In addition to a number of other structural issues, a systemic capital shortage severely compromises the financial sector in Myanmar.

The microfinance sector is affected particularly badly.

Microfinance Institutions (MFIs) face a number of extremely challenging restrictions on capital mobilisation - foreign MFIs can borrow only in foreign currency; and local MFIs only in Myanmar Kyats. Few MFIs have sufficient collateral to secure commercial bank lending, and the microfinance sector is perceived by banks as too risky due a poorer, more vulnerable client base. Institutional weaknesses and financial sector risks exacerbate this problem. As a result, the microfinance sector in Myanmar tends to be overwhelmingly reliant on grants instead of funding driven by market forces, and starved of local-currency financing to scale up operations.

The estimated demand for microcredit in Myanmar is $1 billion, more than 8 times the current portfolio of licensed MFIs, and only 15% of the low income segment has formal financial access. This undersupply in the microcredit market means that almost 16% of adults, most of whom are rural dwellers, borrow approximately US$ 5.7 billion from informal moneylenders at very high interest rates.

In light of this systemic problem, UNCDF Myanmar launched a strategic financial market initiative known as the Market Development Facility (MDF). MDF is an investment vehicle that aims to facilitate financial service expansion to marginalised areas, strengthen the capacity of emerging MFIs, and encourage sustainable market linkages. The MDF functions as a catalytic wholesale financial agent able to take-on risk and leverage outside sources of capital to boost funding to undercapitalised MFIs operating in Myanmar.

In particular it aims to address market failures through the provision of performance-based local currency loans, loan guarantees and technical support, preparing selected MFIs to become investment-ready. As one of the two UN agencies and few institutions in the country able to provide such financing, the platform will catalyse expansion of MFI outreach and crowding-in of additional lenders to the sector, including integration with local commercial funding markets.

The MDF made its first loan to Myanmar-owned MFI Pyae Mahar Services Ltd. The three-year loan, totaling 300 million Myanmar Kyats or approximately USD $220,000 is being used by Pyae Mahar to provide more loans of greater amounts to its Ayeyarwady-based clients.

One of these clients in Daw San Myint Htay (pictured below).

Daw San Myint Htay is from Kyoe Kone Village near Yegyi, and runs a business making bamboo baskets. She makes at least six baskets per day, and more depending on demand. To keep her business liquid and afloat she used to borrow money from moneylenders at 10% interest per month. Having to resort to moneylenders charging exorbitant interest rates was a situation reported by 100% of Pyae Mahar clients in Yegyi who were interviewed by UNCDF in October 2017.

Daw San Myint Htay joined Pyae Mahar MFI as a member in 2014, and noted how much her life has improved since gaining access to formal credit at an 2.5% interest per month (uncollateralised) with convenient, small repayment instalments.

Her income has increased significantly - and she has been using the extra money to send her children to school. She is delighted that she no longer needs to worry about managing her household expenses like food and education. In addition to the convenience and low interest rates, Daw San Myint Htay is also saving money on transportation costs as she no longer needs to travel long distances to access informal finance. She is grateful and happy to be working with Pyae Mahar.

Mr. Paul Luchtenburg, UNCDF Myanmar Country Coordinator, expressed his thanks to the Ministry of Finance’s Financial Regulatory Department for approving the financing for Pyae Mahar.

“This loan is a welcome as a first step for the UNCDF’s Market Development Facility, working as an innovative catalyst to build financial market linkages and leverage funds to expand financial inclusion in primarily rural markets,” he said.

Pyae Mahar Services Managing Director, Mr. U Minn Aung appreciated UNCDF’s confidence in his business and looked forward to potential opportunities arising from the investment.

“The loan from UNCDF’s Market Development Facility has enabled us to acquire our first-ever financing which meets our need to expand services to our low-income clients. I am hopeful that the experience gained from working with UNCDF will lead to greater financing opportunities from the local banking community in the years to come.”

Above: UNCDF Myanmar Coordinator Paul Luchtenburg and Pyae Mahar Services Managing Director U Minn Aung signing the first MDF loan agreement.

The long term objective of the Market Development Facility is to develop efficient and scalable financing models, especially for FSPs, in order to build a healthy and well-supplied market. In this way the MDF is designed to bring lasting change to the lives of the poor - especially women and other marginalised groups – and is a first step to replicating the story of Pyae Mahar and Daw San Myint Htay across the country in a market-driven, sustainable manner.

For more information contact:

Paul Luchtenburg
UNCDF Myanmar Country Coordinator
Ext. 153 (95-9) 250010451
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