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Pioneering the individual MSME loan market for women in Myanmar Learnings from BRAC Challenge Fund Investment

What you will find in this case study:

  • Better understanding the needs of specific female customer segments can generate a stronger product and business case for gender smart product development.
  • Collecting high-quality data requires proper investment in training and capacity building of personnel. Moreover, it is important to build capacity in financial service providers for data analytics and product development.
  • Product ideation is an iterative process involving research, piloting and capacity building.
I used to only sell papaya jam, but after switching to BRAC’s Small Enterprise Productive (SEP) loan, I started selling pineapple jam and marrow candy too.

Daw Sabel shares as she showcases her jam production facility in Mingalardon, Yangon. Together with her eight employees, she sells pineapple and papaya jams to Shwe Kyee bakery and wholesalers in Bayintnaung market, and supplies marrow candy to shops downtown. She earns approximately MMK 16 million (US$ 11,050) in revenue and MMK four million (US$ 2,762) in profits every month. Her largest expense is on fruits, where she buys up to 500 bags of fruits every month.

My friends and neighbors told me about BRAC, and I took my first loan with them two years ago.

Daw Sabel started with the small enterprise group loan before switching to the individual small enterprise productive loan. With this loan product, she now has the capital to purchase more raw materials and increase her production. This led to an increase in sales and growth of her main source of income, which has allowed her to better support her seven-year old daughter financially.

In Myanmar, women microentrepreneurs like Daw Sabel have traditionally been offered group loans of smaller ticket sizes. However, many microentrepreneurs aspire to grow their businesses and improve their livelihoods – for example by introducing new types of products like Daw Sabel, or increasing the stock of their existing goods. While access to credit is meant to facilitate this process, financial products must be designed according to the borrowers’ needs for them to be effective.

In order to better understand their clients, BRAC Myanmar wanted to explore how women operated their small businesses and what their needs really were. The United Nations Capital Development Fund (UNCDF) supported Low-Income Financial Transformation (L-IFT) and BRAC Myanmar to conduct financial diaries research to gather these insights. Findings from this research helped BRAC in designing their first individual loan products, two gender-sensitive financial products – the Small Enterprise Productive (SEP) loan and the Women Micro Enterprise (WME) loan. An open data portal was also created, making the rich data collected through the financial diaries publicly available to other organizations.

Founded in 1972 in Bangladesh, BRAC currently works in over 11 countries worldwide to create opportunities for millions of people living in poverty. BRAC in Myanmar was established in 2013 to provide microfinance services to communities who have been left out of the formal financial system, reaching over 47,000 female borrowers to date.

BRAC applied for a matching grant from the UNCDF Shaping Inclusive Finance Transformations (SHIFT) in ASEAN programme under the ‘Fostering Innovative Business Models for Women’s Financial Inclusion’ Challenge Fund window in April 2016 to fund the financial diaries research in Myanmar.

After a competitive deliberation process, the project was approved by SHIFT ASEAN’s Investment Committee and was initiated in July 2017 with a committed investment of of US$93,000 from BRAC and 165,000 from L-IFT matched with a US$200,000 grant from UNCDF.

Throughout the entire process from product development to implementation, BRAC and L-IFT continuously strengthened their research methodology and succeeded in graduating BRAC’s most entrepreneurial clients from group to individual loans.

UNCDF has been a key enabler in the market from the beginning, partnering closely with microfinance institutions (MFIs) like BRAC to pioneer individual micro, small and medium enterprise (MSME) loans throughout Myanmar. Beyond the Challenge Fund, UNCDF continues to support BRAC through technical assistance and product ideation workshops to help women MSMEs access the finance they need.

Overview of MSME Lending Market in Myanmar

While the uptake of formal credit in Myanmar has risen from 18 percent in 2013 to 26 percent in 2018, the MSME financing gap is almost US$ 14 billion, 21 percent of the country’s GDP. In 2017, only eight percent of the country’s MSMEs applied for a formal loan in the previous two years, with 26.5 percent of these indicating that they had problems getting a loan. The main reason for the low debt share of Myanmar enterprises could be attributed to liquidity constraints and financial access barriers.

One of the key barriers to credit is the need for collateral, preferably land and property, to pledge as security for credit. This is especially an issue for women entrepreneurs in Myanmar, as land and property deeds are usually registered under a male relative’s name. Furthermore, religious customary laws that govern matters of succession, inheritance, and marriage often do not provide women with equal access to or control over land and other forms of property. This means that their access to assets to use as collateral is more limited. Despite this, credit assessments rarely consider factors such as moveable assets, alternative credit records or bill paying histories, which would be favorable to women-owned or led businesses.

The rise in formal credit throughout Myanmar has therefore been driven by the increased borrowing from MFIs and cooperatives, who have stepped in to meet unsatisfied demand for credit, particularly in rural areas. The dominant model among MFIs in Myanmar is peer group lending with a savings component. The success of microcredit in providing access to capital without requiring physical collateral was originally attributed to this group loan model, where groups of people are jointly responsible for each other’s loans. While this creates a system of accountability among the borrowers, joint liability also penalizes good credit risk customers, hinders optimal utilization of borrowed funds by clients, and might even jeopardize repayment since the incentive of future credit is no longer present in the event that one member fails to pay. Moreover, as the financial diaries study demonstrated, the small loan sizes can lead to multiple borrowing from several MFIs resulting in complex repayment management and, in some cases, over indebtedness.

Today, as MFIs have grown in scale, they now have the resources to assess individual credit worthiness rather than rely on the peer enforcement of group lending. Yet, there is little evidence on the relative impacts of individual lending versus group lending on household consumption, income, and enterprise creation. A systematic understanding of the customers’ needs and preferences in relation to the loan products they take up has also been lacking.

Overview of BRAC’s What Women Want Project

The What Women Want Project (3W) aimed to help BRAC answer the following question: “What do our clients want - are group loans something they are happy with?” BRAC’s experience with MSME lending in Bangladesh proved the importance of doing financial diaries research to have a deeper understanding of the needs of their loan clients. Thus, with the help of the UNCDF Challenge Fund, BRAC partnered with L-IFT to do a detailed market research in Myanmar to see how loans could be better designed for their clients.

What do our clients want - are group loans something they are happy with?

The diaries approach is one where researchers made bi-weekly visits to selected respondents to ask questions about their financial lives. L-IFT and BRAC did the diaries research with 800 women, in which 80 percent were existing group loan clients of BRAC and 20 percent of Myanmar Finance International Limited (MFIL). Interviews took place in four different geographical areas spanning urban, peri-urban and rural areas. Two-thirds of the questionnaire focused on income, expenditure, loans and savings transactions of the past two weeks, while the remaining third touched on different topics like health during different interview cycles.

This approach aimed to gain deeper insight into how the interviewees accessed or used financial services and managed their money. The frequent and longitudinal nature of the diaries research also helped to capture the use of various formal and informal financial tools and the complex trends over time.

Over three million data points were collected through the financial diaries research. This wealth of data offers important insights into the financial habits and preferences of low-income households in Myanmar.

These findings contributed to the development of two gender-sensitive loan products:

  • Small Enterprise Productive (SEP) loan, launched in April 2018. Loans start at MMK 1.5 million (US$ 1,033) and go up to MMK ten million (US$ 6,886). The average loan size is around MMK three million (US$ 2,066).
  • Women Micro Enterprise (WME) loan, launched in September 2018. Loans start at MMK 500,000 (US$ 344) and go up to MMK three million (US$ 2,066). The average loan size is around MMK 900,000 (US$ 620).

Both loans have a repayment schedule of equal monthly tranches, increased loan sizes, and are individual loans instead of loans with group guarantee. These were indicated by the 3W respondents as important required improvements from previous loans. While group loans were a norm in Myanmar, one of the most striking findings from the diaries was that entrepreneurial people do not prefer group liability. Thus, BRAC decided to help suitable existing group loan clients graduate to individual loans through these products. The WME product are loans of similar size to what clients can access through group-lending, thus the key difference is that WME is an individual loan.

Besides the two new loan products, BRAC and L-IFT created an open data portal to share the findings from the diaries research with other organizations. With this initiative, they hope to encourage the creation of more women-centric loan products across the sector. Also, summary publications on the data obtained were produced and workshops were conducted to facilitate the use of this data. In May 2019, BRAC conducted a financial diaries knowledge sharing event to encourage use of the data portal for product development in organizations outside of BRAC and L-IFT.

Stories from the field: Meet Daw Yee Mon

Daw Yee Mon is a 54-year-old micro entrepreneur running a small garment facility. She is also one of the respondents under the financial diaries research as is Daw Sabel who was mentioned in the beginning of the case study

Daw Yee Mon's business sews hoods for a Korean garment factory located in Shwe Pyi Thar, earning a profit of seven to eight lakhs (US$ 483 to 553) per month. Since most of the raw materials are provided by the main factory, her largest expenditure is on the wages of her 15 employees, in which 12 work full-time.

Her first four years with BRAC was as a group loan member. In the last two years, she became a client of the WME loan. Daw Yee Mon expressed her satisfaction on the product.

I like the BRAC loan. It is convenient and I have no problems repaying my monthly installments.

She used the loan to invest in other entrepreneurial endeavors within her household to improve their economic livelihood. The loan has been used for her son’s grocery store and to maintain another property that she owns and rents out.

Stories from the field: Meet Daw Hnin Yu Htwe

Unlike the others, Daw Hnin Yu Htwe is relatively new to BRAC. The WME loan she took nine months ago is her very first loan. For the past 13 years, income from her small grocery store has been enough to support her 13-year-old daughter and she did not need a loan. However, with aspirations to grow her business, she decided to take an MMK 1.2 million (US$ 832) loan from BRAC.

I WANT TO EXPAND MY BUSINESS WHILE I AM STILL YOUNG. SO, WHEN MY FRIENDS TOLD ME ABOUT BRAC, I DECIDED TO APPLY FOR A LOAN.

With this, she now purchases rice, oil, prepaid mobile cards and other supplies in bulk directly from factories instead of from wholesalers. This has lowered her unit cost and increased her profits, which are being saved for a bigger shop in future.

The total number of loans disbursed have increased steadily, particularly for the smaller WME loans. Women remain the clear clientele for BRAC’s new loan products, and the repayment rate remained high throughout. This can be attributed to how this product is carefully designed to meet the needs and capacities of its clients. To date, over 14,000 SEP and WME loans combined have been taken, and are offered in over 50 BRAC branches across Myanmar.

With regards to the data portal, interviews by UNCDF reveal that other organizations have found it useful. The World Bank has tapped on this data to predict if their clients in the same geographical region can repay their financial product on time. WorldFish Myanmar, a research organization that works in the aquaculture sector, expressed that while they have yet to use the data in product development, the portal could be used to get insights on client behavior and link this to food intake, especially considering the use of BRAC loans.

What Women Want Implementation Learnings

UNCDF’s partnership with BRAC through the 3W project helped spearhead the graduation of MSME clients from group to individual loans in Myanmar. This approach has received support from BRAC’s leadership, where there are plans to mainstream this into their global operations. BRAC in Africa has begun to look at developing a similar product to the WME loan developed in Myanmar.

Within Myanmar, BRAC has also piloted new loan products, such as an agricultural loan. The organization’s achievements have attracted investments from foreign investors, including US$ five million from the US International Development Finance Corporation (DFC) and US$ 2.5 million from the Dutch entrepreneurial development bank (FMO).

The productive use of these loans have allowed businesses to invest in business growth via sales increase, or a decrease in costs. Also, this project shows that co-creating financial products helps strengthen the sustainability of the product, which can be seen from the good repayment rates of BRAC’s loan products. Beyond BRAC’s own business, the open data portal allows other organizations who lack the resources to conduct their own market research to tap on this wealth of data to craft more suitable gender-sensitive financial products. This could help to improve the financial service ecosystem for women in the long run. This must be complemented with the necessary data skills to analyze the data and translate them into product design.

Conducting the financial diaries research also presented several challenges. It was not always easy to recruit and retain researchers, and some respondents were not upfront about their indebtedness. To mitigate this, BRAC and L-IFT were committed to training the researchers properly, assure respondents that their data is confidential, and explain the benefits of answering truthfully. They also fine-tuned the questionnaire to more accurately determine the loan usage of respondents, such as by asking respondents about other respondents’ behavior. To attract and retain researchers, BRAC had increased their stipend and emphasized the skills training that comes with this position. Several researchers were also employed by BRAC and other MFIs after their involvement in the 3W project.

In 2020, UNCDF engaged BRAC in an institutional gender self-assessment, followed by gender smart product development and analytics workshops to help scale and refine the women-led enterprise loans. UNCDF continues to support BRAC in its efforts to graduate more women microentrepreneurs from group to individual loans.

To help BRAC better understand how to tailor customer journeys and further increase service uptake, UNCDF is currently analyzing supply-side transaction data of BRAC Myanmar’s 134,000 customers. A lean data survey is also planned for 2020 to better understand the customers’ profiles and wider impact of loan products on MSME owners in Myanmar. These analyses complement the ongoing gender-smart product ideation workshops to help BRAC better meet the needs of their women clients. Key insights from both the supply-side analysis and the lean data survey will be incorporated into this case study to facilitate knowledge sharing.

Financial access to enterprises needs to go beyond credit to include other tools like insurance. Depending on the regulatory environment, BRAC aims to incorporate insurance and digital financial services within their offerings. These will help them better prepare enterprises to weather financial shocks.

COVID-19 Update

MFIs are facing a cash flow crisis due to the pandemic – the multi-donor Livelihood and Food Security Fund (LIFT) has seen a US$ 115 million shortfall in liquidity among MFIs it worked with in April. Government orders to defer repayments and lend at lower interest rates have made it challenging for MFIs to maintain sufficient capital. Furthermore, mobility restrictions to contain the outbreak has further hindered repayment collection, since most MFIs do so through local agents. UNCDF will continue to work with FSPs, including MFIs, to support the lending needs of local businesses and the country’s economic recovery.

About the United Nations Capital Development Fund

The UN Capital Development Fund makes public and private finance work for the poor in the world’s 47 least developed countries (LDCs).

UNCDF offers “last mile” finance models that unlock public and private resources, especially at the domestic level, to reduce poverty and support local economic development.

UNCDF’s financing models work through three channels: (1) inclusive digital economies, which connects individuals, households, and small businesses with financial eco-systems that catalyze participation in the local economy, and provide tools to climb out of poverty and manage financial lives; (2) local development finance, which capacitates localities through fiscal decentralization, innovative municipal finance, and structured project finance to drive local economic expansion and sustainable development; and (3) investment finance, which provides catalytic financial structuring, de-risking, and capital deployment to drive SDG impact and domestic resource mobilization.

UNCDF’s Shaping Inclusive Finance Transformations (SHIFT) in ASEAN programme is supported by the Australian Government.

Disclaimer

The views expressed in this publication are those of the author(s) and do not necessarily represent the views of UNCDF, the United Nations or any of its affiliated organizations or its Member States.

Credits:

Created with an image by roman raizen - "sunrise at bagan"