Borrowed time: Planned credit bureau to boost the borrowing capacity of both individuals and businesses

Bank lending in Myanmar has soared since 2011, as the country’s democratic transition and economic liberalisation kick-started business and investment activities across multiple sectors. However, low credit access remains one of the most serious challenges facing businesses in the country. Limited availability of critical business and consumer data, coupled with the country’s lack of a credit bureau, has significantly dampened lending, and, while microfinance institutions (MFIs) have made major recent inroads in expanding credit access, many low-income citizens have seen debt burdens rise to unsustainable levels.

However, with the May 2018 Central Bank of Myanmar (CBM) approval of a licence for the country’s first ever credit bureau this is set to change. Developed in collaboration with the International Finance Corporation (IFC) and other international partners, the new body will play a critical role in supporting banking sector growth and boosting credit access – although it could still be several years before the bureau has collected enough data to become fully-operational.

Inclusion & Access

Several measures have been undertaken to boost credit access in Myanmar since 2013, when the country published its first Myanmar Financial Inclusion Roadmap, running from 2014 to 2020. The plan set targets of boosting financial inclusion – defined as the percentage of adults having access to at least one formal financial product – from 30% in 2013 to 40% in 2020. (https://www.stgeorge-inn.com/) In 2018 a UN-backed survey found that the country had already exceeded this aim, with 48% of the population having attained the standard, due to rapid mobile penetration.

However, credit access has not recorded the same dramatic improvement. Indeed, much of the growth in inclusion has been in mobile money transfer services. Although the sector’s total loan portfolio has expanded rapidly from MMK3.17trn ($2.2bn) in FY 2011/12 to MMK15.15trn ($10.7bn) in FY 2015/16, consumer and small business lending remain low. In a World Bank survey of 600 businesses, carried out between October 2016 and April 2017, credit access was the most commonly cited challenge facing companies in Myanmar.

This was further supported by the results of the most recent OBG Business Barometer from Myanmar in October 2018, in which 83% of CEOs described access to credit as “difficult” or “very difficult”.

Formal Sector Challenges

Lack of credit bureau coverage and the resulting limited and inaccurate availability of data are major challenges, as they limit knowledge of borrowers’ creditworthiness, increase risk and impede lending.

The CBM reported that the banking sector’s non-performing loans (NPL) ratio doubled to reach approximately 3.6% in 2016, with Yangon-based FMR Research & Advisory noting that most of the country’s lenders recorded NPL ratios in the mid-single digits in late 2017. However, the CBM recently ended the practice of rolling over loans accessed via account overdrafts with FMR Research & Advisory reporting in April 2018 that “the true extent of NPLs in the banking sector has yet to become clear, but some senior bankers estimate that over a third of all loans across the industry are likely to be classed as non-performing”, under new regulations defining unpaid overdrafts as NPLs.

Other challenges include the CBM policy of capping interest rates at 13% – meaning banks cannot charge more for higher risks and therefore often choose not to lend – as well as stringent collateral requirements, which often include immovable assets such as property. Many low- and middle-income citizens and small businesses cannot meet these requirements. Foreign banks also remain constrained by regulations excluding them from important business activities in the country, which has been identified as one of the most significant challenges facing the sector overall.

Recent Efforts

Several measures have been undertaken to improve and expand credit access in recent years. In December 2016, for example, the World Bank announced it had approved a $100m credit facility to support improved financial services access for families and small and medium-sized enterprises (SMEs). Launched under the auspices of the Financial Sector Development Project, the lending programme will source credit from the International Development Association, with loans offered under favourable terms including a 38-year maturity period, six-year grace period and 0% interest rate. MFIs have also made notable inroads, particularly in rural areas, after the Myanma Microfinance Supervisory Institute was transformed into the Financial Regulatory Department (FRD) in September 2014. The FRD reported that MFIs had loaned more than MMK3.9trn ($2.8bn) to 3m smallscale borrowers as of February 2018.


However, as with the formal banking sector, microfinance lenders are facing notable challenges in expanding their loan portfolios.

In November 2018 local media reported that many MFI borrowers are facing an unsustainable debt burden due to heavy concentration of multiple lenders in the same area. U Myint Swe, managing director of Microfinance Delta International, told local media that it is common for borrowers to access finance from multiple MFIs, particularly in Yangon, Mandalay, Bago and Ayeyarwady. Some borrow from multiple institutions, which are unaware of other loans taken out by the borrower, only to find themselves unable to repay their debts.

Another challenge is the tendency of some MFIs to lend beyond the borrower’s capacity to repay in order to gain better interest returns, with Paul Luchtenburg, country coordinator for the UN Capital Development Fund, calling on MFIs to improve consumer protection in November 2018, potentially through the establishment of a data collection system similar to a credit bureau.

The Myanmar Microfinance Association reported that it had made a request to the Ministry of Planning and Finance to establish such a system, although no timeline for its creation has been announced.

Long Awaited

A credit bureau for the formal banking sector is a priority, with the government and various development partners making steady progress towards its establishment. In June 2016 the German Corporation for International Cooperation – a German state-owned enterprise aimed at supporting sustainable development – reported that the government planned to establish the Myanmar Credit Bureau (MMCB) by the end of the year, with $5m of capitalisation expected through the issuance of 5m ordinary shares. The MMCB was planned to be established as a joint venture between Myanmar’s MB Investment, a subsidiary of the Myanmar Banking Association, and Singapore’s Asian Credit Bureau Holdings, with the bodies respectively holding 60% and 40% shares. Plans for the MMCB stalled in the years since, as stakeholders waited for the government to promulgate the Financial Institutions Law and draft regulations for the new bureau.

However, a number of recent CBM announcements indicate the country’s first credit bureau could be set for near-term commencement of operations.

In May 2017, for example, the IFC stated that it had successfully supported the CBM in developing the country’s first ever regulations for credit reporting, with the bank also moving to issue a regulation providing the basis for the establishment and operations of credit reporting companies, such as credit bureaus. In May 2018 it was announced that the licence for the MMCB had been approved and that the new bureau was expected to begin operations within one year.

The bureau, which has been under development since 2014, will face notable challenges, including limited access to data from individuals and companies, as there is no current practice of providing this information in Myanmar. Some also fear months or possibly years will need to be spent collecting the data necessary to become fully-functional and effective. However, once in place, the long-awaited entity will go far in moving the banking sector forward. “The newly established credit bureau will benefit both SME and personal accounts by making every transaction faster and easier while ensuring that clients are not over-indebting themselves,” U Thein Zaw Tun, managing director of CB Bank, told OBG.