Reflections on starting microfinance in a new country: BRAC’s journey in Myanmar

In 2014 BRAC launched its microfinance operations in Myanmar – one of the last countries in the world to open up its economy and simultaneously the country with one of the poorest and most unbanked populations. Within three years BRAC has grown to serve over 40,000 women. Read about its journey in a country full of opportunities and challenges.

BRAC comes to Myanmar

Since 2010, Myanmar has been undergoing a series of political and economic reforms; experiencing rapid economic growth as a result. BRAC decided to come to Myanmar at a time when Myanmar’s nascent microfinance (MF) sector was seeing early growth, with a handful of international and local NGOs starting to focus on financial inclusion. A FinScope survey in May 2013 showed that less than 5 per cent of Myanmar’s adults had a bank account. The supply of financial services for micro and small businesses reached less than 10 per cent of potential customers leaving most of Myanmar’s demand for credit unmet. This was in part because many of the existing microfinance providers were yet to balance sustainability with broad outreach.

BRAC launched its microfinance operations in Myanmar in 2014 as a financially sustainable company.  Consequently, all operations had to be self-financed as we could not rely on grants, demanding us to be as business-minded as possible in achieving our social mission of financial inclusion of the poor. BRAC’s general focus for microloans and voluntary savings products is poor women from mostly rural areas involved in various income-generating activities.

Changing financial lives client by client

One of the women BRAC works with is Daw Zar Oo. She might not be the typical entrepreneur but has managed to change her life around and ease some of the financial stress that previously occupied the minds of her and her husband. Daw Zar Oo is operating a small grocery shop, a small scale broom production as well as paddy farming in the village Koot Kone in Oaktwin Township. Like many people in Myanmar she is trying to sustain a living in a rural area, with limited infrastructure and beyond the reach of the more profitable markets of the larger cities in central Myanmar. Unlike many other rice farmers, Daw Zar Oo can afford not to sell her rice directly after harvest, when prices are lowest. Instead, she stores the rice in a traditional container made out of bamboo and cow dung and sells it during the year once prices are higher. Going from incredibly high informal loans from loan sharks, Daw Zar Oo was happy to discover the possibility of joining a microfinance group with her friends and neighbours, through BRAC. Perhaps on the face of it seeming like a minor change, borrowing the loan from BRAC has enabled Daw Zar Oo to buy stock for her store. This is helping her to prepare for business throughout the different seasons of Myanmar, instead of relying only on the Monsoon and Summer paddy as is very common for the typical Myanmar farmer. BRAC’s loan also enables Daw Zar Oo to smooth income and consumption over the year and create some breathing room for the family to see market potential in their own surroundings.

Overcoming challenges by applying institutional learning

From the start, BRAC benefited enormously from the years of experience and learning acquired from its operations in seven countries across Asia and sub-Saharan Africa, enabling it to adjust best practices to the Myanmar specific context. Naturally there have been some minor and major challenges and operational constraints along the journey. In the first years Myanmar witnessed political instability and in more recent times ethnic and religious tensions. While access to finance is very limited throughout Myanmar, microfinance as a tool for development does not suitably serve those living in displacement and in areas with ongoing conflict. Mindful of this, BRAC is learning how our vast experiences from humanitarian disasters; in water, sanitation and hygiene; and administering community health programmes can be applied as BRAC gets to know the different areas of Myanmar better. For now, the microfinance programme which is collateral free and in a group loan modality, demands a certain level of stability to assist small entrepreneurs like Daw Zar Oo to sell her produce and groceries. We have also learned to take an organic approach to expansion, whereby the programme tests the ground from one village to the next before laying down roots. Hereby, we take an incremental yet overall more efficient approach to growth as compared to countries where we decided to open offices in a sporadic way and in remote places from the very beginning.

Myanmar also lacks infrastructure, clarity on immigration rules, restricted mobility and limited skilled human resources. All these factors pose operational constraints for microfinance institutions and NGOs by decreasing their efficiency or increasing their costs. In addition, the current regulatory environment in Myanmar means that the funding risk is relatively high in comparison to other countries (investing is deemed too risky by investors) and is to a large extent independent of BRAC’s actions, development and performance.

In spite of these challenges BRAC has experienced steady growth as it pursued a clear strategy to continue expanding and to diversify into other development programmes and new financial products. To promote financial inclusion among the disproportionately unbanked BRAC aims for its client reach to be at least 90 per cent women, of which 70 per cent will be in rural areas. By the end of 2021, BRAC expects to reach approximately 170,000 microfinance borrowers in 80 branches and serve a further 3,000 borrowers through its Small Enterprise Programme (SEP) that offers larger ticket individual loans to small business owners.

Microfinance+

While financial inclusion is vital in Myanmar, BRAC acknowledges that microcredit alone will not be enough to eradicate poverty, believing strongly in a holistic approach to lift the poor out of poverty. BRAC Myanmar is mindful that microfinance is not suitable for everyone and is currently exploring solutions to bring new groups into its platform. By delivering a combination of financial and non-financial services, BRAC will be able to have greater reach in Myanmar both in terms of geography and poverty reduction outcomes. For example, the 40,000 women that BRAC currently serves can benefit from diversified financial products as well as improved health and agricultural awareness. Access to certain services is expected to generate demand for others. For example, awareness building is expected to generate demand for  market linkages, which BRAC Myanmar hopes to meet by developing social enterprises in the industries our clients work in.

Despite some challenges, BRAC has been able to establish operations and a strong foundation to expand both in terms of branches as well as in terms of services. Key to this throughout our development has been application of BRAC’s institutional knowledge, drawn from past international experience, and steady incremental growth nationally.

By Sten Te Vogt (MSc student in Financial Economics from Erasmus School of Economics in Rotterdam) and Annaklara Eriksson (Lead Knowledge Management and Proposal Development, BRAC)

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