Extending Credit to Burma’s Rural Poor 10-31

Extending Credit to Burma’s Rural Poor

Local social enterprise Proximity Designs explores how to take better loan options to the furthest reaches of Burma

27 Years of economic sanctions have laid difficult foundations for expansion of formal 

financial services among the poor in Burma (also known as Myanmar). Many Burmese people turn to informal savings and loan options under unfavourable terms, which ultimately reduce people’s ability to invest in their livelihoods.

But Rangoon-based social enterprise Proximity Designs is hoping to change that, with a more affordable, “on-the-move” loan geared at helping rural families cope with seasonal income fluctuations.

“Our loan product is designed to provide a safety net for rural families whose loved ones are temporarily away to work,” said Su Mon, head of Proximity Designs’ knowledge and social impact team.

The loan is the culmination of in-depth research into the financial habits of rural Burmese, which Proximity conducted earlier this year with consultancy Studio D Radiodurans and design company Frog. Commissioned by the Institute for Money, Technology and Financial Inclusion, the research highlighted the shortage of credit options for rural migrant workers, many of whom head to the fertile Irrawaddy Delta region during rice harvests.

The research also found that most people borrow money from informal sources at extremely high interest rates. Though Burma’s Central Bank restricts private banks to13% interest annually on borrowing, bank services and other formal loans are not suited to the needs of the rural poor who need to borrow to invest during planting and pay back loans after the harvest.

Ohn Han, a young farmer in Pegu Division’s Thae Kone township, said people therefore turn to convenient but costlier informal lenders.

“As we need money to invest, we have to take loans from money-lenders with higher interest rates. We pay them back with paddy [unmilled rice], not money, so the lenders end up paying half price for a bag of paddy,” he said.

Burmese also remain distrustful of formal finance. Under the rule of General Ne Win from 1962-88, the government repeatedly devalued higher-value kyat notes without warning, wiping out many people’s cash savings. More recently, a banking crisis in 2003, and the government’s long-standing manipulation of the exchange rate have meant the kyat, especially in cash, is not a trusted commodity.

“The country’s long history of monetary instability and capricious policy-making has scarred many to formal finance of any form,” said Burma specialist Sean Turnell, an economics professor at Macquarie University in Sydney who has written about micro finance in Burma.

“In other words, Burma is not starting from a blank slate, but from well behind the starting line.”

 To grow its businesses and improve the lives of its people, Burma is building a secure, reliable payment structure with partners like Visa.

A survey of 5,100 people by the UN Capital Development Fund and the UN Development Program published in May found that only about 4% of Burmese have a savings account at a bank. Some 62% do not save at all, the survey results suggested, a fact the UN agencies said leaves people vulnerable to shocks like illness and natural disasters, and hurts Burma’s broader economy.Since 2007, Proximity Designs has provided loans to rural farmers to help them pay for energy and irrigation products via affordable instalments over long periods.

Su Mon said that in her experience, the key to getting rural people in Burma to take up a financial product was to make it as easy as possible for them.

“People in rural [Burma] can be motivated to use more formal financial services if those services are flexible and accessible to meet their needs,” she said.

Proximity Designs’ “on-the-move” loan seeks to do just this. With support from Visa, Proximity is capitalising on its previous research to develop a loan product that meets an unmet need: affordable loans for temporary migrant workers. The loan is still being developed, but is expected to be dispersed through a network of localised loan officers.

“We will customise the loan to meet our targeted customer needs in terms of timing, payment terms, ways to deposit loan payment, and loan origination process,” Su Mon said.

Hiro Taylor, Burma country manager for Visa, said the company, which entered Burma two years ago and has partnered with local banks, would be looking at ways its technology could help Proximity Designs to digitise and improve the ease and security of its loan product.

“[Proximity Designs] are going to test the pilot in a paper-based environment. We’ll study that product and gather these learnings and see how we can apply Visa’s financial services tools to facilitate those loans,” Taylor said.

“This is part of Visa’s overarching focus in the region to move consumers away from cash to secure, sustainable digital solutions,” said Stephen Kehoe, head of Visa Inc.’s global financial inclusion team.

With the entry of two new international telecommunications firms in recent months, millions more of Burma’s people will shortly be using mobile phones and internet. This mobile revolution can be harnessed to bring the security and flexibility of digital currency transactions to Burma’s cash-reliant economy, Taylor said.

“That creates a very interesting proposition,” he said, “for banks, for telecommunications companies, for technologists, for marketers, and for networks like Visa to figure out if there are ways to digitally leapfrog traditional payments systems and to roll out services and build a backbone that can be trusted and reliable.”

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