Problems rise for micro-finance borrowers
Microfinance institutions (MFIs) in Myanmar have lent more than K3.9 trillion to three million small-scale borrowers since the business of microfinance emerged in the country up until February this year, according to Financial Regulatory Department under the Ministry of Planning and Finance.
But while the additional lifeline has brought financial relief to borrowers, many have also ended up further in debt.
This is because MFIs tend to be crowded within a single area, so it is not uncommon for three institutions to have lent to the same borrower, said U Myint Swe, managing director at MIFIDA (Microfinance Delta International). Because of the easy access to funds, “many individual borrowers tend to borrow beyond their capacity to repay the loans, he said.
“In my neighbourhood, there are around 12 microfinance companies. A person takes loan from six or seven companies. There are many people who are in deeply indebted to these institutions and I haven’t seen anyone who has recovered from it,” said Ma Thet, who took out a microfinance loan in Pyay, Bago Region.
“It is common for a single individual borrows from two or more MFIs. Such cases are often found in regions where there are many institutions. Urban areas like Yangon, Mandalay, Bago and Ayeyarwady have many microfinance institutions. It is difficult to prevent this,” said Daw Phyu Yamin Myat, executive member of Myanmar Microfinance Association.
Jason Meikie, deputy director from Pact Global Microfinance Fund, agreed that cases where many institutions lend to a single person have become more frequent. “If we don’t take measures to control this, it will become a huge problem,” he said.
The other reason behind the rising debt problem is that some MFIs tend to lend more than is needed or than the borrower is able to repay in order to reap higher interest returns, experts pointed out.
“The Myanmar government issued microfinance licenses so that the poor would receive financial support. Though the MFIs work for profit, they should also focus on improving the lives of the poor,” said Paul Luchtenburg, Country Coordinator at UN Capital Development Fund (UNCDF).
These issues are occurring due to the lack of data. “What we need is an implementation of a system. And that requirement is the government’s approval. The system is similar to a credit bureau,” Mr Meikie said.
A credit bureau collects and stores information on borrowers so that financial institutions can easily access that data in deciding whether to extend loans. According to the Myanmar Microfinance Association (MMA), a request has been made to the respective ministry to establish such a system.
“It is time to lay out protection measures for borrowers to prevent them from destroying their lives by being overly indebted to the MFIs, said Daw Phyu Yamin Myat, central executive member of the MMA.
Out of the MFIs which have been granted permits, only a few are foreign owned. Yet, the clients they service outnumber those of domestic institutions. Last week, local business groups met with EU mission group leader Ms Helena König and Ambassador from EU in Myanmar Mr Kristian Schmidt to protest the potential withdrawal of the EU’s General Scheme of Preferences (GSP), which grants Myanmar substantial trade access to the bloc. U Ye Min Aung, vice chair of the UMCCI, told the Myanmar Times that the country will need to rely on the GSP for another ten years and that its withdrawal would have a severe impact on trade and foreign investments. Myanmar exports around half its garment products to the EU.
A woman sells rice at Hlaing Tharyar township. The number of borrowers who have received funds from MFIs is growing leading some deeper into debt.