Microfinance gains momentum as knowledge and education improves

Ko Bik, marketing manager at Alliance Microfinance, is seeing a pickup in demand for loans provided by microfinance institutions.

“Education levels have improved and more borrowers are aware of this option compared to before,” he told The Myanmar Times.

The way he sees it, microfinance institutions are playing a larger role in the Myanmar economy by enabling small and medium enterprises to gain access to funds for growth.

Here is an excerpt of our interview:

Can you talk about the various microfinance services currently available?

There are typically five services: international microfinance loans, savings, insurance, money transfers and pensions. In Myanmar, the main service allowed is extending loans. If permitted in the future, we plan to provide insurance and transfer services.

Is microfinance gaining popularity in the country?

When we started four years ago, there were around 190 microfinance businesses. Now, there are well over 200. The key to expansion in this sector is education. There is a perception that microfinance is an expensive option leading to even more debt.

Some of the international lenders have educational campaigns for borrowers. We are also doing the same in a bid to empower our borrowers with more knowledge of our services.

What are the terms and conditions when lending to clients?

We give priority to borrowers with existing businesses which have been in operation for about one year. The main condition is that there must be an existing business. There are some relaxations if borrowers apply for loans as a group, such as lesser service charges.

Loan amounts range from K 150,000 to 800,000 for the Mahamate Loan (Joint Liability Group) and from K 500,000 to K 100 lakh under the Shweyaung Anagat Loan (Individual Small Enterprise). Interest rates vary from 2 pc to 2.5pc, depending on the amount of loans.

What are some of the challenges you face?

As the number of microfinance organisations increases, arrangements can be made for borrowers to avoid being weighed down by debt. However, there is also a limit to how much they borrow. Some borrowers ask for loans of above K10 million which is not allowed under the law.

One of the challenges we face is explaining all this to our clients and helping them understand the terms and conditions.

What kind of collateral do you require for risk management?

Microfinance doesn’t require any collateral. But a guarantor is needed for Shweyaung Anagat Loans. We will check if the borrowers are making use of the funds and if they can repay it. We will also take an advisory role in their business to help them repay.

We provide loans to small and medium enterprises allowing them to buy the necessary machinery to increase their production.

Source : Myanmar Times

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