to ensure that consumers are fairly treated and
receive value. As such credit-linked insurance has facilitated the provision of loans to
millions of people who may otherwise not have been able to access credit.
These two product categories are particularly relevant to Myanmar given the risks faced by
the identified target groups and the following options should be explored:

Enable agricultural insurance and explore delivery though MIC. The absence of creditlinked insurance has been felt particularly in the market for agricultural credit. All but
one of the rice specialisation companies have failed, at least in part as a result of
insurable weather-related losses which triggered numerous defaults amongst farmers.
Of the 12 million Farmers, more than 5 million indicated that they experienced risk
which they mitigated through the sale of assets, savings, credit or reduced consumption.
This diverts the intended use of these financial mechanisms for productive purposes to
risk mitigation. Agricultural production-related risks were the most prominent risk
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category for farmers. Whilst the introduction of crop and livestock insurance is complex
and in most cases require subsidies, a narrower focus on the provision of insurance for
agricultural input credit is more achievable.
MIC does not offer agricultural insurance and the new commercial insurers are not
permitted to offer this cover either. Given the numerous other opportunities that the new
commercial insurers will explore, this product will in all likelihood be offered by MIC only and
most likely on a subsidised basis. It will, however, enable the government to achieve some of
its priority objectives for rural poverty alleviation.

Enable credit life insurance with appropriate consumer protection. Credit life insurance
is not currently offered by MIC and is thus not available in Myanmar. It is also not one of
the product lines that new insurers are allowed to offer. However, in the absence of
such an offering, a number of MFIs and co-operatives have created reserves to fulfil the
role of credit insurance (as discussed in Section 12.6). Credit life insurance is a much
simpler product than crop or livestock insurance and is offered on a commercially
sustainable basis in most countries. The new commercial insurers should be able to offer
this product. As noted, the offering of credit life also presents a number of consumer
protection risks, which should be dealt with proactively in regulation.

184

13.

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189

List of referenced laws

City of Mandalay Development Law (No. 8/2002)
Co -operative Society Law (No. 9/92)
Control of Money Laundering Law (No. 6/2002)
Directive on Mobile Banking (No. 4/2013)
Electronic Transactions Law (No. 5/2004)
Farmland Law (No. 2/2012)
Financial Institutions of Myanmar Law (No. 16/1990)
Foreign Investment Law (No. 21/2012)
Insurance Business Law (No. 6/1996)
Microfinance Law (No. 13/2011)
Microfinance Supervisory Committee Directive (No. 1/ 2014)
Microfinance Supervisory Committee Directive (No. 1/2011)
Microfinance Supervisory Committee Directive (No. 2/2011)
Money Lenders Act (1945)
Myanma Agricultural and Rural Development Bank Law (No. 17/1990)
Myanmar Central Bank Law (No. 16/2013)
Securities Exchange Certificate Transaction Law (No. 20/2013)
Telecommunication Law (No. 31/2013)
Union of Myanmar Foreign Investment Law November (No.21/2012)
Ward or Village Tract Administration Law 2012

190

14.

Annex A: Credit products

14.1. Agricultural credit and providers

Category

Regional
focus
Institution

SFI
MADB

MADB

MADB

MADB

158

53% of loans
disbursed in
Bago (22%),
Yangon (12%)
and Sagaing
(11%) and
Mandalay
(8%) regions
93% of term
loans were
provided in
Bago (31%),
Shan (25%),
Sagaing
(13%),
Magway
(13%) and
Nyapyitaw
(10%)

Product
Seasonal
loans: Paddy
rice

Methodology
Group loan
(5-10 farmers)

Loan range/value
K100k per acre,
up to 10 acres

Average
loan size
(outstandi
ng) (K 000)
K280 000
420 000

Group loan
(5-10 farmers)

Total loans
(Kyats
million)

Interest
rate

Term

K507 131

8.5% pa

Season

nr of borrowers

5-7 acres
1.51m

n/a
Seasonal
loans: Other
crops

Average
plot size

n/a

K20k per acre

K50 716

8.5% pa

Season
0.8m

Term loan:
Short-term
(Solar salt
production,
Sugarcane
production,
Tea, Coffee,
Cetronella
grass)
Term loan:
Farming
equipment

Individual
loan, cash
collateral

K200 000 600

000 on salt,
sugarcane and
tea processing,
K20 000 on coffee
processing

Tea:
K190k
Sugarca
ne: K354k
Salt:
K575k

159

160

>10 acres

8.5% pa

3 years

30 470
Individual
loan, asset
finance, cash
collateral

K744k
n/a

>10 acres

87
(down from
4902 in
previous
year)

8.5% pa

3 years

117
(down from 3 379 in
previous year)

158

MADB Annual reports and JICA presentation (Fujita, 2013)

Estimate using total monsoon clients (to avoid double-counting with other seasons) of 1.59m and applying ratio of paddy loans to total seasonal loans (95% of total loan value).
160
Estimate using total monsoon clients (to avoid double-counting with other seasons) of 1.59m and applying ratio of non-paddy loans to total seasonal loans (5% of total loan value).
159

191

Category

Regional
focus
Institution

MFI

161

PACT MFP

n/a for
agricultural
loans

PGMF

Proximity

162

95% of loans
in
Ayeyarwaddy

Product
Agricultural
Loan, mostly
paddy

STC

WV
RSC

165

Gold Delta

n/a for
agricultural
loans
n/a for
agricultural
loans
Danubyu
Township

Loan range/value

Group Loans

Group Loans

Standard
Crop Loan

Individual via
village
organisations

Premium
Crop Loan

Individual via
village
organisations

Total loans
(Kyats
million)

200 000

2.50%
pm/ 30%
pa
2.50%
pm/ 30%
pa

n/a
K148k

n/a

n/a
n/a
n/a

Group Loans

Seasonal
Loan

Individual
loans, group
guarantee

K2430

163

n/a
n/a

n/a
K130k

Small Group
Individual
loans to

n/a

n/a
164

n/a

n/a
K125k per acre

K484
Monsoo
n paddy:

4-9 acres

Interest
rate
2.50% pm
/ 30% pa

250 000

n/a

Standard
Crop Loan

Agriculture

Average
plot size

< 5 acres

Agricultural
Loan

Proximity

Proximity

Methodology

Average
loan size
(outstandi
ng) (K 000)

K2840

Term

nr of borrowers

5 months
71 618

5 months

n/a

n/a

4 320

n/a

8 640

n/a

540

2.50%
pm/ 30%
pa
2.50% /
30% pa
pm
2.50%
pm/ 30%
pa
2.50%
pm/ 30%
pa

Season

3 746

9 months

2 084

2% pm

Season

3 000

161

MFI conference presentations (May 2013), meetings

Proximity has 96% paddy farmers (MF Working group data)
Estimate based on stated average disbursement of K180k per client and 13 500 clients (May MF conference presentation)
164
Estimate based on estimate agricultural loan portfolio and stated number of agricultural loan clients.
165
Meeting and email communication
162
163

192

Category

Regional
focus
Institution

Product
(Ayeyarwaddy
)

RSC

Pyay
Township
(Bago )

Khittayar Hinthar
RSC

Input
provider
167

Awba
Cooperatives
169

Production
credit,
consumptio
n credit
(small part
of loans),
mechanizati
on services

Individual
loans to
outgrowers

n/a

Individual
loans to
outgrowers

n/a
Ayeyarwady
Greenland

Agricultural cooperatives

Focus on
higher value
crops. Avoids
flood or
drought
prone areas in
delta and dry
zone.

Methodology
outgrowers

Loan range/value

Average
loan size
(outstandi
ng) (K 000)
K672k
Summer
: K207k
n/a

Seasonal
loans
(equipment

Individual
loan, input
finance

Group loans

Interest
rate

Term

nr of borrowers

2% pm

Season

Max 3000

2% pm

Season

n/a

2.5-3%
pm

Seasonal:
120 to 180
days
(average
140 days)

1 500 000

2.5% pm

Seasonal

K800

n/a

n/a

n/a

K500
5 to 10
acres

n/a

Farmers < 5acres

eligible for loan
for all their

Total loans
(Kyats
million)

6.7
166
acres

n/a

K50 000
Inputs (seed,
fertilizer and
agro
chemicals)
on credit

Average
plot size

K75 000

Per
acreage
loan differs

168

5 acres
40 0157

166

Meeting notes: Max 3000 borrowers and max 20-23 000 acres
Estimates provided by Awba.
168
Estimate based on 1.5m clients with credit of K50 000 each.
169
Email from CCS Nov 2013
167

193

170

Category

Regional
focus
Institution

Product
finance in
few cases
with
collateral)
Most
common
crops are
paddy and
beans &
pulses

Methodology

Loan range/value
cultivations,
Farmers 5-10
acres: eligible for
loan for 5 acres of
their cultivation,
Farmers > 10
acres: eligible for
loan for half of
their acreage of
cultivation and
Per acreage loan
differs (eg.
10000/- 20000/-&
50000/-)

Average
loan size
(outstandi
ng) (K 000)
(e.g.
10000/20000/-&
50000/-)

Average
plot size

Total
Table 34. Overview of agricultural loans

Total loans
(Kyats
million)

Interest
rate

Term

nr of borrowers

4 337 692
171

Source: MADB annual report, Fujita (2013), Microfinance Practitioner Overview, Presentation to May workshop

170
171

Number of members for loan providing agricultural co-operatives, not number of borrowers.
Unless otherwise noted, data is as at March 2013.

194

14.1.1.

MADB

MADB reports having 2.26 million farmers as clients and loans of Kyat 568 billion during
2012/2013172. MADB primarily provides seasonal agricultural loans, consisting of monsoon
loans173 to 1.59 million farmers, winter loans to 0.66 million farmers and pre-monsoon loan
to 0.01 million farmers174. It is not clear whether this translates into a total of 2.26 million
farmers, because there may be some overlap between the data from the three seasonal
loans provided. The total client pool could therefore be somewhere between 1.59 million
(monsoon loans) and 2.26 million (total loans).Loans are repaid immediately after the
harvest. MADB provides two categories of loans: seasonal and term loans.
Seasonal loans makes up 98% of MADB loans disbursed and are provided across three
seasonal cycles: Pre-monsoon, monsoon and winter. In 2012/13 financial year 76% of
seasonal loans were in the monsoon cycle (reduced from 89% in 2009/10 financial year).
Paddy made up 91% of total seasonal loans (increasing from 81% in 2009/10 financial year).
22% of seasonal loans are provided in the Bago, Yangon 12% and Sagaing 11%, Mandalay 8%
(collectively making up 53% of seasonal loans disbursed in total).
Seasonal loans are structured as group loans with 5-10 farmers in each group. Loans are
approved at MADB branch and the Village tract committee is involved in the approval
process. Farmers obtain and repays loan in person and in cash at MADB branch (high
transaction cost). Both interest and capital is repaid at end of loan term (on harvest). MADB
charges 8.5% per annum interest on their loans
Although it cannot be used as collateral, farmers are required to have the necessary
documentation to verify the farmers right over land leased from. A report by the Harvard
Ash Centre estimated that 3.4m farmers did not have this documentation and would,
therefore be excluded from MADB loans. Under the Farm Law that was passed by the
parliament in 2013, farmers will be issued ownership certificates which could be used as
collateral. It is likely that the issuing of these certificates will take several years to complete.
MADB provides loans to farmers on a maximum amount per acres basis, up to a maximum of
10 acres, and farmers tend to take the maximum loan amount175. This maximum amount per
acre has increased continuously over the past 5 years (see Table 35 below) from as low as K
8 000 per acre in 2009 (Harvard Ash Centre, 2011) to a current level of K 100 000 per acre for
paddy and K 20 000 per acre for other crops176 (with in between increases to K 20 000 in
2010/2011 (Harvard Ash Centre, 2011) and K 50 000 per acre until very recently (Cho et.al,
2013).
Difference of opinion on whether loan size covers production cost. There are differences of
opinion about whether MADB products are meeting farmers financing demands. Some argue
that per acre loan values for paddy now exceeds what is required and also what can
reasonable be repaid by farmer (Fujita, 2013). However, several other sources suggest that
production costs still exceed current loan levels. During consultation with MADB in May
2013, MADB indicated that they are applying for increased finance to increase the maximum
172

Information received directly from MADB, Aug 2013

Monsoon loans also make up nearly 80% of loans disbursed in terms of value (MADB, Aug, 2013)
174
Information received directly from MADB (Aug, 2013).
175
Information received directly from MADB (May, 2013)
176
Information received directly from MADB (May, 2013)
173

195

loan amount per acre for paddy to K 150 000 per acre and K 70 000 for other crops, but that
(paddy) farmers needed K200 000 to K300 000 per acre to cover production costs. Cho et.al
(2013) finds that a loan of K50 000 per acre only cover 25-50% of the overall financing
needs per acre, putting estimated production costs at K100 000 to K 200 000. Production
costs were estimated by the Myanmar Farmers Association at between K 140 000 to K
177 000 per acre(MFA,2013). Statements by government note production costs that may go
up to K 400 000 per acre for better quality rice. A careful evaluation of farmer credit needs
and capacity will be essential to inform any further expansion by MADB.
Paddy

Other

2005/2006

8 000

3000/4000

2006/2007

8 000

3000/4000

2007/2008

8 000

3000/4000

2008/2009

8 000

3000/4000

2009/2010

10 000

6 000

2010/2011

20 000

10 000

2011/2012

40 000

10 000

2012/2013

50 000/80 000

10 000

2013/2014

100 000

20 000

Rates suggested in meeting

150 000

70 000

Table 35: Increase in financing rate per acre

Source: MADB presentation, JICA presentation (Fujita, 2013)

MADB term loans make up only 2% of total loans disbursed (31k clients). 70% of this consist
of loans for sugarcane production (a dramatic increase from 1-2% in between 2009 and
2012) and 23% for special projects loans. Average loan disbursed per client for sugarcane
increased from K 80 000 to K 354 000 and from 2009-2013. 93% of term loans were provided
in 5 regions: Bago (31%), Shan (25%), Sagaing (13%), Magway (13%) and Naypyitaw (10%).
Farm machinery loans have decreased from K1.5m disbursed per client in 2009/10 to K 744
000 in 2012/13. These loans made up 80% of term loans in 2009/10 but this reduced sharply
to 1% in 2012/13. This was mainly the result of a change in government policy to limiting
financing to the purchase of locally manufactured machinery (Fujita, 2013).
These are individual loans for asset-purchases where the asset is used to collateralise the
loan in addition to the cash collateral requirement. Two guarantors are also required.
Depending on the industry cash collateral of between 30% and 50% of loan value is required
(Fujita, 2013).
These loans are available to farmers with plots in excess of 10 acres and loans are approved
at the MADB head office. The loan term is 3 years and interest is charged at 35% per annum.
Loan principle and interest is repaid at end of 3 years.

14.1.2.

INGOs

PACT MFP provides an agricultural loan to 19% of its borrowers (71 600 borrowers). The loan
size is K250 000 and interest is 2.5% per month with a term of 5 months. PACTs agricultural
196

loans are therefore seasonal, and are mostly monsoon paddy loans, with some loans going
to pulses and rice. They limit farm size to a maximum of 5 acres to retain focus on landless
and marginalised farmers. Using take up figures as well as the loan size, estimated loans
disbursed for agricultural loans is K 17.9 billion.
PGMF also offers a similar agricultural loan for up to K200 000 at 2.5% interest per month,
but take up figures have not been obtained for this product.
Proximity provides a standard crop loan and a premium crop loan to 32% (4 320) and 64%
(8 640) of its borrowers on an individual basis via village organisations. They also provide a
standard crop loan on a group loan basis to 4% (540) of their borrowers. 96% of their
borrowers are paddy farmers, and all farms are smaller than 30 acres, with a median farm
size of 5 acres. While expanding in other parts of the country, they have a strong Delta area
focus. Although they indicated about 13 500 loan clients177 as at May 2013, loan data
received for the 2012/2013 financial year indicates about 23 500 for that period, suggesting
multiple loans per client per year.
In addition to providing crop loans, Proximity Designs also provide loans for financing their
irrigation products. The structure and terms of these loans is unclear, but it seems like
farmers may also take out extra cash with these loans to be used in agriculture. Data
provided by Proximity indicate that about 16 000 of these loans were provided in the
2012/2013 financial year. Their irrigation products (pumps, drip and storage systems) cost
between K 15 000 and K 40 000 and a full set cost about K 70 000 (Proximity, 2012).
World Vision has a limited agricultural portfolio consisting of 2084 seasonal loans provided
on group basis. They reported that local authorities in some of the areas that they operate
did not want them to go into agriculture.
Save the Children provides agricultural loans to 3 746 farmers in the form of seasonal group
loans, mostly for paddy in the rainy season and for beans in summer. They report that they
operate in the same areas as MADB but that they focus on smaller farmers of between 1 and
5 acres. They see this as the first phase exploration of the agricultural sector on which they
have limited experience. Given their limited experience and the absence of a detailed loan
assessment in the first phase, they are limiting loans to K 50 000 over four months, with biweekly interest payments and the principle due at the end (at harvest time).
As at March 2013 27% of their loans (by number of clients) were in this experimental area.
Given earlier discussion on likely production cost, these loan sizes are likely to fall short of
the value required by farmers. The loan term and repayment frequency also does not seem
to match the agricultural production season.

14.1.3.

Agricultural co-operatives

The 5 222 agricultural co-operatives that provide loans have 400 000 members. Only
member farmers are eligible for loans and credit is used mostly for agricultural production,
with the most common crop types being paddy and beans and pulses. However loans for
farm implements are provided on a case to case basis, but require collateral.

177

Microfinance workshop presentation, May 2013.

197

The loan size varies between K 10 000 to K 50 000 per acre (based on the size of the cooperative), with most farm sizes smaller than 10 acres and typically around 5 acres. Farmers
with less than 5 acres are eligible for a loan covering their total acreage, while farmers with
between 5 and 10 acres are eligible for a loan covering a maximum of 5 acres and farmers
with more than 10 acres are eligible for a loan covering half their acreage. The repayment
period depends on the period of production/ length of season.

14.1.4.

Rice specialised companies

Rice specialised companies provide seasonal loans (monsoon and summer paddy) at 2% per
month, based on the agreed sale of farmers rice crop to the RSC at a pre-determined price.
There are currently 4 RCSs (if MAPCO is included) still in operation of which Gold Delta is the
biggest, with 3 000 to 6 000 farmers. Although farmer numbers are not available for all 4
RCSs, Kitayar Hinthar (second biggest RCS178) has a maximum of 3000 farmers, which would
put overall number of farmers with RCSs at around 15 000 or less. However, MAPCO has a
larger loan book for the 2013 Monsoon season, and might possibly therefore also have more
farmers than Kitayar Hinthar. The combined loan book for the four RCSs for the 2013
Monsoon season was K 5.2 billion, with Gold Delta having the largest loan book (K 2.2 billion)
followed by MAPCO (K 1.7 billion) , Kittayar Hinthar (Kats 0.8 billion) and Ayeyarwady
Greenland (0.5 billion).
More product data is available for Gold Delta than for the other RCS and is included below:
Gold Delta Rice Specialization Company was established in April 2009 by the Eden Group
Company and operates exclusively in Danubyu Township (Ayeyarwaddy). From 2009 to 2011
they have provided finance to between 4000 and 6800 farmers who conducted farming
activities on a combined 35 000 to 60 000 acres (Gold Rice Delta, 2011.) Their average loan
size for Monsoon Paddy have increased from K 149 000 per farmer in 2009 to K 440 000 in
2011 (or from K 18 000 to K 50 000 per acre) and have remained relatively stable for summer
paddy at K 297 000 in 2009 vs. 292 000 in 2011 (although it dropped in terms of Kyat per
acre from K 64 000 to K 31 000). Since 2011, the number of farmers receiving finance have
decreased to about 3 000 and the total acres decreased from 60 000 in 2011 to around
20 000 in 2012 and will only be around 10 000 in 2013 (see Table 36 below). However, the
loan amount per acre increased from K 18 000 (2009) to 125 000 per acre) in 2012/2013 (or
average loan per farmer of K 670 000), which is on par with current amounts provided by
MADB. Gold Deltas average plot sizes vary between 4 and 9 acres.

Year

No Of
Farmers

Provide
d Area
(Acre)

Total
Financing
(Kyats)

Average Loan
(Kyats)

Loan per
acre
(Kyats)

2009 Monsoon Paddy

4 297

35 929

644 123 200

149 901

17 928

2010 Summer Paddy

1 849

8 573

548 672 000

296 740

64 000

2010 Monsoon Paddy

6 490

45 822

337 338 753

51 978

7 362

2011 Summer Paddy

3 024

28 566

884 184 000

292 389

30 952

2011 Monsoon Paddy

6 865

60 416

3 013 770 600

439 005

49 884

2012/2013 Other

2 971

20 467

614 010 000

206 668

30 000

2012/2013 Monsoon Paddy

3 311

17 809

2 226 125 000

672 342

125 000

178

Based on interviews with Kittayar Jinthar and Gold Delta

198

No Of
Farmers

Year

Provide
d Area
(Acre)

Total
Financing
(Kyats)

Average Loan
(Kyats)

Loan per
acre
(Kyats)

Downloaded from GD website[6]

2013/2014 Other

3 000

9 193

(Nov2013)

2013/2014 Monsoon Paddy

2 127

2 500

Received from Gold Delta (Nov2013)

Table 36: Finance provision by Gold Delta 2009 to 2013

Source: Gold Delta website and interview

14.1.5.

Agricultural input providers

Awba provides input credit to an estimated 1.5m farmers. Average credit extended per
farmer per year is about K 50 000 (USD 50) and total estimated loans disbursed per year is K
75 bn (USD 75 000 000). Typical inputs include seed, fertilizer and agro chemicals. They focus
on higher value crops179 and areas with less weather irregularities, but are currently also
expanding provision to rice farmers. Farm size of their clients range between 5 and 10 acres,
and inputs are provided to farmers who can prove that they own the land.
They charge between 2.5 and 3% interest per month and the term is typically about 140
days, but varies between 120 (vegetables) and 180 days (rice) depending on the type of
crop.

14.2. Business loans and providers

Business or productive loans are provided by all commercial banks, SFIs (MEB and MICB),
MFIs and financial co-operatives. Commercial banks are providing the largest loans (as high
as K 200 million) at low interest rates of 13% p.a., although their hire purchase loans start at
K100 000. However they only have about 60 000 credit clients (split between business and
personal loans are not known). MFIs mostly operate in the K 50 000 to K 500 000 space in
terms of business/productive loans, although some individuals graduate to loans as high as K
1.7 million. All MFIs provide loans at an interest rate of 2.5% per month. They provide at
least 408 000 business/productive loans (of which PACT MFP provides 93%/374 000), but
could provide as many as 487 000 depending on PGMFs loan portfolio. Non-agricultural
financial co-operatives provide productive loans to between a third and two thirds of its
480 000 members who are mostly in urban areas. Loan sizes range between K 30 000 and K
300 000, with most loans not exceeding K 90 000. Its loans bear an interest rate of 2.5% per
month with daily or weekly repayment and a term of between 60 and 75 days. Table 37
below sets out the product details by provider groups for business/productive loans in
Myanmar, after which the products is discussed in more detail for provider groups and
certain individual providers.

14.2.1.

Private Banks

Term loans. While the split of banks credit portfolio between personal and business loans is
not known, from interviews with banks it is known that a large proportion of bank loan
[6]

Gold Rice Delta Co, LTD 2011. [Online] Available from: http://www.golddelta-ricemyanmar.com/Default.aspx [Accessed:
20/12/13]
179
Major crops are Rice, Pulses and Beans, Onion, Potato, Tomato, Ornamentals, Sesame, Groundnut, Melons, Corn, Sugarcane
and Vegetables

199

business is corporate or SMEs180 and most banks (at least 14 181) provide a business term
loan. Banks provide these loans on an individual basis to formally registered businesses, but
require collateral (see Box 10 below) as well as a guarantor in some cases. The size of the
loan depends on the size and performance of the business. Interest is 13% per annum and at
least one bank also charges a 1% service fee. The term is up to one year, but banks typically
allow renewal before maturity on a yearly basis. Banks require loan applicants to hold an
account with the bank and typical documentation for a loan application include proof of
identification, proof of address (including in some cases a letter from the ward administrator
confirming the address), a valid business licence/ company registration or export/ import
licence, financial statements and tax receipts for the most recent three financial years as
well as photos of the businesses operations in certain cases.
Box 9: Collateral accepted under Central Bank of Myanmar regulations

With regards to collateral, the following is accepted under the Central Bank of Myanmar
regulations:

Immovable properties,
Government bonds and securities,
Machineries,
Fixed deposits or Savings deposits,
Goods, and
Gold.

With regards to property:

If collateral is a building, it must be a fixed brick buildings (with 60-year land lease)

Overdrafts. Overdrafts are provided by at least 8 banks182 for clients who have a current
account. The term is mostly one year, but one can apply for extension of the term before
expiry each year, so effective term could potentially be much longer. Interest is 13% per year
and most banks also charge a service fee of 1%.
Other business loans. At least 5 banks183 provide various types of other specialised/specific
purpose business loans. These loans include working capital financing, warehouse financing,
construction financing, factoring, corporate financing, import and export financing, letters of
credit and pledge loans.
Hire purchase also applied for business. Hire purchase loans are relatively new and not all
banks provide them (at least 5 banks do, as well as the Oriental Leasing Company a
subsidiary of Oriental Bank). Banks provide hire purchase loans for hospital and clinical
equipment, heavy machinery and machineries for business use and generators in addition to
180

80% of Apex banks clients are MSEs

Asia Green Development Bank, Asia Yangon Bank, Ayeeyarwaddy (AYA) Bank, Co-operative Bank, Innwa Bank, Kanbawza
bank, Myanmar Citizens bank, Myana Livestock and Fisheries Development Bank, Myawaddy Bank, Sibintharyar Yay Bank, Small
& medium Industrial Development Bank, Tun Foundation Bank, United Amara Bank, Yangon City Bank.
182
Asia Green Development Bank, Ayeeyarwaddy (AYA) Bank, Co-operative Bank, First private bank, Kanbawza bank, Myanma
Apex Bank, Myanmar Oriental Bank, Small & medium Industrial Development Bank.
183
Asia Green Development Bank, Ayeeyarwaddy (AYA) Bank, Co-operative Bank, Myanmar Citizens bank, United Amara Bank.
181

200

hire purchase loans for personal consumer durables and property. Loans start at K 100 000.
The term is between 1 and 3 years and interest is structured as a borrowing fee (5% to 11%)
plus service fee (usually 1%), with a one year lease usually having a borrowing fee of 7% or
higher. An initial down payment of 20 to 30% is normally required, with the remaining value
of goods bought split evenly over the term of the loan. For a more detailed discussion on
hire purchase agreements, please see Section 14.3.

14.2.2.

SFIs

The SMIDB provide subsided credit to SMEs at 8.5% (similar to MADBs subsidised loans to
farmers), but only has 550 active loans. Previous government initiatives have focused on
making funding available to an estimated 126 000 SMEs and 40 000 microenterprises
through SMIDB, but so far success has been limited (due to collateral requirements imposed
by SMIDB) meaning the bulk of trade or small business loans are provided through banks,
MFIs and co-operatives at higher regulated rates, or at unregulated rates through the
informal sector which are much higher.
MEB: Overdraft at 16%, Term loans and working capital loans. Currently provide short-term
(<1 year) at 17%. Used to provide medium term (2-5 years) at 16.5%, and long-term (5-10
years) at 16%
MICB Business loan: unmoveable asset as collateral, loan up to 50% of collateral value at 8%.
Term not known.

201

Category

Institutions

ACLEDA

Yangon

Save the
Children

Yangon
(55%),
Magway
(18%)
and
Bago
(15%)
Mandala
y (46%),
Yangon
(25%)
and
Ayeyard
wady
(18%)

World Vision
MFIs

184

Regional
focus

Product

Methodology

Loan
range/value

Average
loan size (K
000)

Total
loans
(Kyats
million)

Interest rate

Term

nr of borrowers

Group and
individual, but
currently mostly
group
Group loans (bi
weekly interest
payments,
principle at end
of term)

First cycle
max K100k,
increase
after that
K50k
K250k

n/a

n/a

2.5% pm/30%
pa

2-3m

479

K69k

K410

2.5% pm/30%
pa

4m

10 127

Commerce (2
weekly
payments)

Group loans

K75 000 K300 000

K168k
outstanding
/K290k
disbursed

K2627

2.5% pm/30%
pa

mostly for 6
months (up to 12
months)

16 862

Commerce

Individual loans
(graduated from
group to
individual)
Guarantor
required

Individual
loans of up
to K1.75m

800 000

General Loan

184

2.5% pm/30%
pa

Estimated using total loan volume and reported 89% of clients with business loans.

202

Category

Institutions

GRET

PACT MF

Regional
focus
Tedim
(30%),
Thantlan
g (28%),
Hakha
(20%),
Falam
(19%)x
Delta
(37%),
Dry
(48%),
Shan
(14%)

PGMF

Financial
services cooperatives
Co-operatives

Mostly
urban

Product

Methodology

Loan
range/value

Average
loan size (K
000)

Total
loans
(Kyats
million)

Interest rate

Term

nr of borrowers

Group Loan

Group loans

80,000120,000

106 000

K700m

2.5% pm/30%
pa

Up to 1 year

6 000

Micro
Enterprise
Loan

Individual

120,001600,000

555 000

K300m

2.5% pm/30%
pa

Up to 1 year

400

Regular loans

Group loans

200 000

361 027

Group loans

50 000

Up to 1 year

2 314

Microenterprise
loans
Regular loans

Individual

500 000

2.5% pm/30%
pa
2.5% pm/30%
pa
2.5% pm/30%
pa

Up to 1 year

Extra loans

K 72
205m
K116m

Up to 1 year

11 262

Group loans

150 000

Up to 1 year

n/a

Extra loans

Group loans

30 000

Up to 1 year

n/a

Microenterprise
loans
Group loan
(weekly
payments)

seem to be
individual?

300 000

2.5% pm/30%
pa
2.5% pm/30%
pa
2.5% pm/30%
pa

Up to 1 year

n/a

2.5%pm/30%p
a

60 days

Special loan
(monthly
payments)

Individual
(graduate from
group loans after
8 months of
regular loan) 10%

2.5%pm/30%p
a

n/a

A third to two
thirds of 480 000
members borrow
at any one time
Few people take
the special loan.
Only 6% of one
MFI co-operative's
members

Group loans (at

least 10
members)

1st: K45k
2nd: K60k
3rd: K90k
4th: K120k
Max: K300k

K138
outstanding
K313
disbursed

K5 631 m

K58
outstanding
K392k
disbursed

n/a
n/a
n/a

n/a

n/a

203

Category

Institutions

Regional
focus

Product

Methodology

savings required

Loan
range/value

Average
loan size (K
000)

Total
loans
(Kyats
million)

Interest rate

Term

nr of borrowers

qualified, and most

didn't take the
special loan in any
case.

Table 37: Business loans product table

Source: Bank website, marketing pamphlets

204

14.2.3.

INGOs

PACT
PACT MFPs main loan product (regular loan) is provided for businesses/SMEs on a group
basis. These regular loans are for amounts up to K 200 000 with a term of 1 year and interest
rate of 2.5% per month. Successful borrowers can graduate to individual micro-enterprise
loans of K 500 000 with the same term and interest rates. As at March 2013, 361 027
members had individual loans and 11 262 members (3% of their borrowers) micro-enterprise
loans. Some clients have progressed to larger loans overtime and it is estimated that 10% of
their clients have loans in excess of K500k (Interview, May 2013).
PGMF follows a similar product structure with slightly lower loan sizes. Regular loans of K150
000 are offered on a group basis and successful borrowers are able to graduate to individual
micro-enterprise loans of K 300 000. Both of these have a term of up to one year and
interest is charged at 2.5% interest per month. The breakdown of clients to loan categories is
not available for PGMF but as at March 2013, it reported 74 194 active borrowers.
World Vision
World Vision provides a commerce loans ranging between K 75 000 and K 300 000 to 89%
(16 800) of their members on a small group basis. Successful clients can migrate to individual
commerce loans that could range up to K 1 750 000 with most currently ranging around K
800 000. World visions average loan disbursed (on its total book) is K 230 000 but their
commerce loan should be close to this amount due to the large proportion of its book being
commerce loans. Interest is charged at 2.5% per month and while the term is up to one year,
the typical term of the current loan book is reported to be six months. Payments were
initially on weekly basis but they have recently moved to 2 weekly payments.
GRET
GRET provides group micro enterprise loans ranging between K 80 000 and K 120 000 to an
estimated 6400 members. Successful clients are able to migrate to individual loans
(requiring two guarantors) ranging from K 120 000 to K 600 000. An estimated 550 of their
members currently have individual loans. Interest is charged at 2.5% per month and the
term is up to one year.
Save the Children
Save the Children offers a general loan for productive purposes to individuals on a group
guarantee basis. 73% of their clients (or 10 000 borrowers) have the general loan. 100% of
their borrowers are female, and 55% are in Yangon. Their loans range between K 50 000 and
K 250 000 and the general loan has a term of 6 months, with weekly repayments (including
principle and interest).

205

14.2.4.

Co-operatives

Another prominent credit product being offered and used by the low-income population is
the micro or small business or trade loans offered by various categories of non-agricultural
co-operatives, which are almost exclusively urban. They provide productive loans to a
member base of about 480 000 if which between a third and two thirds can borrow at any
time. Loans are mostly provided on a group basis but they also provide individual special
loans. Interest is charged at 2.5% per month. Non-agricultural financial co-operatives have
disbursed K 52 billion in loans for the year between April and July 2013. Average loan
disbursed per member185 for different categories of co-operatives varies between K 60 000
to over K 300 000, with some individual co-operatives having an average loan disbursed of K
600 000. Payments are structured on a daily or weekly basis, which would make it difficult
for larger loans and for business with longer turnover cycles.
The official structure for co-operative loans (prescribed by CCS for MFI co-operatives) is as
follows: The applicant must be able to generate a daily income to repay the loan and must
not be a member of other financing organisations. The applicant must be part of a self-help
group (SHG) of at least 10 members who must have the same type of business. Each
member receives an individual loan with a group guarantee from the SHG. Each member can
get the first loan amount of K 45 000 with a term of 60 days and interest rate of 2.5% per
month. After each successful repayment cycle, a member can progress to a larger loan
amount (2nd cycle K 60 000, third cycle K 90 000 and fourth cycle K 120 000). After
completion of four cycles (8 months, final loan amount of K 120 000), a member can apply
for a special loan of up to K 300 000186. The term and interest rate for all loans are the same,
but the special loan is for an individual member and not guaranteed by the SHG. Very few
people seem to take the special loan. One microfinance co-operative indicated that 50 of its
870 members qualified for the special loan, but that very few members actually take the
special loan as they feel they cannot handle the daily repayment.
Non MFI co-operatives seem to adhere to the same CCS prescribed structure for its loan
provision, however, from interviews with co-operatives we know that some co-operatives do
deviate slightly from this structure. For instance, one co-operative have a group loan term of
75 days for loans that are K 90 000 or bigger, instead of 60 days as prescribed by CCS. Also,
some co-operatives start with a first loan amount of K 30 000.

14.2.5.

Money lenders

Unregulated money lenders start from 10% per month to as much as 40% per day (demand
side qualitative research

14.3. Asset-based finance and providers

Hire purchase loans seem to be a relatively new product offered by private banks, although
the Oriental Leasing company has been offering hire purchase loans since 1995. Not all
banks are providing hire purchase loans, but at least 5 banks are (AGD, Co-op Bank, KBZ,
SMIDB and UAB).
185

Please note this is the total loan disbursed amount divided by number of members, actual loans disbursed to only those
members who received loans is not available.
186
Member has to have savings equal to 10% of special loan amount.

206

Hire purchase loans serve as a financing mechanism for assets, especially in the absence of
long term/mortgage loan products. Some high value assets (e.g. apartments and
condominiums) are allowed for hire purchase loans and terms extend beyond 12m. In some
cases hire purchase products are advertised with 36m terms, but there are still no products
with a term more than 36 months. However, refinancing is commonly noted as an option on
hire purchase and term loans suggesting that loans can be rolled over for more than one
year. Given the likely value of these high value assets, it will require multiple extensions to
finance, effectively mimicking a long-term loan.
Hire purchase reflects increased interest in retail sector. However, hire purchase loans also
reflect an increased interest by banks in the retail credit sector. The types of products
offered on hire purchase include lower value assets such as motorcycles and bicycles, and
even electronics and cell phones. This would suggest far smaller contract values than the
average loan values reported by banks to date. Some banks have noted a minimum value of
K100 000 (USD 1000), which makes this accessible for lower-income consumers.
Apart from a 20-30% down payment, there is no other collateral requirement. On hire
purchase loans however, insurance is required in most cases and one bank (CB bank) may
require a cash collateral amount in certain cases. No other restrictions like minimum income
levels are noted in hire purchase loan product descriptions.
Hire purchase loans are distributed through agents, with banks working through the vendor
of the specific product financed.
Details on hire purchase agreements offered by specific banks can be seen in Box 10 below.
Box 10: Product details of hire purchase loans offered by banks

Hire purchase agreements are offered by at least 5 banks (AGD, Co-op Bank, KBZ, SMIDB,
UAB) and are and can be obtained for the following specified goods:

Electronics,
cell phones and communication devices,
gold and jewellery,
furniture,
automobiles and motorbikes,
hospital and clinical equipment,
heavy machinery,
tractors and agricultural machinery,
machineries for business use and generators, and
Apartments, condominiums and individual houses.

Specifications range from a minimum product amount of K 100 000 (AGD) to 30% down
payment to secure the agreement (KBZ).
AGD offers HP on products which is at least K 100 000. You need an ID card, family
registration form, recommendation letter and insurance to apply. Clients can typically
choose between a one year and two year repayment plan. Both carries an initial payment of
20% of the value of the purchased product and what seems to be a monthly interest rate of

207

8%187 (1 year) or 10%188 (2 years) on the remaining 80% of the value over 12 or 24 months.
For the two year agreement you can choose to increase the initial payment to 30% in which
case the monthly interest decreases to 9%189.
AGD charges a penalty of 0.04% of the purchased value (4 Pyas for K100 ) for failure to pay
on the due date and if the purchaser fails to make instalment payments for three
consecutive times, the purchased product will be repossessed and he/ she will bear the loss
of all the payments that have been made.
Co-operative bank offers a more flexible hire purchase agreement where the client can
adjust their first instalment as well as the amount for the remaining equal instalments.
KBZ requires a 30% initial down payment after which a service charge of 1% and rental fees
of 9% for the first year and 5% for the second year and third year applies (presumably
monthly rates), translating into a 10% interest rate over the first year and a 6% interest rate
over the second and third years.
It is unclear why the interest charged on hire purchase agreements seems to be much lower
than the 13% charged on normal loan products by banks. The term of hire purchase products
seems to extend longer than 1 year (or even two), as in the case of KBZ, but interest over
longer hire purchase agreements increases for CB Bank while decreasing for KBZ.

The Oriental Leasing Company also offers hire purchase loans, but only for bicycles,
motorcycles, farming equipment, cars etc. They have 5 400 clients and only offer a 1 year
lease. Their average value for a hire purchase loan is K 100 000 (total loans outstanding of K
823 million) and they charge 21.6 % for motorcycles, and 30% on cars.
Provider details: Oriental Leasing Company

Oriental Leasing Company Limited (OLC) was founded in 1995 and is a subsidiary of
Myanmar Oriental Bank (the bank owns 99% of the companys share capital) (MOB, 2012).
They are the only leasing company in Myanmar, but CBM is issuing two new licences in 2013.
They are funded by their own capital as well as borrowings from MOB Trust, on which they
pay 10% interest.

14.4. Personal loans and providers

Personal loans are provided by banks, MFIs, co-operatives and pawn shops. All personal
loans are either collateralised or provided to members who have graduated from a group
loan based on good repayment behaviour. Education, emergency and health loans are also
provided to MFI and co-operative members who already have a group loan. Table 38 below
shows the product features and information for personal loans. A discussion on product
loans offered by category of provider follows.

187
188
189

7% borrowing fee and 1% service charge,

9% borrowing fee, 1% service charge
8% borrowing fee, 1% service

208

Category

Instituti
ons

Product

Methodology

MFIs

AEON

Salary-based loan

PACT MF

Small and Vulnerable Loan

Health care Loan
Education Loan
Consumer Loan
Health care Loan
Education Loan
Educational loan (works like
credit facility, can take 50% up
front, pay off in 4m and can
then get second drawdown)
Emergency loan for social
welfare or education loan

PGMF
WV

Cooperatives

Pawn shops

Cooperativ
es

Emergency healthcare loan.

Healthcare support noted in
Section 10.5.4 provided as
interest- free loans for events
affecting family members
rather than main member
Short-term loan pawned
against gold or clothing

Loan
range/value

Average loan
size

Total loans
(Kyats million)

Interest
rate

Individual,
salary-based
Individual
Individual
Individual
Individual
Individual
Individual
Individual

K300k-K500k

No loans to
date
n/a
n/a
n/a
n/a
n/a
n/a
K100k

No loans to date

2.5%pm/3
0% pa
2.5% pm
2% pm
2% pm
n/a
2% pm
2% pm
n/a

Individual, for
existing group
loan members

50 000

50 000

n/a

Individual
loans,
unsecured

Amounts vary
between K30
and K100k
depending on
event

Individual,
collateralised

K 500 to K 250
000

50 000
50 000
50 000
n/a
50 000
50 000
Primary 40k
secondary 60k
Tertiary 80k

n/a
n/a
n/a
n/a
n/a
n/a
n/a

Term

Nr of
borrowers

n/a

1 year
6m
6m
n/a
n/a
n/a
8m

611
2144
496
4 775
n/a
n/a
n/a

2m

n/a

No interest

2m

n/a

3% per
month

3 months

Between 2
and 3 million

2.5%

n/a

n/a

Table 38: Personal loan products

Source: Banks website, market material

209

14.4.1.

Private Banks

The survey of bank products found two banks that offer personal loans that are not explicitly
targeted for business or asset purchases. CB Bank offers a gold financing term loan and an
Easi credit loan, while Yangon City bank offers a Personal Loan. Details on product
features for these products are not available. The limited number of personal loan products
(other than hire purchase loans) confirms the limited focus that banks have placed on the
retail credit market to date. As discussed in Section 5, one of the key reasons for this is the
regulatory prohibition on unsecured lending by banks.
There are no credit cards. Cards only recently introduced anyway. None offer credit as may
not do unsecured.

14.4.2.

INGOs

PACT extends variety of personal loans to small number of existing clients. Both PACT MFP
and PGMF provides a health loan and an educational loan for K 50 000 and interest of 2%
per month. PACT MFP does so over a term of 6 months. These are the only products that
PACT does not charge 2.5% a month on. Personal loans are only provided to about 2% of its
members, consisting of 4 775 members with a consumer loan, 2 144 members with a health
care loan, 611 members with a small and vulnerable loan (also for K 50 000) and 496
members with an educational loan. The loan amount for consumer loans is not available, but
assuming it is also K 50 000 (smallest product loan amount that PACT MFP provides), total
personal loans disbursed by PACT MFP would be around K 400 million (0.4% of total PACT
MFP loan volume).
World Vision started a pilot program in 2013 whereby they provide educational loans which
all embers can apply for. They have seen significant take up (spike in over all loans due to
take up of educational loan) and average loan amount is for K 100 000. The loan works like a
credit facility, where the client can take 50% of the value up front, pay it off over 4 months
and then get second drawdown for another 4 months (8 months total term). They found
that clients prefer an 8 months term to a 3 month or 6 month term for this type of loan.
AEON plans to provide retail credit in the form of salary-based loans (payroll lending). They
initially plan to target staff of Japanese-owned factories with small scale finance of $200$500 (K 200 000 to K 500 000). Eventually they want a loan offering of between K 50 000 and
K 3 million in order to accommodate higher values for motor cycles and generators.
Co-operatives provide an emergency loan to existing members to a maximum of K 50 000 for
social welfare, education and healthcare problems, on which the same interest is charged as
for normal loans (2.5% per month). Emergency loans can be repaid on a monthly basis (as
opposed to daily repayment for other loans), and has a term of 2 months. Co-operatives
interviewed also noted that the main member healthcare benefits provided as part of the
provident fund (See Section 10.5.4 for details) are provided to family members as interest
free loans. The provident fund seems to be widely applied across co-operatives. It is not
clear whether the same loan facility is available across all for family members.
Pawn shops offer loans using gold and clothing as collateral. Clients may receive about 95%
of the gold value as loan but may opt for smaller loan. Regulated pawn shops charge 3% per
210

month interest and interest and capital is only repaid at the end of the loan period. If clients
are unable to repay loan, the loan can be rolled over. In such cases the client pays only
interest for the next 3 months after which the loan can be settled. Loans may be rolled over
more than once and the pawn shop interviewed as part of this study noted that is not
unusual for loans to be extended over one or two years. The same pawnshop estimated that
about 30% of their clients request loans to be extended. Loan amounts are determined by
the value of the gold or clothing pawned. For the pawn shop interviewed, typical loans
against gold would range between K 700-800k and loans against clothing would be around
K20k.

14.4.3.

Unregulated providers

Uncollateralised individual loans high cost and only accessible through informal sector. A
prominent feature of the formal industry products is that all loans are either dependent on
collateral (commercial banks and pawn shops), group based (MFIs, co-operatives and the
MADB), or a combination of being group based and membership based (co-operatives). The
only source for uncollateralised individual based loans is the informal sector, but this implies
a much higher cost. However, some MFIs are looking at progressing good performing
members to individual based loans (but with guarantors), while one is planning to secure
loans against payrolls.
Informal market better tailored to needs. The use of unregulated products seems to be
widespread, with little evidence of cases of abuse. Qualitative research indicated that
unregulated financial services providers are used because they are more flexible (terms can
be negotiated, including flexible repayments), they are close to where people live, they can
be accessed after hours, and they are less of a hassle to use (no paperwork).
Unregulated credit charged at a premium. Despite the fact that interest rates are much
higher for unregulated credit than regulated credit (3% to 8% per month when borrowing
from family190 and as much as 10 to 20% per month for unregulated money lenders), people
still seem to utilise the informal market to a large extend, possibly indicating that the formal
credit market is very constrained and unable to meet demand.

190

Qualitative demand side research

211

14.5. Overview of agricultural activities of all adults whose household

are involved in farming
Dominance of paddy production. Almost all adults (94.1% or 18.6 million) who indicated that
their households are involved in farming also indicated that they are involved in crop
production (see Figure 51 below). Paddy is overall the biggest crop produced, with 14.4
million adults (72.6% of all adults involved in farming) reporting that their households are
involved with paddy production.
N=19 775 953

94.1%

% of adults who are involved in

farming

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

*Three groups can overlap

36.2%

1.8%
Involved in crops

Involved in livestock

Involved in fishery

those involved in farming who are involved in crop production, livestock or

fishery

Figure 51: Involvement in crops, livestock and fishery

Source: FinScope 2013

% of adults involved in crop

production

Most adults involved in fewer than 2 crops. Of those adults who are involved in crop
production (18.6 million), most are involved in two crops or less with only 20.8% of these
adults involved in more than 2 crops and the average number of crops for adults involved in
crop production being 1.88 (see Figure 52 below).

45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

41.5%

Average number of
crops: 1.88

37.8%

16.4%

3.7%
One

Two

Three

Number of crops involved in

Four

0.7%
Five
N=18 567 155

Figure 52: Number of crops involved in

Source: FinScope 2013

212

High concentration of crop types and large overlap between main 3 crops produced. . Of
those involved in crop production, 93.3% of adults (or 87.8% of all adults involved in
agriculture) are involved in at least one of three main crop types: Paddy (77.2% of adults in
crop production), beans and pulses (40.3% of adults in crop production), and cereals (31.4%
of adults in crop production). As can be seen from Figure 53, there is a large degree of
overlap between those who are involved in the production of paddy and those who are
involved in the production of cereals or beans and pulses. While 35.7% of crop farmers (6.6
million) are involved in paddy but not cereals or beans and pulses, 39.1% (7.7 million) are
involved in paddy production and at least one of the other two main crops.
Involved in crop production: 18 604 127 (94.1% of those involved in agriculture)
Involved in paddy
14.36 million
(77.2%)

Involved in beans/pulses
7.96 million
(40.3%)

Paddy

Beans
Pulses

3 654 557
(19.6%)

6 632 941
(35.7%)

853 001
(4.6%)

1 967 550
(10.6%)

2 111 615
(11.4%)

Not involved in
these three crops
1 250 698
(6.7%)

1 491 583
(8.0%)

Cereals
642 182
(3.5%) Involved in cereals
6.21 million
(31.4%)

Number of adults in segment

% of those involved in crops (N=18 604 127)

Figure 53: Overlaps between three main crops

Source: FinScope 2013

Significant proportion of farmers has farms larger than 5 acres. Of the 19.8 million adults
whose households are involved in farming, 85% indicated that their households own land for
cultivation, while 36% of farmers who own land (31% of farmers) indicated that their land is
larger than 5 acres in size. This represents 6.1 million adults or 2.1 million households.

213

% of all adults involved in farming

Land size for all adults involved in farming

16%
15%

14%

14%

13%

12%

10%
8%

10%

10%

10%
8%

6%

6%

5%

4%

4%

3%

2%

2%

0%
Do not Own less 1 to 2
own land than 1
acres
acre

2 to 3
acres

3 to 4
acres

4 to 5
acres

5 to 6
acres

6 to 7
acres

7 to 8
acres

8 to 9
acres

9 to 10 Greater
acres than 10
acres

Land size (acres)

N= 19 775 953

Figure 54: Land size over income distribution for adults who are involved in farming
Source: FinScope 2013

Significant proportion of lower income farmers has farms larger than 5 acres. Of the 19.8
million adults whose households are involved in farming, 12.8 million earn less than USD 5
per day (K 141 900 per month). Of these 12.8 million farmers who earn less than USD 5 per
day, 27.6% (3.5 million adults) farm on land that is 5 acres or larger. 960 000 adults involved
in farming and who earn less than USD 5 per day have farm sizes larger than 10 acres.
% of adults involved in farming and
earning less than USD 5 per day

Distribution of adults earning less than USD 5 per day across land size
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%

15%

14%

14%
11%

10%

7.5%

8%
6%
4%

5%

3%
Do not Own less 1 to 2
own land than 1
acres
acre

N= 12 804 653

2 to 3
acres

3 to 4
acres

4 to 5
acres

5 to 6
acres

6 to 7
acres

7 to 8
acres

2%
8 to 9
acres

9 to 10 Greater
acres than 10
acres

Land size (acres)

Figure 55: Distribution of land size for farmers earning less than USD 5 per day

214

15.

Annex B: Meeting list

Table 39 contains the meeting list for the February Kick-off country visit:
Organization
Central Co-operative Society (CCS)
Ltd. Myanmar
Co-operative Bank LTD
DFID
Ministry of Finance and Revenue

Person met
Hoke Hlaing

Position
Deputy General Manager

Kyaw Thein
Min Lwin
Pe Myint
Anthea Kerr
Khin Maung Lwin
Dr Lin Aung
Nwe Nwe Win

Chief Executive Officer

General Manager
Managing Director
Livelihoods Adviser
Programme Officer
Deputy Minister
Director, Budget
Department
General Manager
Manager
Managing Director
Assistant General
Manager- Marine &
Aviation insurance Dept
International Consultant
Research Executive
Research Executive
Research Programme
Director
Deputy Director General
Director General
Programme Analyst (Local
Governance)- Monitoring
and Evaluation Unit
Senior Statistician/
Economist
Managing Director & CEO
Market Department
Manager
Finance manager
Country Representative

Myanma Insurance

Sein Min
Thant Zin
Aye Min Thein
Lwin Oo

Myanmar Survey Research

Suman Joseph
Mi May Phyu Phyu Sin
Hnin Nu Hlaing
Maung Maung Than

Small Scale Industries Department

(Ministry of Co-operatives)
UNDP

U Mya Than
Mr Kyaw Ngwe
Thin Khaing

Nyan Lin
ACLEDA MFI Myanmar Co. LTD

Mr Kim Bunsocheat
Mr So Kosal

GRET (Groupe de recherche et

dchanges technologiques)

Ye Thant Zin
Dr Htet Kyu

Save the Children

World Vision

Janis Sabetta
Neal Youngquist

Myanmar Oriental Bank

U Mya Than
Than Win Winston Cheng

City Mart Holding Co, LTD

Central Bank of Myanmar (CBM)

San Thein
Soe Moe Thu
U Win Htein Min

Microfinance Advisor
Microfinance General
Manager
Chairman
Director/ Senior General
Manager- Head Office
GM/ Board Secretary
Director
Deputy Director- Financial
Institutions Supervision
Department
215

Organization

Person met
Ms Naw Eh Hpaw

Ministry of Agriculture and

Irrigation

Sein Hla Tun

Market Expert
Hypertrade consulting

U Thein Myint
Frederic Etienbled

Position
Deputy Director GeneralForeign Exchange
Management Department
Deputy General ManagerMyanma Agricultural and
Development Bank
Consultant
CEO

Table 39: Meeting list for February country visit

Table 40 below contains the meeting list for the May 2013 country visit.
Company
ACLEDA MFI Myanmar
Company LTD
AEON Microfinance
(Myanmar) Company
LTD
Ahlin Yaung
Microfinance Cooperative
Asia Green
Development Bank LTD
Asia Square Power
Group Company LTD
(Rice specialisation
company)
Aung Thitsa Oo
Insurance Company
LTD
Bazar Savings and
Credit Co-operative
Canadian Co-operative
Association
Capital Diamond Star
Group
Card MRI

Full Name
Mr Kim Bunsocheat

Yo Mon Myo Myint

Job Title
Managing Director & CEO
Legal Dpt. Manager & Company
Secretary
Myanmar Represenataive Office

Yuro Kisaka

Managing Director

Daw Nu Nu

Chairperson

Thet Lwin Shwe

Chief Operating Officer

Mr C.K. Lin (U Thi ha), L.C.

Wang

Agriculture Technician

Kheang Sambath

Mi Mi Khin
Win Naing Htwe
Ko Soe Moe Htet
U Ba Tun
Daw Mar Lar Nyunt
U Ba Tun
U Aye Win
U Tin Win

Managing Director
Director
Managing Director
Managing Director
General Manager
Managing Director
Chairman

Jo- Anne Ferguson

Senior Director

Sylvester Er

General Manager

Juvy Gacutan
Ms. Nilar Win

Central Bank of
Myanmar(CBM)

Myat Thida Min

U Thein Zaw

Myanmar Liaison Office Manager Credit & savings specialist

Assitant Director
Assistant Director - Financial
Institutions Supervision Dpt.
Deputy Director General - Financial
Institutions Supervision Dpt.
216

Company
Central Co-operative
Society (CCS)
Co-operative Bank LTD
Dagon Group of
Companies
Dawn light
Gold Delta Company
LTD (Rice
Specialization)
Grand Guardian
GRET (Groupe de
recherche et
dchanges
technologiques)
Institute of Strategic
and International
Studies

Full Name

Job Title

U Kyaw Thein

Chief Executive Officer

Pe Myint
zayar Aung

Managing Director
Deputy General Manager

Win Aung

Chairman

Ye Myint Tun
Dr. Min aung

Chairman
Agriculture Advisor

Than Tun

General Manager

Htay Paing
Myo Naung

Advisor
Managing Director

Murielle Morisson

Dr Larry Chee-Yoong Wong

U Than Lwin
U Than Cho

Kanbawza Bank (KBZ)

Bank

Khin Thida Maw

Zaw Lin Htut

Aye Nyein Thet

Senior Accountant

Ko Win Myint

Owner
Associate Director - KPMG Advisory
(Myanmar) Ltd
Executive Director - Tax & Legal
Practice
Director - Infrastructure Advisory
Communications Assistant
Lead Technical Officer

Myo Aung Lwin

KPMG

LIFT (Livelihoods &

Food Security Trust
Fund)
MAPCO (Myanmar
Agribusiness Public
Corporation)
MasterCard
(telephonic interview)

Deputy Chairman
Senior Managing Director
General Manager - Research
Department
Senior General Manager International Relations Dpt
Senior General Manager

Takuya Tsuji

Khittayar Hinthar Rice

Specialization Co Ltd
Ko Win Myint Hundi

Programme Director - Technology,

Innovation, environmentand
Sustainability (TIES)

Ola Nicolai Borge

Anurag Chaturvedi
Ne Lynn Aung
Steve Dowall
Naw Moo Kho Paw
Dr. Soe Tun
Ye Min Aung
Chit Khine
Antonio Corro
Georgette Tan

Communications Assistant
Executive Director
Managing Director
Chairman
Country manager- Thailand and
Myanmar
Group Head of Communications Singapore
217

Company
Mingalar Myanmar

Full Name
Zaw Oo

Job Title
Director

Ministry of Agriculture
and Irrigation Department of
Agricultural Planning

Hla Kyaw

Director General

Ministry of
Communications and
Information
Technology

Moe Saung
Chit Wai
H.E. U Thaung Tin
Major Myint Thein
U Thaung Naing

Ministry of Cooperatives

U Aung Phyu
Kyaw Ngwe

Ministry of Finance &

Revenue - Myanma
Microfinance
Supervisory Enterprise
(MMSE)

Nyo Htay
U Win Aung
U Htein Linn
Su Su Naing
Myint OO
Sint Sint Aung

Ministry of Finance &

Revenue - Myanmar
Economic Bank

Assistant General Manager - Works

& Inspections Dpt
Deputy Director - Union Minister's
Office
Deputy Minister
Director
Deputy Director General- Cooperative Department
Director General- Co-operative
Department
Director General- Small Scale
Industry Department
Assistant General Manager
General Manager
Managing Director

Win Naing OO
Thu Ra
Hla Myint Aung
Than Lwin OO

General Manager
Deputy General Manager Accounts Dpt.
Deputy General Manager - Loans &
Supervision Dpt.
Assistant General Manager Research , Training & Public
Relations
General Manager
General Manager

Ministry of Finance &

Revenue - Central
Bank - Banking
Daw Ngwe Ngwe Win
Regulation Department
& AML Department
Ministry of Industry Central Department of
Small and Medium
Enterprises
Development
Ministry of National
Planning & Economic
Development

Dr. Ei Shwe Sin Htun

Assistant Director

Hnin Yu Yu Htwe

San San Myint

Aung Naing Oo

Deputy Director - Directorate of

Investment & Company
Administration
Director General

218

Company

Full Name

Ministry of Post and

Telecommunications

U Thura soe/ U San Lwin

MTN Group Ltd Myanmar

Representative Office
Myanma Apex Bank
Myanma Awba Group

Myanma Insurance

Mang Khai
Simphiwe Cele
Kyaw Soe Min
Thadoe Hein
Sein Min
Lwin Oo
Capt Nyi Nyi aung

Myanmar Banks
Association

Khin Maung Yi

Myanmar Business
Executives

Htut Aung Kyi

Myin Maung Htun

Hla Win
Myanmar Citizens Bank
Limited
U Than Aung
U Myint Win
Myanmar
Phyu Yamin Myat
Development Partners
Myanmar Farmer
Association (MFA)

Job Title

Country Representative
General Manager - International
Business Development Strategy,
Mergers & Acquisitions
Deputy Managing Director
managing Director
General Manager
Assistant General Manager - Marine
& Aviation insurance Dept
Asst. General Manager Administration Dpt

Member
President
Deputy General Manager - IT & card
Department
General Manager
Managing Director
Managing Director & Founder
Member

Dr. Soe Tun

President

Dr. Pyae Phyo lwin

Yin Yin Myint
Win Kyaing
U Han Tun

Director
Director
Secretary General
Executive Vice-President

Myanmar Information
and Communication
Technology
Development
Committee (MICTDC )

U Sein Win

CEO

Myanmar Interlink
Services Co Ltd

Htut Aung Kyi (Bunny)

Managing Director

Than Than Nu

U Aung Myint

Deputy General Manager

Senior Executive Officer, (Retd:
Director General - Fisheries Dept)
Managing Director

Myanmar Organic
Agriculture Group

U Hnin OO

Chairman

Myanmar Oriental
Bank Limited

Nick Cheng
Kyi Kyi Than

Public Relations Manager

Managing Director

Myanmar Finance
Company LTD
Myanmar Fisheries
Federation

Myanmar Livestock &

Fisheries Development
Bank

Khin Ko Lay

219

Company

Full Name
Hla Thaung

Job Title
Deputy Managing Director

Zaw Lin Htut

Chief Executive Officer

Ye Min Aung
Chit Khine

Secretary General
President

Hnin Nu Hlaing

Research Executive

Kyaw Thiha

Vice Chairman

U Maung Maung Aye

Sai Nyein Aye
Daw Nwe Nwe Soe
Daw Khin Aye Maw
Tin Maung Win
Myat Sandar Kyaw
Saw Ekari Htut

Principal
General Manager
Senior General Manager
Senior General Manager
General Manager
General Manager - IT
General Manager

Kyaw Thiha

Managing Director

Oway Group Co. Ltd.

(Bidding to be Online
Payment Processor for
MPU)

U Nay Aung

Founder & CEO

PACT

Fahmid Karim Bhuiya

Myanmar Payments
Union - Central Bank of
Myanmar
Myanmar Rice
Federation
Myanmar Survey
Research
Myanmar Tea
Entrepreneur
Association
Myawaddy Bank
Limited

National International
Commercial Enterprise
Ltd.

Pan Thazin
Microfinance Co-op
Proximity
Royal Mega Group
Samall & Medium
Industrial
Development Bank
(SMIDB)
Sein Tun Pawnshop
SME Development
Center
Sumitomo Mitsui
Banking Corporation
(SMBC)
Taiyo Life Insurance
Company

Jason S. Meikle

Chief Operating Officer - Pact

Global Microfinance Fund
Deputy Director

Daw Ni Ni Win

Chairman

Maria Fulwiler
May Thu khine
Brig. Gen. Thura Myint Thein
Tin Maung Htay

Economic Analyst
Business Development
Chairman
Managing Director

San Thein

Senior Adviser

U Wunna Htuts son in law

Owner of pawnshop

Swe Zin Soe

Deputy Assistant Director

Nang htay htay

Assistant Representative

Yoshiyuki Morii

Chief Representative

Takeshi Shimada

Chief Representative

220

Company
Treasure Bank of
Myanmar Ltd
U Min Sein law Firm
UMFCCI and MIA
UNDP
Union of Monetary Coop Ltd
United Amara Bank
LTD. (UAB)
USDA Ward authority
concerned
UVADES Consultin Ltd
World Vision Myanmar
Microfinance Program
Yi Yi Win
Yoma Bank

Full Name
Kyaw lwin
U Min Sein
U Zaw Min Win
Heinz Willems
Khin Maung Ohn
Myin Maung Htun
Ye Myint
Kyawt Kay Khaing

Job Title
Chairman- FB, Director - General,
M.lf- Retd)
Advocate of the Supreme Court
Microfinance Specialist
Vice Chairman 1
Chairman
Secretary
Deputy Chief Operating Officer

Indrajith Wijesiriwardana

Ward Authority, their ward is

member of committee 1 from USDP
Principal Consultant/ Director

Neal Youngquist

General Manager

Yi Yi Win
Thet Htet Nyan
Zarchi Tin
Hal G. Bosher

Language Consultant
Personal Assistant to CEO
Executive Director
Chief Executive Officer

U Tin Win

Table 40: Meeting list for country visit May 2013

221