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.

The future of microfinance and the financial inclusion conundrum


“Innovation” seems to be the buzzword nowadays in the microfinance industry. Articles with titles like “We need disruption in financial inclusion”(1)  or “How Big Data can expand financial opportunities for the world’s poor”(2)  or extolling the digital finance “revolution”(3)  are commonplace in today’s literature regarding financial inclusion.

The belief structure underlying this emphasis on innovation is that while “traditional” financial service providers serving the poor and excluded have expanded rapidly in the past 20 years, the 200 million clients they serve are just a drop in the bucket compared to the billions who remain unbanked. It is unrealistic to expect these same traditional service providers to close this gap because, by definition, traditional institutions are limited by both their brick-and-mortar structure and the fact that many seek to balance financial and social goals, which lowers returns and thus limits their resource generation capacity.

Financial Inclusion 2.0, in this vision, use technology to reach the unbanked. The two technologies most often cited are mobile/electronic banking and agent/branchless banking. Sometimes these two approaches are intertwined, such as when branchless banking networks are held together by mobile technologies. But while the assumption that technology will solve the gap in financial inclusion is explicit, what is not always clearly stated is who will wield this technology in service of the poor. The emphasis on “public-private partnerships” provides a clue. Often the only organizations that can afford the investment in the networks and technologies needed to manage them are commercial entities¬¬––ones without a specific social mission to serve the poor.

While it can be surprising to see for-profit companies or their associated foundations seeking grants, low interest loans and other support from development agencies to expand their business even though that business will generate profits for them, there is nothing conceptually wrong with purely commercially-oriented companies serving the poor––at least as long as these companies do not take advantage of the clients’ relatively low level of education and awareness to add in extra costs. The past decade revealed that even social mission-driven institutions were not always putting their clients’ needs first. This ultimately gave birth to the client protection movement. One would hope that the new, technology-laden entrants into the industry also abide by these same principles.

In fact, what is also implied in this emphasis on technology over traditional approaches is the belief that only purely profit-driven organizations have the capacity to raise sufficient resources to close the gap in financial inclusion. The traditional service providers, no matter how commercialized, are seen as limited in their ability to raise both equity and debt, mainly because they promise “social returns” that are perceived to cut into financial returns.

A lot of the cheerleading in favor of disruptive technology comes from Africa, where indeed mobile platforms have come to dominate payments transactions and expanded in to loan repayment and savings deposit services. Amidst all this hoopla, however, there is scant mention that the true lifeblood of any financial intermediary––loan origination––is still done the old fashioned way, through a face-to-face meeting between the loan officer and the client. Scoring and other technologies have been introduced, but to date have not been able to completely substitute for human judgment.

Africa may be unique because it had the least developed financial sector in the world 10 years ago. Asia has been a different story, with many long-established players. Perhaps this is one factor behind why three countries that are considered among the best sectors in the world––the Philippines, Cambodia and Pakistan––to date have not experienced “disruptions”, much less “revolutions”. To be sure, all three countries have witnessed significant effort to mainstream mobile banking and branchless banking. The Philippines has one of the world’s first joint ventures between a bank and telecommunications company (BPI Globe BanKO). In Pakistan, some MNOs have purchased or created financial institutions. Wing has been offering mobile payments in Cambodia since 2010.

And yet, in none of these countries does there seem to be a massive threat to the market share of the more traditional service providers that is leading them to seek their own technological solutions. If anything, most financial institutions are too complacent, sticking with their tried-and-true methodologies rather than trying anything new. For the most part, there are still so many unserved clients in all of these countries that there actually isn’t much pressure to change.

Perhaps these institutions are blind to the future. Will they eventually go the way of the dinosaur? To answer that question, perhaps it is best to look at what clients want. Do they want to be served by a local retail shop acting as an agent of a distant financial institution? Do they trust their phones to ensure their money is safe when they make deposits? Most importantly, do they prefer the no-frills approach offered by those types of “disruptive” players versus the social mobilization programs that usually come with services from social mission-driven institutions?

Some clients may indeed prefer the no-frills approach; not everybody wants to sit through an hour-long training each week. But if some clients want quick and easy access with no requirements like weekly group meetings, we should ask why they would choose a mobile or branchless banking channel when they already have no-frills, easy access service from their local moneylender. Sure, informal moneylenders charge a high nominal interest rate. But their importance in the lives of the poor cannot be underestimated; even in countries like Bangladesh, clients still borrow more from their local moneylenders than they do from their microfinance institution. Mobile or branchless banking can never be as convenient as the local moneylender¬¬––or as flexible. And the cost of the technology and need to have multiple partners to deliver the service does not necessarily give the new approaches a definitive price advantage.

Other clients may continue to value the personal relationship they have with their loan officer, who they see every week, and the training and support he or she provides. If that is what a large segment of the market wants, the traditional MFIs may be better off responding to the putative disruptive technologies by becoming more traditional, in the sense of going back to their NGO/project roots and combining financial services with other forms of support.

Unfortunately, it may be the case that the opposite will happen. The “disruptive technologies” narrative appeals to the worldview of many in Europe and the US, and this will have a significant impact on how much resources are available. These days, mobile banking, for example, receives enormous financial support from the development community, leaving less funding to improve traditional services through training of loan officers, mainstreaming of client protection practices and social performance management, or providing wholesale funds for on-lending. The long-term impact of this shift in resource priorities may be to act as a disincentive for traditional service providers to increase non-financial services.

Ultimately, resources in support of financial inclusion should be allocated toward services that the clients really want and need. Today, with so many decision-makers and commentators enamored with technological fixes, it is unclear whether clients’ needs are really being incorporated. The push for the technological approach continues despite the recent news that usage of both on-line and mobile payments services in the US has slowed for two years in a row , suggesting that even in a country where people readily adopt new technologies, when it comes to money most people still prefer humans over digits.

It is interesting to talk about the kinds of services clients demand and why, what this means for development at either the micro or macro level. These things will define how MFIs should position themselves in the future to meet their clients’ needs while remaining attractive to the investors who give them the money the use to lend to their clients.



This article was contributed by Mr. Ron Bevacqua, Managing Director of PFTAS.


Financial Access to Small and Remote Communities



       Microfinance borrowers in Nadi, Fiji, a nation of islands in the Pacific


        1. The challenge of serving small/remote communities


One of the main challenges in providing financial services to small and remote communities is the number of clients needed to generate a critical mass to have good profit.  It is simply saying

small population is equal to fewer potential clients.  Another challenge is the limited economic activities in a sparsely populated area.  A small buy-and-sell business trading business may not thrive in areas where neighbors are a kilometer away. To simply say it, lesser developed local economy translates to less demand for credit. In small or remote communities, the volume of transactions may not be large enough to generate profit to cover the cost of a branch.  The challenge for microfinance services providers then, is how to generate the ideal volume of transactions that will provide the profit to make the institution sustainable. 


There are two main methods to address the challenge of sustainable operations in small or remote communities: either increase the price of your products or lower your expenses to increase profit from your existing operations.  In the context of social performance, increasing price is not an appropriate action since the burden will go to the clients.  Lowering expenses therefore is the most appropriate action to take under current circumstances.


Lowering cost of operations can be done two ways: reduce your expenses, or shift expenses to others.  Reducing cost without affecting operation can be a headache for the management.  Most often, reduction in costs results to deterioration of service, and the clients often can observe these changes. When clients are not happy and the competitors offer better products and services, it would not take long before client migration happen.  Cost-shifting methods at this point are therefore the most ideal approach.


2.  The cost structure of a typical branch

There are three main functions in the branch which define the types of staff and the cost.  First is marketing: finding new clients, making new loans and projecting the image of the institution. If the institution is conscious of its social mandate, this is not easy since it should be ensured that you have the right clients. About 40% of activities in the branch are marketing-oriented.  Second is maintenance: ensuring that the clients used the money to its intended purpose, collecting repayment, conducting training and other non-financial services.  This function takes another 40% of the institutions time and resources. These two frontline activities are being done by the credit staff of the institution.  The remaining 20% constitute the backend functions of bookkeeping, cash handling and office maintenance.


Making new loans

Servicing existing loans

Handling cash

Support/sustaining activities

     Marketing and promotion

     Client identification

     Assisting clients to make loan applications

     Loan application review and approval

     Loan disbursement

     Loan utilization check

     Repayment collection

     Client monitoring

     Follow-up with delinquent clients


     Bookkeeping/ transaction recording

     Settlement of books

     Monitoring and supervision

     General accounting and reporting

     Branch HR management (recruiting, training, etc.)

     General administration and maintenance


Based on these premises, the ideal approach to cost reduction is to look at how the frontline expenses can be reduced.  This paper discussed three approaches being undertaken by microfinance institutions. 


3.  Recent “innovations”: agent banking and mobile banking


Recent technological advancements provided two innovations which is being considered as the answer to concerns of outreach and cost reduction. Ideally, it is assumed that as mobile phones are becoming affordable, many people can acquire it and it can be a platform for the provision of financial services, reducing the costs related to staff salaries, transportation, food, accommodation and other field expenses incurred by the credit staff. Clients can then deposit, withdraw, receive loans and pay using their phones.


In a broad sense, AGENT banking is basically placing an intermediary to do some activities in return for certain commission based on the volume of transactions.  MOBILE banking particularly depends on technology (mobile or cellular phones) to do financial transactions. The matrix below provides some details.




Agent banking model

Mobile banking model

Branch cost reduction/ cost shifting strategy

Agent conducts:

     Repayment collection

     Some cash handling activities

     Some promotion (to walk-in clients)

     Disbursements (sometimes)

Clients bears transportation cost

Similar to agent banking model: telecom kiosks acts as the agent




Some client monitoring can (theoretically) be done through mobile communication


     MFI still bears largest operational cost (promotion, client identification, monitoring and follow-up) and the overhead costs that go with them.

     Agents need to be trained and monitored (additional cost to MFI)

     Agent incurs cost to enhance cash management capacity (security and access to a depository institution to manage liquidity

Similar to agent banking model,




    Building and maintaining a working technology platform is an additional cost

    There will be two layers of fees rather than one (kiosk owner and  telecom platform)


The institutions who pilot-tested these innovations have shown that the clients used the platform mostly for money transfer and account checking.  Savings and credit however is not yet extensively used, especially in the South East Asian region.


Among the reasons why these innovations are not widely used are:

       a. Finding clients, especially the “target clients” remain with the MFI

           b. Maintenance is still with MFI,  and if  this is outsourced to an “agent”, the risk is higher

-and therefore the only function transferred is cash handling which is minimal;

-the agents are external to the MFI, and one issue will be the agents’ attitude towards the clients might be more “commercial” rather than “social”.

           c. There are additional costs – like training, commission, etc. 


Going back to the issue, of cost reduction, the present configuration of agent/mobile banking does not allow, or cannot ensure that the institution will reduce cost and ensure maintenance of its social mandate.


4.  The happy medium: shifting some costs but keeping the MFI involved


Let me emphasize that these are not new methods, and since it is there for all to see, we often miss it as we look for more “exotic” way of doing things.


Cambodia case study:  MFI sub-branch, a cost-reduction strategy


MFIs in Cambodia are registered as private limited companies and it has to pay the National Bank of Cambodia (NBC) for every branch it will set up.  The concept is: a branch is always a profit center. To be sustainable, MFIs should have branches that earns and contributes to the over-all profit of the institution.  Making each branch a profit center is the first objective of the institution.  It should have the right number of clients and loan portfolio that will generate profit.


Within the branch are the sub-branches.  Sub-branches are set up to target specific areas or specific type of clients.  Its functions are focused on marketing and maintenance of existing clients.  Backend operations still belongs to the branch where it is attached.  A sub-branch may not be earning at the start, but in the overall performance of the branch, its “losses” is offset by the income from other sub-branches. Some of these branches are set-up to cover specific areas where there are target clients like indigenous people, areas which cannot be reached by any transportation and other physical limitations.  Sub-branches therefore are used in reaching out to small and remote communities with minimal impact on the sustainability of the branch. As the sub-branch matures and the volume of transaction reached to a point where it can be a profit center in itself, then it can be registered as a separate branch.  


Philippines and Vietnam case studies:  a cost-shifting strategy


There are three types of MFIs in the Philippines: NGO-MFIs, cooperative MFIs and Banks with MFI functions.  This case study is focused on cooperatives with microfinance operations. Cooperatives in the Philippines are owned by its members who are also the clients.


In Vietnam the “social funds” are owned mostly by the Women’s Union. Funds of Women’s Union unit, either provincial, city or district are used to set up a social funds that will provide microfinance services.  To put it simply, the social funds are owned by the Women’s Union. Of more than 50 microfinance operators, only two are officially registered as MFI, the rest are social funds.

The essence of the Philippine and Vietnam cases is ownership.  The clients themselves are the owners of the institution. As such, some people within the institution assume functions that are “voluntary” in nature, that is, without pay. If paid, it is in the form of honorarium which is not fixed and regular.  In the Philippines a member-client may work as a committee member helping in the assessment and even collection, technically extending the reach and work hours of a paid staff.  In Vietnam, the local WU officers do the assessment, monitoring, and even running after delinquent borrowers.  For these volunteers, it is not about work, but for the strengthening of their institution.


As a result of these volunteer works, a big chunk of workload is taken off from the credit staff and allows him/her to do more work. Small and remote communities can be served  through these volunteers with minimal impact on the sustainability of the institution. The credit staff, relieved of most maintenance work can focus on the marketing function and become “volume drivers”.  In addition, time spent for remedial measures or recovery measures is lessened, resulting to higher efficiency and higher profit.  These volunteer works are not exploitative in the sense that it is an assumed responsibility of the client-members. As the profit grows as a result of the cost reduction, they share in terms of dividends for individual members in the case of cooperatives in the Philippines, and the increased fund of the WU in Vietnam.


5. Institutional sustainability: ownership (and SPM)


The concept of clients as owners is part of the progressive development process. In the early days of microfinance in the 80’s,  there was a call to refrain from calling the borrowers as beneficiaries because it is demeaning and patronizing, so in the 90’s up to now,  we call them clients. In the 21st century, empowered clients are aware of their rights and as they move out of poverty, the time will come to make them not only clients but owners as well.     With clients as owners, client protection will be easily addressed, and what will be more socially-relevant than a financial institution that is owned and managed by people it is mandated to serve.

Presented during the Pacific Microfinance Week celebration in Nadi, Fiji on October 21-25, 2013