Empowering people through cooperatives in Myanmar

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A tractor-hailing app, an app providing agricultural information on market, prices, weather and other important information and an app linking agri-producers to financial service providers are some of digital technologies featured in the forum Modernizing Myanmar’s Agriculture through Innovation. Organized by the US Agency for International Development (USAID), the forum also featured non-digital technologies. Two case studies on enterprise development were presented including a community development activity – formation of a cooperative.

The cooperative formation project was implemented by the Phyu Sin Saydanar Action Group (PSSAG) in partnership with ACCESS Advisory in 30 villages in northern Hpa-an township, Kayin State. The initiative was supported by USAID and resulted in the formation of the Zwe Kabin Myae Coop with 600 members and an initial share capital of 5.1 million kyats (US$3,400.). Located in a post-conflict area, the cooperative which is undergoing registration process is poised to provide lending services that will energize the local economy.

Zwe Kabin Myae is not the first community-based cooperative formed in Hpa-an. In 2016, an European Union (EU) project facilitated the formation of the Bawa Yay Tauk Myint Coop in Hlaing-bwe. The coop however was greatly affected by the 2018 floods and is facing organizational challenges. Another coop, the Pwint Pwint Lin Lin in Paing Kyone sub-township was formed as a result of the project implemented by the Adventist Relief and Development Agency (ADRA). It has sustained its savings and lending operations with 11 million kyats capital. In its second general assembly meeting later this month, it has declared dividends pay-out to members from the 2.5 million net income it has generated from its operations.

The Karunas Mission Social Solidarity (KMSS), the development arm of the Catholic Church in Myanmar partnered with New Humanity, an Italian funding agency to pilot test formation of savings and credit unions in selected dioceses in 2017. It has successfully formed cooperatives in three areas.

One cooperative is in Shwe Bo Township under the Mandalay diocese, currently undergoing registration. It has generated 9.9 million kyats capital from its initial 172 members. Two other cooperatives were registered and have started providing savings and lending services in their respective areas. As of February, data showed an aggressive drive to extend services to its members. The first is in Nyaung Don, Yangon diocese where 10.2 million kyats share capital was mobilized and a total of 5 million kyats loans were already released benefiting 125 borrowing members. The second registered cooperative is in Tar Baung, Pathein diocese, where the cooperative was able to generate 74.5 million kyats share capital from 662 members. It has extended 55.2 million kyats volume of loans to 312 members.

The formation of self-reliant and sustainable cooperatives exhibited the fact that given the right methodologies, the people can be empowered to initiate development activities that addresses their needs. Help and support from outside of the community will be more relevant if these are matched with what is really needed and the people’ capacity to decide for their own future should not be set aside.

FinTech Hype

 

There is a lot of hype going on about providing access to finance using digital platform. Fintech companies providing loans are either providing loans directly or through peer-to-peer arrangements where loan applications are matched with funders. The companies promised fast service, few requirements and with range of amount from as low as P2,000. to as high as P300, 000.

With a list of fintech companies, I tried applying for personal loans and failed! Summary of the challenges in dealing with fintech companies:
– Cash wagon: after completing all the data requirements and going through the whole process, I received this message: 500, Something went wrong. Try again in four weeks
– Robo cash: the template required the company phone number, but the field was designed for a 12-digit mobile phone number. So when I typed the 7-digit landline, it showed error, and I cannot move on to the next step.
– Asteria: there is a requirement for a bank specified credit score which I do not have
– Loan Ranger: required a Facebook account which I do not have.
– Tala: same with Loan Ranger, a Facebook account is needed and I do not want to open one.
– Quickpera: a long list of requirements more than what traditional banks are requiring
– Cash smart: 2 proof of billing, the problem here is that I live in a place where the bills are in the name of the previous owner of our house. I do not maintain a postpaid mobile phone, so no bills in may name. And they even require two!
– PeraJet: same proof of billing requirements.

Online lending maybe practical for millennial who are familiar with the internet, but it may be a struggle for an ordinary entrepreneur or even a farmer. So talks about fintech as the relevant tool in expanding financial inclusion has still a long way to go.

Cooperative Formation and Savings Mobilization in Myanmar

Cooperative officers processing loan applications in Pathein

Member-based organizations like cooperatives are gradually growing in Myanmar. In 2017, two cooperatives in Kayin State were formed as a result of a project funded by the European Union (EU). This initiative was followed by a project funded by the US Agency for International Development (USAID) in another township of Kayin State.

The cooperative formation initiatives are meant at providing a model for the development of more sustainable cooperatives in the rural areas. Currently, the government is following its approach of ‘one-village-one-cooperative’ in cooperative formation. This approach is effective as a conduit of government funds, but it is not sustainable because of the small size which averages between 30-50 members.

ACCESS Advisory with its work in Kayin proposed a bigger cooperative at the township level or a cluster of villages to mobilize between 500-2,000 members. This will allow the mobilization and pooling of resources enough to generate resources that will support operations including the salary of full time staff. The cooperative formation model follows a three-stage process of savings group formation, consolidation and formation of cooperative. The whole process takes one year, including the period needed for the registration with the Department of Cooperatives.

A member receiving loan from the cooperative

This model was use also by the New Humanity, an Italian NGO who partnered with the Karunas Mission Social Solidarity (KMSS), with the vision of forming cooperatives in all dioceses of the Catholic Church in Myanmar. NH pilot-tested the model in the dioceses of Mandalay, Yangon and Pathein.

The main advocacy issue is for the government to support the development of cooperatives as vehicles for rural development. Cooperatives should be viewed as an empowering institution in the communities especially the remote and inaccessible areas.

10 things to look forward in 2018

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The year 2017 was annus horribilis for Myanmar with the ripple effect of the Rakhine crisis affecting the economy of the country.  Some institutions who granted awards to Daw Aung San Suu Kyi for her efforts in promoting peace and human rights withdrew the awards because of the perceived inadequate response to what happened in Rakhine. There were even efforts at re-imposing sanctions to ‘punish’ the government.   The start of 2018 will be a good time to focus on the issues that will define the rest of the year. Positive results of the recommended ten items will make this year a better time for Myanmar people and those residing in the country.

  1. More optimism and confidence in the local economy

A business survey conducted among UMFCCI members showed a decrease in investors’ confidence in the country.  The dip in the business confidence   were attributed to various factors, with government policies and the Rakhine crisis among the top issues.  With a clear manifestation from the business sector, the government should take a second look at how the issues expressed can be addressed, and respond to them as fast as possible.  Policy-making and promulgation of the needed laws should be prioritized to convince investors the government is serious in addressing their concerns. As for the Rakhine crisis, the government should continue to work with the international community in working out a solution, instead of looking at it as just an ordinary domestic problem.

  1. New telecom company will bring more benefits

Myanmar leapfrogged from analog to digital telecommunications in a short span of time. With three main players, telecom services became affordable allowing even those in the rural areas to have a hand phone. Smart phones are now a common necessary gadget, and with it potentials for online businesses.  The news of a fourth telecom company MyTel, was met with mixed responses. Many people expect the new provider will further make the market more competitive and that would  mean lower fees for services. There were also those who thought that the new player will only result to migration of clients from existing telecom companies to the new player, affecting the bottomline of existing telecom companies. Migration may actually happen if there is a perception that the services of the new player is more efficient, when in fact, it may be due to the initial small number of clients as it open its services in the country. If ever there will be decrease in the bottomline of existing telecom companies, it is hope that the services will not digress and the fees will not increase.

  1. Increased confidence in the stock market

Despite low trading volume, the stock market has consistently attracted companies to list. So far, there are now five listed companies: FMI, Thilawa SEZ, First Private Bank, Myanmar Citizen Bank and the latest company TMH Public Company. It is also noteworthy to consider that the listed companies are from various industries – banking, industry, telecom and a holding company. Opening up the market to foreign investors will not only induce more volume develop more trust to the market.

  1. Real estate to continue on its growth

The real estate sector is continuing to grow as the government focuses on urban development, high end properties and promotion of low cost housing. More laws are also providing impetus for the sector to be more vibrant. With the new Condominium Law, the sector is expected to attract more foreign investors and buyers.

  1. Improved facilities in tourism areas

Tourism is one of the main drivers of the local economy as tourist areas are spread out in various regions and states. People in tourist areas also benefit through the employment they generate and the related industries that supply the facilities in the areas.  As investments in tourist areas consistently flowed, the quantity and the quality of facilities also improved to the benefit of the tourists, resulting to the rise in the number of visitors. Another positive result is the reduction in price, where in some areas the price are closer to the level of neighboring countries like Thailand, Vietnam and Cambodia.  The quality of the facilities and the area makes tourism in Myanmar not only an enjoyable experience but a memorable one.

  1. Reliable urban transportation system

The liberalization of car importation increased the number of cars. Problems related to it also started to manifest, the buildup of traffic congestion. More cars, more idle time as traffic congestion is nearing the level of Thailand and the Philippines. Plans to have more roads and the improvement of existing ones have to be initiated to cope with the demand of the future.  Another concern is the right-hand driving with a left-hand traffic rules. For the commuters, there is a need to fix the operation of taxis – metering and ridesharing units like Uber.  Upgrading of the train system is also necessary to decongest the roads.

  1. More sustainable financing for SMEs

The missing middle becomes evident in Myanmar as banking regulations restrict access to finance of small and medium enterprises (SME).  Small livelihood types of economic activities are provided with financing from hundreds of microfinance institutions (MFI), while large enterprises are able to access from commercial banks. But the more than 90% SMEs in the country has nowhere to go. Policies on collaterals restrict the flow of funds to SMEs, making them prey to informal moneylenders who charge high interest rates. Some banks are pilot-testing guarantee programs and hope it can be mainstreamed in the near future.

  1. Kyats will stabilize in relation to the dollar

The Kyats has been down and continue to go down since the country opened up to the global market. The challenge is for the government to follow an economic program that will strengthen domestic production and focus on importing goods that will enhance the country’s production capacity. Other factors have to be addressed as well to stabilize the kyats.

  1. Reasonable wages for workers

Cheap labor is an advantage of the country, but as inflation eats up the value of the workers’ wages, the clamor for higher wages to cope with the cost of living will be heard. There will be a conflict of interest as workers fight for higher wages while employers will protect their profits and return on investments. There needs to be a balance where people can live with their wages and at the same time corporate income is assured.

  1. Poverty will be reduced

One third of the country is considered poor. As the country progresses, the people should also advance economically. No sector of the population should be left out.  As such, the benefits of development should not only trickle down to the poorest, but it should be sustainable. Government programs are in place and it is hoped that it will prevent people from falling into the pit of poverty. The business sector is also expected to share the burden through their corporate social responsibility (CSR) activities.

Originally published in Myanmar Insider, January 2018

Improving and promoting development technologies

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Part of the efforts to hone the skills of technical consultants are cross-country  learning activities. Successful technologies developed in various countries are shared to other consultants to appreciate and be included in the array of tools and methodologies to be offered to clients. Among the technologies featured in the ACCESS Advisory annual planning are the following:

  1. Financial product development. Participatory process of designing loan products. This is best suited for financial institutions who would like their products to fit the needs of their clients, ensuring patronage and minimize default. Extensively used in the Philippines and Nepal.
  2. Dream to Reality Financial Literacy Course (D2R). Originally designed as a motivational tool for migrant workers and their families to manage finances, the course has now become a personal finance tool enabling people to maximize their resources to become financially independent. Migrant workers from the Philippines and Nepal working in Malaysia and South Korea benefit from this technology.
  3. Cooperative Formation. Three-stage process in forming sustainable community-based savings and credit cooperatives. It allows development institutions to phase-out in a community leaving behind an institution owned and managed by the people who can continue with their advocacies. Currently used in Myanmar.
  4. Agriculture and Livestock Financial Analysis (ALFA) Agri-Finance Tool. An Excel-based tool for credit and background check to enable financial institutions to assess the risk level of agricultural and livestock producers borrowing working capital for their production activities. Commissioned by the International Finance Corporation (IFC) for Vietnam microfinance institutions (MFIs).
  5. Value Chain Development. Identifying economic activities to be engaged in based on the results of value chain analysis (VCA) of specific commodities. Business planning for start-up activities or expansion of existing enterprises linked with the agricultural or livestock production. Extensively used in Myanmar.

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BOOSTING THE MYANMAR MICROFINANCE INDUSTRY AND MAKING IT SAFE FOR THE BORROWERS

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Despite the minimal profits, Myanmar’s  microfinance industry continue to attract international and domestic investors. Currently dominated by international development agencies, private investors are gradually entering the market, buoyed by the success of microfinance institutions (MFI) in the neighboring countries of Bangladesh, Cambodia and the Philippines where commercialization of the industry increased the number of people with access to financial services.

Microfinance is effective in ‘democratizing’ credit by providing services to borrowers considered by banks as ‘un-bankable’.  People who cannot pass stringent bank requirements are able to borrow from MFIs through loan products that do not require real estate collaterals.

This makes MFIs a different breed of financial service provider. It is a business that has a double bottom line – profit and a social responsibility.  No wonder many entrepreneurs are joining the bandwagon.  As of October 2016, there are 168 licensed MFIs, more than half are local companies while 28 of these are foreign companies. Loan portfolio is at 1,909,629.38 million kyats, released to 2,264,495 borrowers from 221 townships.

Changes in an evolving industry

In the rural areas, people are still wary of formal financial institutions. When cash is needed, the reflex action is to pawn jewelleries, the traditional savings instrument easiest to monetize.

If there are no jewelleries to pawn, informal moneylenders are then sought, the   lender of last resort.  Informal moneylenders are often demonized as bloodsucking monsters charging usurious interest rate and fleecing their clients to the last drop of blood. But a closer look would reveal that they are but the relatives, friends and people who have extra cash and are willing to help somebody in need.

MFIs are supposed to make informal moneylenders obsolete. It is expected to replace the informal transactions with more formal arrangements as a platform for a wide range of financial services – savings, credit, insurance and other services. It also considers the safety of the borrowers as the players will be regulated and supervised by a government agency.

Myanmar’s   experience in socialism brought about the catastrophic collapse of the country’s financial system.  A series of financial crisis erased whatever trust is there with the financial system. Hoping to prevent the recurrence of financial crisis,   stringent policies aimed at strengthening the financial system were put in place, but instead turned out to be an overprotective barrier that limited the flow of finances to those who needed it most.

The microfinance industry felt this pressure with the restrictive provisions of the Microfinance Law.  Funds inflow were not allowed and there were caps on the loan amount and the interest rate on loans. Savings from the borrowers were also limited. The initial euphoria diminished as the MFIs grapple to stay afloat amidst the restrictions.

Five years later, changes for the better were introduced by the Financial Regulatory Department (FRD), the government agency under the Ministry of Finance and Planning regulating the industry. Previously the regulatory agency for pawnshops, it evolved into the country’s guardian of institutions providing financial services to the unbanked.  With five years under its belt, the agency is more than ready to steer the industry into   greater heights.

Attracting more funds

Funds from the government are not enough to address the credit needs in the rural areas. Even with donor funds it cannot cope with the increasing needs of the emerging micro, small and medium enterprises (MSME). Harnessing the private sector is one of the measures to enable the microfinance industry to mobilize funds and channel it where it is needed most. The growth and success of microfinance industries in neighboring countries can be attributed to private sector participation.

Towards this end, FRD adjusted its policies and allow MFIs to borrow funds, opening the floodgates to loans locally and from investors abroad. The only condition is that it should be approved by the Central Bank. Socially-responsible investment companies supporting MFIs in other Asian countries are now looking at Myanmar as the next destination of their support. There is still an issue in the foreign exchange as the kyats fluctuate in the market, but suffice it to say that one of the roadblocks to more funds has been addressed.

Parallel to this is the policy in mobilizing savings.  It does not only allow borrowers to avail of the safekeeping facilities of the MFI, it also allows the use of the resources within the community. Savings mobilization however, is prone to abuse, more particularly the compulsory savings which some MFIs make as a requirement to avail of a loan.

The FRD to this end required that savings should only be mobilized from borrowers and in no way should be collected from non-borrowers. Moreover, compulsory savings should not go beyond 5% of the loan amount. As a sweetener, savings should earn and interest rate of not less than 15% per annum.

Furthermore,  FRD segmented the MFIs and allowed only those that are financially strong to be designated as ‘deposit-taking’ MFIs. Only those with 300 million kyats capital and 3 years’ experience in Myanmar are allowed to be deposit-taking, compared to ordinary MFI that is required only to have a 100 million kyats capital.

Protecting the borrowers

One of the most welcomed changes is the government’s embrace of the Client Protection Principles.  The principles were developed as a result of the excesses of the MFIs at the time when the industry started to commercialize.  As some MFIs saw the ‘wealth at the bottom of the pyramid’,  they  tried to   max out the profits that can be generated from the clients by charging not only high interest rates but other unnecessary fees and deductions, penalties for minor offenses, and other practices inimical to the clients. This is the dark side of the industry commercialization leading to the ’mission drift’ of some big MFIs.

Part of the self-correction efforts of the industry was to create measures that would address the abuses and isolate those who continue to burden the borrowers with lopsided policies. The Social Performance Task Force (SPTF) was formed to manage the assessment of the MFIs’ social performance as a measure that an MFI is not drifting away from its social mission. Later, the Smart Campaign advocated the adoption of the Client Protection Principles to ensure that the features of loan products are not detrimental to the clients.

The microfinance industry now consider social performance and adherence to client protection as an indicator of ‘good housekeeping’ for MFIS. It also became indicators that most funders and investors would like to see before investing in an MFI.

Among the principles adopted by the FRD are:

  1. Appropriate product design and delivery that meet clients’ needs
  2. Prevention of over-indebtedness
  3. Transparency- disseminating information regarding financial services in language that is accessible to the clients
  4. Responsible pricing- ensuring that pricing for financial services does not affect clients negatively
  5. Fair and respectful treatment of clients
  6. Privacy of client data- ensuring the security of client data
  7. Mechanisms for compliant resolution- having in place procedures to resolve disputes with credit bureau or exchange of information

It is expected that the changes will attract more institutions, help improve access to finance and direct more funds to rural areas help in the economic development of the country.

 

Completing the Kayin Project

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Monday will be the culmination of a development project in Kayin State, Myanmar. A conference will showcase the results of the three-year project – a registered cooperative with savings and lending service as well as an e-money service, and an enterprise and agri-business enhancement component for the borrowing members.

In 2014, the project started six months late because of some administrative concerns as the government has to cope with the increase of development agencies flooding the country.  But the project team was able to catch up on the activities and reach the finish line on time.

The results of the project affirmed the tools and methods initially employed in other ASEAN countries and now used in Myanmar. These include savings mobilization techniques, cooperative formation, value chain analysis for agri-commodities and enterprise development.  The tools are now being marketed to other development agencies for replication.