Agriculture in Myanmar is the largest contributor to the economy and will remain the largest source of employment for the foreseeable future. Agricultural and agricultural related products account for 60% of GDP and 30% of total exports. More than half of the adult population (58%) or 23 million adults derive a livelihood from agriculture. However, despite its relative comparative advantage in the production of agricultural goods, Myanmar has underperformed in comparison to its peers and neighbouring countries over the last five decades, and rural poverty remains an issue. Improving access, quality and depth of financial services targetting this section provides an opportunity to improve on Myanmar’s agricultural performance and address rural poverty.
Figure 1 below shows the breakdown of adults involved in the agricultural sector in Myanmar. This note only deals with Farmers and Farm workers, as those who derive secondary income from agricultural activities are dealt with under other target markets in the MAP Myanmar Diagnostic Report.
Figure 1: Breakdown of population involved in Agriculture
Farmers constitute the largest target market and reported the highest levels of access to regulated credit with 37% of Farmers borrowing from a regulated financial services provider, mostly driven by loans from MADB. However, this high use of regulated credit does not translate to high take-up of other regulated financial services, with low levels of regulated savings, payments and insurance take-up amongst Farmers. In contrast, very few Farm workers have access to any financial services from regulated or unregulated financial services providers, other than those who borrow from an unregulated provider (31% of Farm workers borrow from unregulated providers only). Furthermore, of those Farmers and Farm workers who have access to regulated financial services, very few have access to more than one type of regulated service (i.e. credit, savings, payment or insurance), and most regulated usage is non-account based. It is therefore clear that much of agricultural financial services needs in Myanmar remain unaddressed or insufficiently addressed.
Current rural provision of regulated financial services is therefore mostly limited to credit and mostly driven by mandated capital and subsidised operations. No purely commercial offering has achieved any significant scale and there is no evidence that any provider is poised to do so for the foreseeable future. Furthermore, even for mandated and subsidised models, rural delivery remains a challenge, with current interest rate caps, loan size and capital regulations and the higher cost of rural provision resulting in a withdrawal of certain NGO MFIs from more challenging low-income and particularly rural markets. For the time being, MADB therefore remains best positioned for credit delivery to farmers. Their mechanism of simple group-based seasonal loans works well for delivery, but may not work well for more advanced or individualised loan products. Current agricultural credit product features are also not meeting the needs of farmers, with the size of the farm, the size of the loan, restrictions on crop type and the disbursement and timing of repayments all being problematic. Opportunities therefore exist to improve the quantity and terms of agricultural input credit which in turn can increase agricultural productivity.
Provision of regulated risk mitigation products to rural areas and especially agricultural households is extremely limited. Furthermore, products specifically addressing the biggest risk mitigation needs for these households (i.e. Agricultural input credit insurance, health insurance or funeral insurance), are not currently allowed under insurance regulation. There is therefore a high degree of risk exposure for current agricultural households which are being mitigated through unregulated or personal mechanisms. There are also several issues in terms of distribution and innovation in the insurance market.
Lastly, there is very limited use of electronic payments due to the absence of electronic payments infrastructure, especially in rural areas where there is virtually no points of access for electronic payments. There is also low savings mobilisation capability in rural areas, with few products catering to the needs of rural households, i.e. to save and withdraw small amounts regularly, conveniently and cheaply. Given the current limited branch infrastructure outside urban areas, this will not change without remote electronic access. A dramatically upgraded and expanded payment system is therefore critical in the mobilisation of rural savings. Similarly, the extension of low-value credit and the collection of small insurance premiums become commercially viable on the back of low-cost electronic payments. Mobile payments offer the most immediate solution to achieve this. However, this will not obviate the need to extend branch infrastructure and build a network of agents to perform the encashment role. Pending the modernisation of banking systems, decentralised group-based credit will remain the most efficient way to provide rural credit.
Preparation for MAP Myanmar was approved by the President of the Union of Myanmar in January 2013. The programme has been developed by the United Nations Capital Development Fund (UNCDF) in close cooperation with the United Nations Development Programme (UNDP) office in Myanmar and is embedded in the UNDP Country Programme and Action Plan (CPAP), which has subsequently been approved by the Government of Myanmar. MAP Myanmar is funded by UNCDF and Livelihoods and Food Securities Trust Fund (LIFT). The project is governed by a Steering Committee chaired by U Htein Linn, Managing Director of the Myanmar Microfinance Supervisory Enterprise (MSE) and consists of 10 members representing government and project sponsors.