By Patricia Padilla Lara

As an Economic Development policy group, my colleagues and I  will be working on analyzing the challenges and opportunities of Microfinance in Myanmar/ Burma. Our interest on the topic comes from the fact that Microfinance is among the eight strategies that the government has prioritized for national development. Microfinance, which has proven to be an effective method for overcoming poverty in countries like India and Bangladesh, became a national tool to decrease the 26% of the population living with less than $2 (ppp) per day in Burma.

There are several mechanisms through which microfinance help citizens to overcoming poverty. First, it eases the access of poor households to credits in smaller and affordable amounts than those from the formal banking system. Second, it is more flexible regarding the collateral requirements and it offers lower interest rates than payday loans and other informal institutions. And third, microfinance institutions (MFI) often offer additional services like saving accounts and insurance. Therefore microfinance has become a source to mitigate external shocks and to boost entrepreneurship initiatives.

Microfinance can also play a significant role on the expansion of the financial sector in the country. As many other sectors of the economy, Burma’s financial sector has a vast room for improvement. Only ten percent of the population in the country has access to the formal banking system and there are less than 100 ATMs in the country. In 2011 a law was approved to incentivize the expansion of microfinance and since then there have been 133 MFIs created. Still, much remains to be done in order to have these institutions completely working but there is no doubt that the sector is becoming more and more dynamic.

However, the speed of the changes in the microfinance sector has left multiple open questions. Perhaps one of the most relevant is about the seemingly significant discrepancy between supply and demand of the different services. Even if there is a general agreement about the difference between these two, little is known about how the demand will behave if the supply of microfinance is available.  Previous analyses on the demand side tells us that microcredit will be of interest for the population. It is not possible to say the same about savings and insurance. Given the high inflation rates in the country, people prefer to save in gold and this is not necessarily going to change with the creation of new MIFs. PACT, the biggest MFI in the country, found that 15% of those clients accessing to microcredit also had voluntary savings. Unfortunately, this evidence is not enough to predict further financial behaviours of MFIs clients. In addition, more evidence is necessary to identify the impacts of microfinance on poverty eradication. It is clear that beneficiaries of microfinance are having better ways to overcome external shocks in their households, which is expected to reduce their vulnerability. However currently there is not enough information to understand additional results related to microfinance, for example, if the access to these services is creating over indebtedness or if actually having access to more reliable sources to lend money is leading to more sustainable productive practices.

Every consulted source for this blog entry suggest further assessments and deeper research of the microfinance sector in Burma. There is no doubt there is a favorable environment for microfinance in the country, however the challenges are still significant and the solutions are not completely clear or implemented.