IFC injects $13.5 million into local microfinance institutions

The International Finance Corporation, (IFC), a member of the World Bank Group, has provided a financing package of $13.5 million to various microfinance institutions in Myanmar to support the country’s critical credit demands.

Improving access to microfinance will help unlock the great potential of the rural sector and small enterprises, according to the IFC. Photo - Shutterstock

The institution has decided to take a $1.5 million stake in Maha Agriculture Public Company (Maha MFI) and extend $6 million in loans each to Fullerton Finance (Myanmar) Company Limited (Fullerton Myanmar) and Early Dawn Microfinance Company Limited (DAWN) upon the approval of relevant legal authorities.

The deals reflect the IFC’s priority on promoting rural growth.

In its press release, the IFC stated that it is positioning the underfunded microfinance sector to better engage the largely untapped rural, low-income market segment.

“The demand for microcredit, a vital source of finance for small enterprises and poor households underserved by mainstream banks’ collateral requirements, is estimated to exceed supply three times,” the press release noted. 

“Improving access to microfinance will help unlock the great potential of the rural sector and small enterprises by providing much needed financing to increase productivity and create jobs, incomes and prosperity for a significant number of workers in this country,” Vikram Kumar, IFC country manager, said.

The IFC added that its investment will allow Maha MFI, a subsidiary of the domestic agricultural inputs producer Myanma Awba Group to penetrate in the rural market. This is because current lending is overwhelmingly focused on urban areas, despite rural regions being home to 70 percent of the country’s population. The lender takes aim at the underserved agricultural sector through tailored-made products spearheaded by digital technology.

“With this valued IFC support, we will address the critical need for agri-lending products crafted to accommodate important agriculture-specific aspects, such as crops and seasons, for the sector to reach its full potential,” said Rajesh Malhotra, Awba Group chief financial officer.

For DAWN and Fullerton Myanmar, with the IFC already holding a 15 percent equity stake in the latter, the financing will support lending growth and financial inclusion, according to the press release.

The IFC also added that the financial support will widen access to lending for those who are marginalised and who are pushed towards informal lending. This package will help bring rural businesses into the formal market.

“The increased collaboration with IFC, already our equity partner, will enable us to expand our presence in Myanmar in order to enrich the lives and enable the success of the communities we serve,” Leslie Lee, Fullerton Myanmar general manager, said.

“The funds to be received from the IFC will help DAWN to serve more urban and rural clients in more regions in Myanmar, and we also expect to continue working very closely with the IFC to develop financial inclusion and small businesses in Myanmar,” said Gonzalo González A, DAWN chief executive officer.

The IFC emphasised that the funding fits with the organisation’s priority in Myanmar – to develop a sustainable, robust and responsible commercial microfinance sector which serves to work for the poor in both urban and rural regions.

“To achieve this, the IFC works at sector level to transfer global good practices and at institution level via development of promising microfinance institutions. Such efforts have delivered results, with the IFC’s investments and advisory work since 2014 having resulted in over one million microfinance institution clients served,” the press release stated.

The organisation also highlighted the importance of setting up a central credit bureau in order to mitigate lending risks. The press release said that the bureau is expected to be launched later this year.

“Realisation of the bureau took a significant step forward in March with the issuance of a key IFC-supported credit reporting regulation, a milestone in the country’s financial sector reform process.

As a next step, IFC will introduce responsible business practices to microfinance institutions and promote financial-consumer protection through knowledge transfer activities with regulators and industry players,” the press release said.