When There Is Not Enough Credit to Go Around: The Challenges of Accessing Microcredit in Myanmar

As financial regulations lax and with the entrance of more nongovernmental organizations into Myanmar, microfinance and the availability of microloans have made it much easier for citizens of Myanmar to gain access to credit that they would not otherwise have access to. However, the demand for credit is far greater than the current supply. Currently, over 2.8 million clients have access to microloans in Myanmar. As that number continues to grow, credit constraints, the lack of credit availability, and the lack of financial literacy has made it difficult for people who need credit the most to access it. (The World Bank)

An article from the Myanmar Times published on March 1, 2017, Agricultural Sector and SMEs to Receive Private Bank Loans, talks about recent policy changes implemented to help farmers and small business owners. With the intervention of the Myanmar Private Sector Development Committee (PSDC), the committee has passed into law that private banks in Myanmar must grant a minimum percentage of all their commercial loans to people in the agricultural or SMEs (Micro, small, and medium-sized enterprises) sectors (Htwe.)

The current Agricultural Minister of Myanmar, Myint Hlaing, has stated, “The agricultural sector is the backbone of Myanmar’s economy as the entire agricultural sector contributes 30% of its current GDP. In addition, 61% of the country’s labor force is working in the agricultural sector” (Centre for Agriculture and Bioscience International.) Since agriculture is such a large part of the Myanmar economy, it is understood that additional funding and capital is required for the industry and economy to develop.

As of now, microloans are only made by state-owned banks. Local private banks rarely lend to local borrowers because of the lack of profitability and high risks of lending. Many of the private citizens who require microloans do not have the collateral nor credit history to justify receiving a loan, and laws set by the government cap the amount of interest that private banks can charge on these private loans (13%.)

(The World Bank)

The state-run banks currently charge an 8.5% interest rate and an 8% interest rate to SMEs and farmers, respectively. Should a borrower go to a private bank, they would be charged a 13% interest rate. Currently, it is unfeasible for private banks to
match the interest rate of the state-run bank, as they pay 8% interest rates on banking deposits (Htwe.) The main issue here, is deciding upon interest rate that would satisfy the state-run bank, the privately-owned bank, and the borrower.

With the passing of the 2016 Monetary Law, banks are no longer required to collect collateral when deciding who to give loans out to, but that just makes the vetting process more difficult. Despite the law, many private banks still require collateral as they cannot thoroughly vet borrowers, and many banking relationships in Myanmar are built on trust and reputation (Htwe.)
U Thein Myint, a deputy general manager at one of Myanmar’s privately-owned banks argues that, “If people fail to pay back their loans, the banks will encounter difficulties in paying deposits from its customers. This is detrimental to the financial system and the national economy. Therefore, for people seeking bank loans, they need to provide strong guarantee.” Until there is a proven high chance that commercial banks will be paid back, loans provided for the agricultural and SMEs sectors will remain low (Htwe.)

A retired vice president of the Myanmar Central Bank, U Than Lwin, hopes that the government can work out an arrangement with private banks so that money can be lent to people who need it the most. A proposed idea would be for the government to implement a system so that they can partially guarantee loan repayment, which would make the lending process for banks much easier. Another idea would be to mitigate risk by lending to a larger group of people, by spreading the amount of risk that people would take on when taking out a loan.

Some of the issues described in the article written by Chan Mya Htwe regarding microcredit are also issues seen in countries struggling to meet the demand for microcredit by their citizens. This is amongst one of the many challenges encountered for governments or NGOs implementing a microcredit and microfinance program in a developing country (Schaffner.) In a country where access to finance is difficult and people are spread out across rural areas, there is adverse selection on both sides for both the borrower and lender. Lending caps and inconsistent lending practices make it hard for borrowers to access loans. This usually results in a loan from multiple financial institutions or a loan shark (Schaffner.) The inconsistent income that depends on the planting and growing season along with the lack of good jobs makes it difficult in certain cases, for people to pay back their loans. With the new law instituted by the government preventing banks from collecting collateral on loans, the end result is an inefficient outcome where the borrower does not get the money they need for their everyday life and the lender just makes loans elsewhere where the financial institution knows they will be paid back.

Private financial institutions need a new way to thoroughly vet prospective borrowers if they cannot collect collateral beforehand (Htwe.) There is a possibility of lending to large groups and spreading out risk through group liability, but in every borrowing and lending situation, I feel that the lender assumes a lot more risk than the borrower.

The first microloan programs were first instituted in Myanmar in the mid-1990s (Soe.) As new laws are passed and as regulations become more lax, there have been an increase in NGOs in the country, making small loans to farmers and small business owners. The exchange rate, interest rate caps, along with high denominations in its currency discourage more NGOs coming in (Soe.) As the program continues to grow, I hope that microloans and microfinance can reach people in areas that still are not developed, or destroyed by the ongoing Civil War. I think that the Myanmar government needs to do more for its citizens, rather than rely on outside humanitarian organizations to provide a basic lifestyle for people who need it the most. This is a difficult problem that I feel would not be solved anytime soon, as lack of financial literacy in its citizens, lack of access to large amounts of credit, and lack of willing lending institutions keeps people stuck in the cycle of poverty.


Schaffner, Julie. Development Economics. N.p.: Wiley, 2014. Print.

Ray, Debraj. Development Economics. N.p.: Princeton UP, 1998. Print.

C. (n.d.). CABI and China boost agricultural development in Myanmar. Retrieved May 09, 2017, from http://www.cabi.org/membership/news/cabi-and-china-boost-agricultural-development-in-myanmar/

Tun, T., Kennedy, A., & Nischan, U. (2015). • Promoting Agricultural Growth in Myanmar: A Review of Policies and an Assessment of Knowledge Gaps (No. 230983). Michigan State University, Department of Agricultural, Food, and Resource Economics.

Htwe, C. M. (2017, March 01). Agricultural sector and SMEs to receive private bank loans. Retrieved May 09, 2017, from http://www.mmtimes.com/index.php/business/25141-agricultural-sector-and-smes-to-receive-private-bank-loans.html

Soe, H. K. (2016, September 06). Can microfinance still make a difference? Retrieved May 09, 2017, from http://frontiermyanmar.net/en/can-microfinance-still-make-a-difference


Understanding Loan Waivers in India

The costs and benefits of waiving debt to farmers and banks. By Sarang Yeola

Image Source: Asia Times

The full article “Yogi Adityanath fulfills poll promise” can be found at the following link https://goo.gl/bGvV1U

Earlier this month, Uttar Pradesh’s newly elected Banathiya Janata Party Chief Minister, Yogi Adithyanath, implemented a plan to relieve the debts of over 21.5 million small and marginal farmers. This program will cost the UP government $5.6 billion (INR 36,359 crore). The bill allows for the waiver of loans of up to $1,500 (INR 1 lakh). Due to this policy’s popularity among farmers, other states in India are planning to also follow suit in enacting similar policies. (1 USD  65 INR).

Lending And Income For Farmers

This program is to help relieve the stresses due to the many uncertainties of farming in India. These stresses are the result of the fact that they make revenue through a seasonal income, in that they spend most of their money at the beginning of the season and only make money during the harvest. Farmers can acquire this startup money in a few ways [1], namely through loans from banks and informal moneylenders or savings from the previous years. The size of formal bank loans and savings helps with startup costs and the flexibility of informal moneylenders helps with management of purchases through the rest of the season. However, with some risk brought upon by weather inconsistency and other shocks, these debts will sometimes build up. High costs of borrowing sometimes of up to 50% [2] interest from informal money lenders cause debts that become so large that farmers will have pay off those loans with other lower interest loans, forcing them into a cycle of indebtedness. These debts can often be detrimental to the mental health of the farmers as numerous suicides farmer suicides [2] are often the linked to the amount of debt owed.

Effect on Credit Reallocation

UP’s new loan waiver plan is the largest in India since the Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS) passed in 2008. The UP government has justified the program by citing the need for relief to the 700,000 farmers who remain in debt. The idea here being that any returns on investment are used to pay off previous debts and farmers’ incentives for investment are driven down by their current debt situation. By waiving these debts, the Indian government targets the economic stagnation caused by the burden on farmers and thus they have more freedom to make economic decisions and thus encouraging more economic activity. A World Bank study [3] on the effects of ADWDRS, shows that it did not have an effect on productivity, wages, or consumption successful in reallocating capital more efficiently.

With a historical context in mind, there are benefits of credit reallocation that we should also expect from the new UP loan waiver. Banks are more conservative to whom they chose to give loans, thus leading to an increase in the ratio of “safe” over “risky” lenders. Assuming that the banker can determine the reliability of the borrower, the new policy should cause interest rates to decrease safe borrowers no longer subsidize those with bad credit—the risky type. With lower interest rates the cost of investment is lower and farmers will be willing to consume and invest more, spurring economic growth.

Moral Hazard

While there may be benefits in this credit reallocation, the ADWDRS study also found that there were increasing defaults on loans. Specifically, that “Banks that received a greater share of bailout funds are significantly more likely to experience an increase in defaults after the program, and districts in which bank branches were more exposed to the bailout experience a decline in loan performance after the program” (51). The paper shows that an increasing deviation in the bailout exposure corresponds to an approximately 1.6% increase in the shares of non-performing loans and 2.4% increase in the share of non-performing credit.

These results are likely due to a behavioral change caused by the loan waiver, which changes the mindset of borrowers so that they begin to think that future loans will also be waived. This behavioral uncertainty is an example of ex-post moral hazard as the lenders do not know if the borrower’s project is successful and therefore cannot tell when the borrower does default if he/she is doing it willfully. The UP’s new loan waiver program can only exacerbate this problem of moral hazard as more people will be exposed to debt waiver and therefore loan performance will decrease even more drastically. Since there were already issues about growth previously according to the analysis of ADWDRS, the behavior will only further be affected by another debt waiver. Since that idea of there being more waivers down the line, the probability of someone willfully defaults.


The new debt relief plan in Uttar Pradesh can have positive impacts on helping farmers trapped in cyclic debt work their way up helping improve morale and mental health of farmers. Though their economic effects in the longer run may introduce problems in increased defaults on loans, costing the government and banks even more and negating the positive effects of consumption and production. It will be interesting to see how the other states the nation responds, knowing that the desires of farmers contradict the historical outcomes of similar debt relief programs.


  1. Miller, Emily. “Looking at rural debt through the eyes of India’s farmers.” (2017) http://scid.stanford.edu/news/looking-rural-debt-through-eyes-indias-farmers
  2. Giné, Xavier, and Martin Kanz. “The economic effects of a borrower bailout: evidence from an emerging market.” (2014). https://ssrn.com/abstract=2524163
  3. Behere, Prakash B., and Manik C. Bhise. “Farmers’ suicide: Across culture.” Indian journal of psychiatry51, no. 4 (2009): 242. http://www.indianjpsychiatry.org/text.asp?2009/51/4/242/58286