As part of its efforts to eradicate poverty the current government allowed foreign microfinance companies to operate in Myanmar since 2012. The Netherlands-based microfinance firm Association for Social Advancement (ASA) Microfinance received a licence to operate in Myanmar in August 2014.
“Our purpose of coming to Myanmar is not only getting profit from loans, but to help women to get income so that Myanmar can reduce poverty,” said Muhammed Faridur Rahman, managing director of ASA Microfinance Myanmar Limited.
He told Myanmar Business Today that ASA has planned to invest $30 million in Myanmar for five years from 2014 to 2019. The company will operate 50 percent of their business in urban areas and the rest in rural areas.
The group is opening more than 100 branches in Yangon, Bago, Ayeyarwady, Mandalay, Magway and Mon states. During their operation period, ASA will provide financial education training to its customers.
ASA began giving loans in September 2014 with a yearly interest rate of 30 percent. ASA has given loans to 21,559 people from 17 different townships in Yangon region and 45 people from four townships in Bago region. To date, ASA has distributed $2.3 million in loans.
Although many foreign microfinance companies have provided loans, the need for financial assistance is still high for poor people, leading many to take loans from illegal money lenders.
“Giving [microfinance] loans like this is good. People will take loans because the interest rate is low. However, they have to pay back some amount once a week, and people often don’t earn enough money to pay back that amount. So they borrow from illegal lenders and cannot get out of debt,” said U Win Sein from Kyaut Pan Daung township.
Legal lending businesses started under the military government, but these lenders could not enforce payment. A borrower can borrow only 25 percent of the value of their collateral.
Over 250 companies operate microfinance businesses in Myanmar including those who were granted licence under the previous government.
ASA said it ensures the recipient actually intends to operate a small business with their loan. Then loan recipient must attend an educational loan meeting four times over the course of one month with ASA before receiving a loan.
ASA provides business loans in amounts ranging from K80,000 to K1 million. Payment plans are divided into weekly payments and the loan recipient has to pay back a small amount every week.
For example, if someone takes out a K1 million loan, they will have to pay back K1.3 million by the end of the year. When broken down into payments, the borrower will have to pay K25,000 per week.
“Myanmar people are not familiar with microfinance business practices. All people know is to pawn their belongings to get loans. It is like a habit here,” said U Hla Tun Oo from ASA Microfinance Myanmar Limited.
A loan recipient must have a national identity card, family registration certificate or proof of three years residency in one place. The borrower bust also be between 18 and 60 years old and must own a business.
Rahman said ASA will expand its business in the future to provide education and health loans.
Source: Myanmar Business Today
