Myanmar and financial inclusion: A leapfrog in development

©Thomas Muncke/DPA/DPA Picture Alliance/AFP

U Chit Po is 49 years old and runs a grocery store in Myanmar. He is responsible for his wife and two children. He recently had a major health scare and consequently would like to retire soon. U Chit Po has no medical coverage, as there is no licence for the health insurance market in Myanmar. His income consists of profit from his small business and interest on loans to others, which he lends at 20% interest per day. He has never saved in a formal banking institution, but his knowledge about the value and complexities of saving are highly sophisticated. He feels that banks have so much red tape, especially for provisions which he might need to access at short notice, and the interest offered by banks on savings is so little that it is not worth the hassle.

Like U Chit Po, most adults in Myanmar do not use formal financial services. More than half of all credit in the country is sourced informally, through people like U Chit Po who on-lend their savings as a way of generating additional income. While such local intermediation plays an important role in the local economy, from a public policy perspective it means that such funds are not available for national investment.

For people who do use formal financial services, it is common for such usage to be limited to one service–a phenomenon known as being thinly served. Some 30% of the total adult population have access to a regulated financial service from a regulated institution, but only 6% have access to more than one (a combination of credit, savings, insurance and payments); this is higher for urban adults than rural ones.

The development of the rural financial system is particularly critical. Of all the segments of Myanmar’s economy, the rural sector is the most underserved by the formal financial system: only 2.5% of all loans go to this sector, even though it represents 30% of GDP and two-thirds of employment. Improving access to finance in rural areas could catalyse a process of agricultural modernisation and the creation of non-farm jobs, which would be critical for the future.

Thinly served populations result in adults using “inappropriate” financial services to meet a particular financial need. Like U Chit Po, 31% of the adult population in Myanmar experienced illness within their household or family that resulted in medical expenses. However, in the absence of health insurance, 47% of adults reported using credit, 27% sold assets or reduced expenditure, 22% used their savings, and 4% did nothing. In all these responses, adults are forced to rely on wealth-depreciating mechanisms, leaving them more vulnerable to shocks in the future and undermining the productive allocation of resources.

The UNCDF’s Making Access Possible (MAP) programme unpacks the realities of adults like U Chit Po across various economic groups based on their income profile to understand the needs of different segments of the population and to position the supply-side response within the current contextual and market challenges. These include a heavy reliance on paper-based banking systems, a rapidly changing political economy, and a modernising financial sector that will require new skills and approaches to meet needs on the ground.

MAP targets low-income consumers, as well as small and micro businesses, and hence its application in Myanmar is supporting the government’s objectives to improve access to financial services, reduce poverty, and catalyse jobs and economic activity.

To achieve this, UNCDF, in partnership with the Ministry of Finance of Myanmar, developed a roadmap for financial inclusion. By analysing the various options available, timelines and resources required, it will assist the ministry in developing policy and setting out its priorities for financial inclusion in the short, medium and long terms, and in attracting development partners to support specific areas of financial or other need.

The roadmap was presented at the Association of Southeast Asian Nations (ASEAN) Financial Inclusion Conference in Yangon in October 2014, which concluded with the Yangon Outcomes for Financial Inclusion, a set of recommendations to accelerate financial inclusion in the ASEAN region.

The Yangon conference was part of UNCDF’s programme Shaping Inclusive Finance Transformations (SHIFT), which aims to double financial inclusion in the ASEAN region by 2020.

With the recent changes in government and new investor interest, Myanmar is poised for growth. In its Economic Outlook for Southeast Asia, China and India 2015, the OECD Development Centre forecasts that Myanmar’s economy will grow by nearly 7.8% over the next five years. This has the potential to move millions of people out of poverty. There is growing evidence that financial inclusion can play a critical role in contributing to equitable growth policies that reduce poverty and inequality.

Given the current level of development of the financial sector in Myanmar, much work needs to be done to further expand access and, importantly, to improve the quality and depth of services offered to those already financially included. The roadmap will provide a structured approach so that the benefit of economic growth is shared across the poor and marginalised groups.

References

ASEAN Financial Inclusion Conference, http://myanmar2014afic.wix.com/home.

OECD (2015), Economic Outlook for Southeast Asia, China and India 2015: Strengthening Institutional Capacity, OECD Publishing.

OECD (2015), Multi-dimensional Review of Myanmar, Volume 2, OECD Publishing.

United Nations Capital Development Fund, www.uncdf.org

Visit www.oecd.org/dev/

©OECD Observer Special offprint, July 2015

More:

Myanmar invests in a a new future

www.oecd.org/countries/myanmar




Economic data

GDP growth: +0.6% Q3 2017 year-on-year
Consumer price inflation: 2.3% Sept 2017 annual
Trade: +4.3% exp, +4.3% imp, Q3 2017
Unemployment: 5.7% Sept 2017
Last update: 14 Nov 2017

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly


Online edition
Previous editions

Don't miss

  • Rousseau
  • Do you trust your government? The OECD’s How's life 2017 report finds that only 38% of people in OECD countries trust their government. How can we improve our old "Social contract?" Read more.
  • Papers show “past coming back to haunt us”: OECD Secretary-General Angel Gurria tells Sky News that the so-called "Paradise Papers" show a past coming back to haunt us, but one which is now being dismantled. Please watch the video.
  • The annual OECD Eurasia Week takes place in Almaty, Kazakhstan 23-25 October. Writing in The Astana Times, OECD Secretary-General Angel Gurría urges Eurasia countries to stay the course on openness and international integration, which has brought prosperity but also disillusionment, notably regarding inequality. The OECD is working with this key region, and Mr Gurría urges Eurasia to focus on human capital and innovation to enhance productivity and people’s well-being. Read more.
  • When someone asks me to describe an ideal girl, in my head, she is a person who is physically and mentally independent, brave to speak her mind, treated with respect just like she treats others, and inspiring to herself and others. But I know that the reality is still so much different. By Alda, 18, on International Day of the Girl. Read more.
  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Read some of the insightful remarks made at OECD Forum 2017, held on 6-7 June. OECD Forum kick-started events with a focus on inclusive growth, digitalisation, and trust, under the overall theme of Bridging Divides.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • How do the largest community of British expats living in Spain feel about Brexit? Britons living in Orihuela Costa, Alicante give their views.
  • Brexit is taking up Europe's energy and focus, according to OECD Secretary-General Angel Gurría. Watch video.
  • OECD Chief Economist Catherine Mann and former Bank of England Governor Mervyn King discuss the economic merits of a US border adjustment tax and the outlook for US economic growth.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2017