Microfinance in Myanmar: The Impacts of Conflict on Livelihoods and Debt Repayment 2023 - Myanmar (2024)

EXECUTIVE SUMMARY

Myanmar’s current political and economic environment presents major challenges for local businesses, particularly those in need of lending. Reduced GDP growth, rising inflation, and currency fluctuations have made operating a business more difficult throughout the country. Microenterprises and households that have been traditionally under-served by conventional financial institutions will today face even greater difficulty accessing the resources they need to survive or grow. At the same time, ongoing armed conflict and the lingering economic effects of the COVID-19 pandemic have made it harder for microfinance institutions to serve businesses and households. Throughout Myanmar, these complex and interlinked factors continue to impact borrowers and their businesses in different ways.

This study aimed to better understand the experiences and challenges of borrowers and their businesses or livelihood activity by surveying 2372 Vision Fund Myanmar clients about their borrowing activity, business performance, and outlook. The study included separate analyses of farmers and non-farmers as well as borrowers in areas with varying degrees of conflict-exposure.

Key findings of the study include the following:

• One-third of MFI clients had borrowed from multiple sources. Farmers were more likely than non-farmers to have debt from multiple sources. Forty-three percent of farmers took on multiple loans compared to 29% of non-farmers.

• Non-farmers were more likely than farmers to take on informal debt. Among MFI clients with multiple loans, 62% percent of non-farmers borrowed from informal lenders compared to just 40% of farmers.

• Informal borrowing was more common in high-conflict townships than elsewhere. Among borrowers who took on additional debt, 62% of borrowers in high-conflict townships looked to informal lenders, compared to just 50% of borrowers in other townships.

• Borrowers with informal debt were threetimes as likely as others to fall behind on debt payments. Although only 16% of borrowers had informal debt, these borrowers were much more likely to fall behind on payments.

• Borrowers in areas with more conflict-exposure were 80% more likely to fall behind on interest payments. Twenty-four percent of borrowers in high-conflict townships had pastdue principle compared to 16% of borrowers elsewhere.

• Borrowers in areas with more conflict-exposure were less likely to have savings. Borrowers in high-conflict townships were less likely to use mobile apps to hold savings.

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• Eighty-percent of businesses said their business was profitable, but profits were slim.
  Among businesses that were profitable, 92% said profits were “small” and just 8% said profits were “large.” Non-farmers reported thinner profit margins than farmers.

• Many businesses still hoped to expand, and few expected to have to close their business in the near future.Just 2% of borrowers planned to discontinue or reduce the size of their business in the next two years; by contrast, half of all businesses hoped to expand their business.

• Borrowers in areas with more conflict-exposure were 40% less likely to expand their business. Just 31% of borrowers in high-conflict townships said they planned to expand their business in the next two years, compared to 51% of borrowers elsewhere.

• Three-quarters of borrowers said supply and demand were major challenges for their business. Challenges related to supply and demand were more than twice as common as challenges related to cash, credit, labor recruitment, transportation, or security.

• Farmers and non-farmers adapted differently to the challenges they faced. Farmers more often adapted to challenges by reducing input costs, while non-farmers more often adapted by reducing the price of their goods or services.

• Challenges related to security and transportation were far more common in areas with more conflict-exposure. In high-conflict townships 39-47% of borrowers with business challenges said this included security and transportation problems, compared to just 10-14% of borrowers elsewhere.

The above findings point to several possible recommendations for lenders, development partners, and humanitarian organizations:

• Borrowers in areas with more conflict-exposure likely require additional support and services. More borrowers in areas with high conflict-exposure struggle with debt repayment and business operations. Although these businesses may be harder-to-reach, their needs are often greater. Borrowers in these areas may require more resources to achieve similar outcomes to those elsewhere.

• Borrowers in areas with more conflict-exposure require lending and savings solutions tailored to their unique circ*mstances. Conflict-affected businesses face different challenges and exhibit different business and financial behavior, suggesting the need for uniquely-tailored solutions. A one-size-fits-all approach to lending and/or aid may not have the same impact on borrowers in different areas.

• Alternatives to mobile-based financial solutions may be necesary. Fewer businesses in areas with more conflict-exposure used mobile platforms for saving. Although the reasons for this were unclear, it may suggest the need for a variety of savings solutions in order to service businesses and households in different settings.

• Non-farmers and borrowers in areas with more conflict-exposure may need more avenues to access formal lending. The prevalence of informal borrowing in high-conflict areas and among non-farmers suggests that barriers to formal lending for these groups may need special attention.

• Loans intended specifically for business growth may be effective if well-targeted. While businesses in the most conflict-affected areas may be unlikely to plan for expansion, many other businesses with conflict-exposure may nonetheless seek to grow and therefore benefit from such loans.

• In-kind support to farmers in the form of agricultural inputs may help them address the financial challenges they face. Farmers reported adapting to challenges by reducing inputs, which hurts yields in the long-run. Lending to these businesses may be most effective if paired with additional aid which targets such adaptation measures.