Prob­lems rise for mi­cro-fi­nance bor­row­ers

The Myanmar Times - - Business - HTET SHINE news­room@mm­times.com

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.

Photo: Zarni Phyo

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.

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