Banking & Finance

Finance Ministry cuts Micro Finance Loan Interest Rates

Date: 11 June 2019; Type: Legal News; Source: Myanmar Times

A new directive from the Ministry of Planning and Finance (MOPF) has reduced interest rate for microfinance loans and compulsory saving. The new rates are to take effect at the beginning of this month but the announcement was released after four days of the effective date, causing microfinance institutions to be in a difficult position.

The Microfinance Business Supervisory Committee under the ministry issued Directive (1/2019) to revise interest rate for microfinance loans and saving on June 5.

The committee amended the interest rate where a loan of K100 monthly will be charged K2.30 and the yearly maximum interest rate will be 28 percent. The previous rate was for K100 monthly at K2.50 and the yearly maximum interest rate is at 30pc. In comparison, the directive has decreased 2pc of the yearly interest rate.

Furthermore, the new interest rate on compulsory saving will be for K100 monthly, it will be charged K1.20; while the annual minimum interest rate has been cut by 1pc to 14pc. The previous specification was for K100 monthly it will be K1.25 with the yearly minimum interest rate at 15pc.

Interest rate on voluntary saving remained the same. The directive designated that for K100 monthly,  the amount charged will be K0.80 and the yearly minimum interest rate will be 10pc.

Microfinance institutions have said that they are worried about the directive as they want to follow this directive and need a transitional period.

All the microfinance institutions have already drafted their business plan which include microfinance network expansion based on the previous interest rates. But, due to the new changes the institutions will again have to revise their plans in align with the new interest rates.

Some business management procedure cannot be carried out within a short period of time, said Daw Phyu Yamin Myat, the general secretary of Myanmar Microfinance Association (MMFA).

Because this change happened out of the blue with the directive being effective on June 1, the microfinance institutions are made to follow new directive. Yet, a minimum of three or four months are needed for the industry to systematically change, she continued.

MMFA stated that it will submit the matter to the Committee.

Although the new rates are looking positive for clients, some microfinance institutions operating in rural areas are facing difficulty, said Daw Seinn Nwe Oo, head of finance from Proximity Finance. These institutions are spending more expense to rural areas than their urban counterparts.

Myanmar citizens’ financial inclusion is 34pc for other formal (non-bank) and 25pc for banked in 2018, according to data from FinScope Myanmar 2018 by MOPF and other organisations.

The data revealed that banking is up by 8pc, organic growth mainly driven by payments and uptake of other formal non-bank products has doubled largely driven by credit from microfinance institutions and cooperatives between 2013 and 2018.

In borrowing and credit, it is at 16pc for other formal (non-bank) and 14pc for banked in 2018. In 2013, 7pc for other formal (non-bank) and 14pc for banked.

Currently, the finance ministry in April 2019 has allowed microfinance licence to 3 INGOs, 16 NGOs, 47 foreign financial institutions, 110 local, and 5 partnership - a total of 181 microfinance providers.

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