Deteriorating liquidity and funding conditions for microfinance institutions in Myanmar

05 April 2023
Woman buying bananas

A survey of the microfinance sector in Myanmar by the Myanmar Micro Finance Association (MMFA), ADA, ThitsaWorks and Dave Grace & Associates based on 2022 data shines a light on the current difficult operating environment and makes recommendations for policymakers, microfinance institutions (MFIs) and international investors on how to address the challenges.

While the COVID pandemic tested the resilience of the microfinance sector and its vulnerable clients around the world, MFIs in Myanmar face additional challenges due to ongoing political instability. Whereas the sector, and indeed the entire local economy, had been thriving prior to the military coup in February 2021, the International Monetary Fund estimates Myanmar’s GDP growth at merely 2% and inflation as high as 16.2% for 2022. 

Analysis of how the sector has fared since the military coup in 2021

The purpose of this study was to gather clear evidence of the impact of the COVID-19 pandemic, political unrest and the banking crisis on microfinance institutions, their clients and stakeholders. A first survey from November 2021 compared data from December 2020 (during the pandemic but before the coup) with data from May (shortly after the coup), while a second detailed survey was carried out in June 2022 based on data from 53 MFIs to understand how the sector has been faring since 2020. 

Whereas the first survey demonstrated the sector’s resilience, the prolonged nature of the political and economic instability is now affecting the sector more significantly, in particular through a rise in non-performing loans. Overall, the total loan portfolio for the sector declined by 216 billion MMK (USD118 million) or 10.2% between December 2020 and June 2022 as lenders had insufficient liquidity to make new loans and demand decreased. Similarly, there was a dramatic decrease in savings by 25% (38 billion MMK or USD 20 million) between December 2020 and June 2022. 

The high level of non-performing loans and the reduction in savings especially affects women, as they are the primary clients of MFIs - this paints a grim picture for families and children in Myanmar, as women play a key role in household nutrition and childcare. 

In addition, the MFIs themselves were adversely affected by cash withdrawal limits at banks and foreign exchange controls. As a result, repayments of loans in US dollars or euros to foreign lenders have become very difficult for MFIs, making foreign investors reluctant to continue to fund the sector.

Outlook and recommendations

Asked about their main concerns for the future, MFIs cited the high level of non-performing loans, security in branches and profitability. The recent black-listing of Myanmar by the Financial Action Task Force for anti-money-laundering adds to the funding challenges they will have in securing external loans and equity investments. In this context, MFIs expressed the need for development partners to recognize the difference between supporting MFIs and their clients versus supporting the current unelected administration.

In addition to analysing the status quo of the microfinance sector, the authors of the survey make concrete policy and financial recommendations for all stakeholders, from non-performing loan write-offs for MFIs to a call for regulatory forbearance and suggestions for re-engagement by international development partners.