Leapfrogging towards financial inclusion in Myanmar?

Imagine a whole country country with less than 20 ATMs, where only 1 in 10 people has a bank account. Imagine a completely underdeveloped banking infrastructure in a country where more than 90% of people are unfamiliar with any kind of modern financial service… welcome to Myanmar today. After hearing these few facts, a case for financial inclusion seems pretty hopeless. After all, how many examples are out there where banks and microfinance organisations have managed to rapidly expand their services throughout a country.

But in this day and age, Myanmar has a unique opportunity to leapfrog towards financial inclusion. Senior Microfinance Specialist Eric Duflos from the Consultative Group to Assist the Poor (CGAP) commented on the necessary steps to enable Myanmar to bring financial services to its largely unbanked population within a short period of time. In his blog post he points out that the extremely low starting point could turn into an advantage at the attempt to bring millions of unbanked into the formal financial system.

Currently, there are only a handful of players providing uncollateralized microcredit to the poor. First, the Myanmar Agriculture Development Bank, who serves over 1.7 million farmers, but is not run commercially thereby limiting its capacity to scale operations. Second, there is Pact, a UNDP-funded NGO, providing microcredit to more than 500,000 clients. However, the government has identified the need for reforms in the financial sector. Microfinance is regarded as a crucial building block of the country’s development strategy and reforming the institutional framework for MFIs has seen top-level support. Following a new microfinance law already 51 instutions have obtained licenses under the newly constituted Microfinance Supervisory Enterprise.

Eric Duflos sees this step as essential, but also points out remaining gaps:

“This is good news because the law provides a legal footing for MFIs to operate. On the other hand, the low minimum capital requirements could open the door too wide and the interest rate cap set at 30 percent could keep promising institutions away.”

The poor need more than just microcredit. It would be a foregone opportunity if none of the new service providers offer a full range of financial services such as savings, insurance, and remittances. The market environment might still be too uncertain to venture into some of these services with Myanmar’s poor, but seen from the poor’s perspective this point could not come soon enough.

At the end of his blog post Duflos illustrates three possible ways for Myanmar to “leapfrog”.

• The prospect of intesive technical support from regional as well as international providers could accelerate expansion and lead to the adoption of global good practices
• With experienced MFIs entering the market, their expansion strategy could potentially lead to the training of many local staff building up domestic skills & capacity
• Due to the low branch penetration and non-existing ATM network, mobile network operators could seize the opportunity and launch mobile payment platforms. The demand for domestic transfers and remittances is huge and mobile networks could play a major role in expanding financial inclusion.

With good and bad news flowing in on a weekly basis, it is difficult to put these options into perspective, but my two cents are that Duflo’s predictions are a little too optimistic. Continuing political power struggles and unresolved ethnic conflicts in several of Myanmar’s states, there will be too many barries preventing rapid expansion of microfinance providers. It is only after the internal political conflicts have resolved, that I see a chance for the kind of “leapfrogging” described in CGAP’s blog. Nevertheless, let’s hope that organisations on the ground prove me wrong.