Call for Expressions of Interest:

Enabling MFIs the access to the national payment system

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Key Dates

Proposal submissions to be sent uncdf.myanmar@uncdf.org

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The Problem

Myanmar has seen great advancements in financial inclusion in the past 5 years, with most of the progress driven by the microfinance industry, and in particular the advanced foreign MFIs that have grown to over 3 million clients. However, there is still much work to be done. Financial inclusion is thin, with only one or two services procured by formal means, and MFI products are limited to group microenterprise loans. The microfinance industry itself, and therefore its clients, are not connected to the rest of the formal financial sector, with no plans to do so.

Two products have driven financial inclusion in two different industries, remittance from mobile money and loans from MFIs, under two different regulators (CBM and FRD). Micro-enterprise group loans from MFIs have had a significant impact, but they do not include household finance, savings, supply chain payments, remittance, or risk mitigation. Remittances from the mobile money are still primarily over the counter and peer-to-peer, rather than connected to other services. The disjointed nature of these two financial offerings for the poor means that informal providers will still be required to bridge the gap between formal providers. Government financial inclusion goals prioritize savings, but both of these institutions are heavily limited for deposit-taking.

In this digital age, combined with an increasingly competitive environment, all financial service providers are interested in utilizing digital technologies. Yet, most are not sure of how best to utilize this technology. The industries are eager to work together, but different revenue models, operations, and technologies make this expensive and slow, particularly without any neutral facilitation. UNCDF has facilitated some bilateral conversations and single industry discussions in 2018, noting hurdles and constraints.

Multiple pilots are beginning, but these are limited in scope and scalability. The costs of collaboration are currently too high. Regulations about integrations between MMOs and MFIs are unclear. Technical integrations are costly for both partners working on thin margins. Little research or customer testing has been done to understand the market demands among target clients for digitally integrated products. The digital loan repayment pilots have yet to reach a scale where the cost reduction benefits can be realized for MFIs nor has transaction growth been proven for MMOs.

The growth in digital finance, such as mobile money and digital banking, offers an opportunity to further expand access and quality of service. The best road to that expansion is by connecting the mission-aligned providers already present and trusted in rural and low-income communities to digital channels of other industries. However, the microfinance industry has been largely left behind the country’s advancements in digital finance, with limited technical capability, limited regulated product offerings, and lack of connectivity to other FSPs.

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The Goal

UNCDF has completed 12 months of industry consultations with both microfinance and mobile money leaders. The identified market entry point for digitizing microfinance industry is enabling digital loan repayments and disbursements, a product already being tested by multiple bilateral partnerships. However, building a digital microfinance industry requires a solid foundation of organizational and technological capacity on which a multitude of products can be built, including savings, payments and risk mitigation, and expanding to more and more challenging areas and clients. Therefore, building digital loan repayments without also creating a flexible and reusable architecture would be unsustainable for the industry.

The program initially aims to support the digital transformation of Myanmar microfinance institutions through a digital payments platform for the Myanmar microfinance industry focused around two specific use cases in high demand: MFI loan repayment and MFI loan disbursement. This platform will be aligned with the Level One Principles with the objective to create a more inclusive economy and the financial sector that benefits everyone. More info on the principles here: https://leveloneproject.org/

In line with Level One Principles using open-source software for creating interoperable payments platforms that connect all digital financial providers and customers and help unbanked people around the world access digital financial services, such as Mojaloop. The results produced via this grant will be considered a public good.

As a cross-industry, Level One aligned platform, this program aims to be the first step towards a fully enabled interoperability scheme for transactions such as bulk disbursements, peer-to-peer, and merchant payments among all categories of DFSPs.

Goal. Improve access to connected financial services for low-income households by:
1. Increasing access to safe and formal credit for unserved and underserved clients by reducing operational costs of expansion for microfinance institutions.
2. Increasing product offerings to microfinance clients from simple group loans to remittances and digital savings

During this first stage, the platform will not be live. All the transactions between the participants of the scheme only test to prove the validity of the system for later stages. Nonetheless, the outputs and deliverables are in line with Level One Principles considered a public good. Thus, all the outputs and deliverables will be placed in the public domain with the intent that they can and should be freely and widely used by other parties.-