Prateek Shrivastava

Jason Loughnane

Supply chain finance can enable just-in-time credit, benefitting merchants, financial service providers, and more

Article

<p class="graf graf--p">In emerging markets, small merchants often struggle to keep their shelves stocked. Since many of these merchants aren’t being served well by the traditional banking sector, they can’t use credit to stock up on enough inventory to meet demand. The challenges small businesses face are a massive global problem — nearly 300 million micro and small enterprises worldwide face a <a class="markup--anchor markup--p-anchor" href="http://www.worldbank.org/en/topic/smefinance" target="_blank" rel="noopener noreferrer">combined $5.2 trillion credit gap</a>. We recently explored the idea of <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/small-businesses-play-a-huge-role-in-communities-but-they-need-help-31665eac1ef1" target="_blank" rel="noopener noreferrer">supply chain finance (SCF) as a tool to drive financial inclusion</a> for these businesses.</p>
<p class="graf graf--p">Emerging technology platforms that allow substantial data collection in the supply chain make supply chain finance solutions possible. This data can enable small merchants to manage their cash flows and business inventory better, and it can unlock funding for them, even if they don’t have a robust formal financial history. Just-in-time credit, which is a line of credit offered to small merchants when they place orders with their suppliers, can have benefits throughout the supply chain. For example, Heineken Mexico distributes half of its volume through small merchants across the country. They currently have financing agreements with their larger wholesalers, such as Walmart, which allow for payment to be received in 60–90 days from delivery, whereas most of their small merchants are obliged to pay the same day in cash. If Heineken could partner with a financial service provider to offer just-in-time finance to these small merchants, they might be able to ensure better sales as they would no longer be competing for whatever cash the shop has on hand that day.</p>
<p id="e678" class="graf graf--p graf-after--p">Supply chain finance involving the last mile distributor and a small merchant is classified as downstream finance. The graphic below illustrates how downstream supply chain finance works. Since many small merchants lack a formal credit profile, a financial service provider reviews the merchant’s supply chain transactions, such as order and payment history, and then agrees to pay the supplier on behalf of the merchant. The merchant will repay the provider the invoice amount and any finance charges over the term per the agreement. In this scenario, the financial institution mitigates risk by ensuring that the funds are used to purchase the specific inventory items.</p>
<p class="graf graf--p graf-after--p"><img class="progressiveMedia-image js-progressiveMedia-image" src="https://cdn-images-1.medium.com/max/1440/1*6lVnLOKEEQR84PkaFb0h4w.png" /></p>
<p id="3087" class="graf graf--p graf-after--figure">Increasing penetration of smartphones and strong data networks in emerging markets make it easier than ever for businesses to place orders, access financial services, and make payments. Improvements in technology and connectivity also mean that the downstream supply chain finance model is now within reach, even for small merchants. While financial service providers have a valuable opportunity to serve this market, their model needs to be data-enabled and technology-driven to scale sufficiently and make a meaningful dent in the massive funding gap for small businesses. An enabling ecosystem for developing downstream supply chain finance products should include:</p>

<ul class="postList">
 	<li class="graf graf--li">Digital payments from merchant to supplier for inventory delivered.</li>
 	<li class="graf graf--li">Digital invoice management by suppliers and merchants.</li>
 	<li class="graf graf--li">Digital inventory management systems, allowing transparency of downstream inventory levels to the supplier.</li>
 	<li class="graf graf--li">The ability for the supplier or merchant to quickly and easily apply for credit against its receivables or invoices due.</li>
</ul>
<p class="graf graf--p">It’s also critical that the solutions are developed with the right actors in mind. Based on the size of the suppliers, distributors, and merchants, different types of financial service providers may be involved. Microfinance entities would be most familiar with micro and small merchants, whereas larger commercial banks will have relationships with large fast-moving consumer goods (FMCG) suppliers and distributors. The graphic below lists the ecosystem actors necessary for downstream supply chain finance to work and depicts the flows of goods and financing across the supply chain.</p>
<p id="28c0" class="graf graf--p graf-after--p">Each actor will have their role to play and accrue benefits from a data-driven, micro-enterprise supply chain finance model for financial inclusion.</p>
<p class="graf graf--p graf-after--p"><img class="progressiveMedia-image js-progressiveMedia-image" src="https://cdn-images-1.medium.com/max/1440/1*DKsH9TiwvSsuNbnjoTOiUw.png" /></p>
<p id="44f0" class="graf graf--p graf-after--figure">Just-in-time financing could help small merchants manage their businesses better and improve their lives. Smart solutions will take into account the interests of the involved stakeholders so that the benefits outweigh the risks for all. Our next piece in this supply chain finance series will dive deeper into the business case for an integrated solution that delivers value to each of these actors.</p>

How supply chain data can unlock credit for small businesses

<div class="byline"><em class="markup--em markup--p-em">Recently, we traveled to Myanmar to see for ourselves how the arrival of technology is changing the long-isolated country. We followed Aye Aye Myint, a loan officer at our partner DAWN Microfinance, as she made her rounds checking in with clients. Watch the video above to see how her work is already being transformed by new systems in place in her office, and then read on for more from our Yangon-based colleague Jason Loughnane about the next steps in bringing the benefits of digital finance to the women entrepreneurs DAWN serves.</em></div>
<div class="byline">
<p id="67d5" class="graf graf--p graf-after--p">The future of finance in Myanmar is digital. The population has rapidly adopted smartphones, while the economy continues to operate almost entirely in cash. The mobile money ecosystem, while still nascent, is attracting attention from investors and journalists alike. Accion believes that mobile money will enable microfinance providers to substantially increase financial inclusion in Myanmar, and we will continue supporting our partner, DAWN Microfinance, to realize the substantial benefits of this digital transformation.</p>
<p id="68d0" class="graf graf--p graf-after--p"><strong class="markup--strong markup--p-strong">DAWN’s Founding and Accion’s Involvement to Date</strong></p>
<p id="f546" class="graf graf--p graf-after--p"><a class="markup--anchor markup--p-anchor" href="https://www.facebook.com/DAWNMicrofinance/" target="_blank" rel="nofollow noopener noreferrer">DAWN Microfinance</a> was founded by <a class="markup--anchor markup--p-anchor" href="https://myanmar.savethechildren.net/what-we-do/livelihoods" target="_blank" rel="nofollow noopener noreferrer">Save the Children Myanmar</a> in 2002 to provide loans to groups of pregnant women, enabling them to afford prenatal care. Over the next 12 years, DAWN grew to become the third-largest microfinance institution in Myanmar, one with a strong reputation for client service and social mission, providing group-guaranteed loans to low-income women running small businesses from their homes.</p>
<p id="44c7" class="graf graf--p graf-after--p">When Accion began working with DAWN in 2014, the institution served just 25,000 clients, had a loan portfolio of approximately $2 million, and employed 60 loan officers across 11 branches. The loan operations process was highly time-intensive: loan officers visited groups of clients each morning to collect weekly loan installments, then spent their afternoons at the branch completing paperwork and manually preparing their “collection sheets” for the next day. New client training, marketing, assessments, and appraisals were reserved for Fridays, when no loan collections or disbursements were scheduled.</p>
<p id="9b2f" class="graf graf--p graf-after--figure">As an investor and partner, Accion worked to overhaul DAWN’s operational efficiency by implementing a basic core banking system that generates daily collection sheets for each loan officer. After twelve months of process design, piloting, training, and implementation, DAWN successfully completed the transition to a computerized portfolio management system, helping to improve loan officer caseloads by more than 30%. In the nearly three years since Accion partnered with DAWN, the company has grown to serve over 94,000 clients with a loan portfolio of almost $15 million, and employs over 200 loan officers across 27 branches.</p>
<p id="e7de" class="graf graf--p graf-after--p">DAWN’s next ambitious project is to use digital financial services to eliminate cash from its lending operations. Loan officers continue to spend at least four hours per day collecting cash installments from borrowers, counting the cash multiple times, and preparing cash disbursements for new clients. DAWN is working with agent networks and mobile money companies to design and test solutions that would reduce time spent managing cash. If successful, this project would enable loan officers to spend considerably more time recruiting and training new clients, conducting more thorough assessments of client businesses, providing financial literacy training to existing borrowers, and working with clients who are struggling to repay their existing loans.</p>
<p id="f6be" class="graf graf--p graf-after--p"><strong class="markup--strong markup--p-strong">Smartphones and Mobile Money</strong></p>
<p id="2d8d" class="graf graf--p graf-after--p">According to the Myanmar Telecommunications Ministry, <a class="markup--anchor markup--p-anchor" href="http://www.mmtimes.com/index.php/business/technology/21466-ministry-puts-mobile-penetration-at-90-percent.html" target="_blank" rel="nofollow noopener noreferrer">over 90 percent of Myanmar adults</a> had a cell phone by the end of 2016 (up from just 7 percent in 2012), with smartphone penetration approaching <a class="markup--anchor markup--p-anchor" href="https://digitalinasia.com/2017/01/09/myanmar-33-million-mobile-users-smartphone-usage-80/" target="_blank" rel="nofollow noopener noreferrer">80 percent of all mobile phones</a>. Meanwhile, according to <a class="markup--anchor markup--p-anchor" href="http://www.lift-fund.org/making-access-possible-map-myanmar-demand-supply-policy-and-regulatory" target="_blank" rel="nofollow noopener noreferrer">UNCDF’s 2013 Making Access Possible Report</a>, only 6 percent of adults use a formal financial institution, and only 30 percent have access to a regulated financial service provider, such as a microfinance institution or credit union. Unregulated moneylenders and pawn shops are the most popular way for poorer Myanmar citizens to access credit. A <a class="markup--anchor markup--p-anchor" href="https://myanmar.savethechildren.net/sites/myanmar.savethechildren.net/files/library/Lives%20on%20Loan_3.pdf" target="_blank" rel="nofollow noopener noreferrer">2015 Save the Children survey</a> of three low-income areas in Yangon found that 85 percent of the population relied on short-term loans, and half of these loans were for food and basic needs. These unregulated sources of credit come at a steep cost — <a class="markup--anchor markup--p-anchor" href="http://www.mmtimes.com/index.php/opinion/19326-maturing-microfinance-in-myanmar.html" target="_blank" rel="nofollow noopener noreferrer">10–20 percent per month for an unsecured loan</a> and 3–5 percent per month if the borrower offers collateral, typically a small piece of jewelry, but pawn shops will also accept the family’s cooking pans. Digital loans, disbursed to a smartphone, can give low-income clients access to credit in cases where they would otherwise be forced to rely on a high-interest moneylender.</p>
<p id="fb58" class="graf graf--p graf-after--p">Simultaneously, Accion is helping DAWN design loan products to reach higher-income microentrepreneurs whose businesses are too large to benefit from a group-guaranteed microloan, but not large enough to qualify for a loan from a commercial bank. Using tested cash-flow analysis tools developed and implemented by Accion’s partner institutions around the world, DAWN will be able to offer uncollateralized loans to higher-value borrowers, enabling them to hire more staff, grow their businesses, and reach more customers. With the right partnership in place, these borrowers may be able to depend entirely on mobile money to transact with DAWN, freeing them to focus on managing their business instead of visiting their bank branch.</p>
<p id="a1a7" class="graf graf--p graf-after--p">The confluence of high smartphone penetration with limited access to financial services presents an ideal proving ground for microfinance institutions and mobile money providers to offer digital financial services to Myanmar’s poor and underserved. In partnership with Myanmar’s emerging mobile money providers, Accion and DAWN Microfinance are working to capitalize on this unique moment in Myanmar’s economic development to ensure that financial services become as ubiquitous as the smartphone.</p>


[caption id="attachment_7848" align="aligncenter" width="1024"]<img class="wp-image-7848 size-large" src="https://content.accion.org/wp-content/uploads/2017/07/Copy-of-_42A5137-1024x681.jpg" alt="The Future of Finance in Myanmar is Digital" width="1024" height="681" /> DAWN loan officer Aye Aye Myint meets with beverage stand operator Daw Yin Yin Htwe[/caption]
<p id="63e5" class="graf graf--p graf-after--figure"><em class="markup--em markup--p-em">We thank FMO, MetLife Foundation, and the Keith V. Kiernan Foundation for their generous support for our work in Myanmar.</em></p>

</div>

The future of finance in Myanmar is digital

<p id="ab9c" class="graf graf--p graf-after--figure">During a recent work training in Bogota, Colombia, I had the opportunity to visit one of the country’s leading microfinance institutions (MFIs), <a class="markup--anchor markup--p-anchor" href="https://www.bancompartir.co/#!inicio" target="_blank" rel="nofollow noopener noreferrer">Bancompartir</a>. It originated literally from the ashes of a natural disaster — the eruption of the Nevado del Ruiz volcano in November 1985, which killed over 25,000 people. A small organization, <strong class="markup--strong markup--p-strong"><em class="markup--em markup--p-em">Actuar</em></strong>, was created to form solidarity groups for collective savings and lending to help the homeless and suffering survivors of the volcano’s wrath.</p>
<p id="e1b0" class="graf graf--p graf-after--p">In 1988, Accion partnered with Actuar to found a non-profit microcredit foundation. Over the following almost-30 years and several name changes, the non-profit became a regulated MFI and then received a commercial banking license. Today, Bancompartir serves over 400,000 clients across 93 nationwide branches, covering 60% of all microfinance borrowers in Colombia.</p>
<p id="b3a3" class="graf graf--p graf-after--p">Bancompartir has adapted to changes in Colombia’s microfinance environment more quickly and effectively than its peers, consistently driving innovations across Colombia’s microfinance and banking sectors. For example, Bancompartir was among the first MFIs to offer individual loans, having realized that in a country where social trust had been shredded by an ongoing <a class="markup--anchor markup--p-anchor" href="https://www.cfr.org/backgrounder/colombias-civil-conflict" target="_blank" rel="nofollow noopener noreferrer">narcotrafficking-fueled civil war</a>, solidarity-group lending could not be sustainable.</p>
<p id="750b" class="graf graf--p graf-after--p">During our recent visit, my colleagues and I heard about Bancompartir’s strong commitment to financial education and respect for their clients. As with all MFIs, nearly all of its clients are financially vulnerable, and many experience shocks that affect their ability to keep up with payments. But its collections agents are trained not to harass delinquent borrowers, but rather to encourage them to visit their loan officer to renegotiate their terms. A prominently displayed poster reminds the call center that “Recoveries happen with a handshake, not with a net.”</p>
<p id="75e2" class="graf graf--p graf-after--p">When microfinance institutions transform from NGOs into regulated commercial banks, “<a class="markup--anchor markup--p-anchor" href="https://www.womensworldbanking.org/wp-content/uploads/imported/pdf/english/stemming_the_tide_of_mission_drift_microfinance_transformations_and_the_double_bottom_line.pdf" target="_blank" rel="nofollow noopener noreferrer">mission drift</a>” is a frequent result, as the added pressure of profitability may lessen their focus on loaning smaller amounts. Bancompartir has taken active measures to avoid this outcome, offering free savings accounts and first-cycle loans of as little as $80. The institution uses innovative technology to serve these small-amount borrowers, such as its “Credit Factory,” a team of 96 data specialists that compares each loan applicant against every other applicant that has ever been approved, rejected, repaid a loan successfully, or defaulted. The resulting credit score allows the bank to operate with an exacting level of efficiency; most borrowers learn within 4 hours whether their applications have been approved, with a loan disbursement typically offered within 24 hours of the application.</p>
<p id="d4b3" class="graf graf--p graf-after--p">At the same time, Bancompartir seeks to serve its clients who may be able to graduate from microenterprises to consolidated businesses. To keep them from leaving for a more commercially-oriented financial institution, Bancompartir offers small and medium-sized enterprises higher loan amounts — up to $100,000, at low interest rates. The bank has also recently begun offering 20-year mortgage loans to low-income customers who could otherwise never afford to own a home. In all, Bancompartir offers 48 different lines of credit and 12 different savings accounts. This wide range of products enables the company to individually tailor the financial service provided to each client. Bancompartir’s commitment to customization and client satisfaction helped it earn a <a class="markup--anchor markup--p-anchor" href="http://www.smartcampaign.org/storage/documents/Certification_Reports-August_2014/FINAMERICA_Certification_Output_EN.pdf" target="_blank" rel="nofollow noopener noreferrer">4-Star SMART Certification</a> in November 2014.</p>
<p id="0bc3" class="graf graf--p graf-after--p">Bancompartir continues to provide innovative financial services to Colombia’s poorest citizens. Leveraging a <a class="markup--anchor markup--p-anchor" href="https://www.usaid.gov/sites/default/files/documents/1862/ATTACHMENT%205%20ACCESS%20TO%20FINANCIAL%20SERVICES%20IN%20RURAL%20AREAS%20-%20MARKET%20STUDY.pdf" target="_blank" rel="nofollow noopener noreferrer">loan guarantee facility from USAID</a>, Bancompartir offers banking services in some of Colombia’s most remote, rural, and conflict-stricken regions. Bancompartir employs a network of hundreds of banking correspondents, as well as a third-party agent network, to extend its services without having to build and staff permanent branches in these remote areas. Bancompartir also won an award for financial innovation for its “Miracle” <em class="markup--em markup--p-em">(El </em><a class="markup--anchor markup--p-anchor" href="https://www.bancompartir.co/#!ahorro/ahorro-credito-milagroso" target="_blank" rel="nofollow noopener noreferrer"><em class="markup--em markup--p-em">Milagroso</em></a><em class="markup--em markup--p-em">)</em> loan product, which credits a portion of the borrower’s repayment to her savings account, helping to build up her personal savings while simultaneously repaying her outstanding loan. (We’re proud to say that Accion helped to develop that product, as did the Bill and Melinda Gates Foundation.)</p>
<p id="4f3a" class="graf graf--p graf-after--p graf--trailing">Accion continues to be a partner of Bancompartir. We take great pride in building and improving microfinance institutions around the world. For my own part, as a manager at <a class="markup--anchor markup--p-anchor" href="https://www.dawn.org.mm/" target="_blank" rel="nofollow noopener noreferrer">DAWN Microfinance</a>, Accion’s partner in Myanmar, the visit to Bancompartir afforded me an opportunity to envision our future — one with a diverse suite of products customized to the needs of each client, operating with a level of efficiency that allows us to continue serving the most underserved clients in the country.</p>

Responsive microfinance for a changing economy: Colombia’s Bancompartir

DAWN Microfinance and financial inclusion in Myanmar

Better laws, increased competition, and rapidly expanding mobile access are all converging to transform Myanmar’s microfinance sector. <a href="http://dev.metlife.thecharlescreative.com/articles/myanmars-economic-revolution/">As Accion first reported last April</a>, Myanmar’s economy is evolving into something radically new after decades of isolation, and financial services to low-income, underserved segments are playing a major role in driving growth.

Accion’s partner in Myanmar, <a href="https://www.dawn.org.mm/">DAWN Microfinance</a> recently conducted a survey among its current clients. One of them, Maya (not her real name), had taken her first loan from DAWN of US$15 five years ago, when she was just selling dried fish from a straw mat laid on the roadside. Maya now borrows US$200 from DAWN every six months to expand her inventory, selling rice, eggs and cooking oil, among other groceries and household goods. Her business initially provided her family of five with a small amount of supplementary income. But with the growth in sales she attributes to her loans from DAWN, Maya’s business now contributes a greater share of the family’s income than her husband’s daily wages do.

As she plans how to expand her enterprise even further, Maya hopes to diversify into clothing sales, a venture which would require at least US$500 in new capital. Her aspirations reflect those of many DAWN clients—they see enormous potential to grow their businesses if more capital were available. The average current loan size for DAWN is just under US$200, but the average <i>desired</i> loan amount is US$475. Of course, not every client who says they want a larger loan could actually manage one. But their confidence in asking for more testifies to the potential they see to grow their businesses.

<a href="http://frontiermyanmar.net/en/new-rules-a-fillip-for-microfinance-sector">Recent directives by the Central Bank</a> should make it easier for microfinance institutions to access funding and in turn serve more clients with larger loan amounts. And access to financial services, in general, is also expected to expand. A <a href="http://www.uncdf.org/Myanmar">2013 UNCDF study</a> found that 70 percent of Myanmar’s adult population lacks access to any financial service. Myanmar’s government, however, has outlined <a href="http://www.uncdf.org/en/myanmar-financial-inclusion-roadmap-2014%E2%80%932020">plans to reduce that figure</a> by at least 10 percentage points by 2020. DAWN’s survey suggests that progress is being made. Only 9 percent of DAWN’s current borrowers had taken a loan before being offered one by DAWN, but since receiving their first loan, 23 percent have been offered a loan by another microfinance institution, suggesting increases in access and competition.

Competition is also helping drive services better tailored to the needs of customers. Since Myanmar’s microfinance industry <a href="https://www.cgap.org/publications/microfinance-myanmar-sector-assessment">was formally regulated in 2011</a>, providers have rarely faced competition when opening in a new area. Microfinance interest rates are capped at 30 percent per year, a fraction of <a href="http://www.mmtimes.com/index.php/opinion/19326-maturing-microfinance-in-myanmar.html">the amount charged by unregulated moneylenders</a> which, at 10 percent or more per month, can exceed 200 percent on an annualized basis. It has historically been easy for microfinance institutions, with much more attractive (albeit mandated) interests rates, and with few competitors, to find new clients just by word of mouth. Institutional growth was limited only by how much equity capital its shareholders were willing to invest in the company.

But with competition now increasing, a simple low-cost loan is no longer sufficient. Customers are asking for larger loan amounts, more personalized repayment schedules and health and life insurance for their families. And as clients become more familiar with financial services, they are demanding higher-quality products—a huge step in the development of the industry.

As Myanmar’s financial services sector, and its economy as a whole, continues its dramatic growth, microfinance institutions must continue to improve their offerings. Building on the core banking system implemented with Accion, DAWN is examining opportunities to leverage technology and data to improve the quality of its products. Mobile phone penetration and smartphone adoption are <a href="http://www.mmtimes.com/index.php/business/technology/17727-myanmar-named-fourth-fastest-growing-mobile-market-in-the-world-by-ericsson.html">rapidly increasing</a> across Myanmar as well, and although not all of DAWN’s clients can afford a high-end phone yet, DAWN expects to offer microfinance loans via mobile channels in the near future for those who can.

The widespread optimism about the future of Myanmar’s economy is warranted. With the new government committed to <a href="http://frontiermyanmar.net/en/treasury-bond-auctions-a-step-in-the-right-direction">responsible fiscal management</a> and <a href="http://www.nytimes.com/2016/09/16/world/asia/myanmar-sanctions-economy-us.html?_r=0">US sanctions to lift</a>, Myanmar will benefit from increased interest from global businesses. Even as the government aims to make Myanmar a more attractive place for companies to do business, DAWN is working to ensure that Myanmar’s entrepreneurs will benefit from the vast economic opportunities that the entire country is now poised to enjoy.

<em>This post originally appeared on <a href="http://partners.wsj.com/metlife/multipliers/articles/enabling-new-business/" target="_blank" rel="noopener noreferrer">The Wall Street Journal's Multipliers of Prosperity</a>, in partnership with the MetLife Foundation.</em>

Enabling new business in Myanmar

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<p id="485e" class="graf graf--p graf-after--figure"><em class="markup--em markup--p-em">The following is from an interview with Daw Thet Thet Oo, 48, who with her husband runs two businesses in North Okkalapa township, in eastern Yangon, Myanmar. She’s a client of Accion partner </em><a class="markup--anchor markup--p-anchor" href="https://www.dawn.org.mm/" target="_blank" rel="nofollow noopener noreferrer"><em class="markup--em markup--p-em">DAWN Microfinance</em></a><em class="markup--em markup--p-em">, which </em><a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/enabling-new-business-myanmars-microfinance-sector-powers-economic-growth-5992eb7b8fef" target="_blank" rel="noopener noreferrer"><em class="markup--em markup--p-em">specializes in serving women entrepreneurs</em></a><em class="markup--em markup--p-em">.</em> <em class="markup--em markup--p-em">DAWN and Accion have worked together </em><a class="markup--anchor markup--p-anchor" href="http://partners.wsj.com/metlife/multipliers/articles/myanmars-economic-revolution/" target="_blank" rel="nofollow nofollow noopener noreferrer"><em class="markup--em markup--p-em">since 2015</em></a><em class="markup--em markup--p-em">, and the partnership was formed to offer financial services to a </em><a class="markup--anchor markup--p-anchor" href="http://blogs.accion.org/features/myanmar-the-final-frontier/" target="_blank" rel="nofollow nofollow noopener noreferrer"><em class="markup--em markup--p-em">largely underserved population</em></a><em class="markup--em markup--p-em"> in Myanmar. Since then, </em><a class="markup--anchor markup--p-anchor" href="http://www.accion.org/growth-disruption-microfinance-myanmar/" target="_blank" rel="nofollow nofollow noopener noreferrer"><em class="markup--em markup--p-em">financial services</em></a><em class="markup--em markup--p-em"> in Myanmar have </em><a class="markup--anchor markup--p-anchor" href="http://www.accion.org/fintech-in-myanmar-leapfrogging-to-mobile-money/" target="_blank" rel="nofollow nofollow noopener noreferrer"><em class="markup--em markup--p-em">evolved</em></a><em class="markup--em markup--p-em"> and technology has </em><a class="markup--anchor markup--p-anchor" href="http://www.accion.org/mobile-money-in-myanmar-cash-digital/" target="_blank" rel="nofollow nofollow noopener noreferrer"><em class="markup--em markup--p-em">spread rapidly</em></a><em class="markup--em markup--p-em">.</em></p>
<p id="1e2a" class="graf graf--p graf-after--p"><em class="markup--em markup--p-em">Like so many in Myanmar, now that the country’s economy has begun to open up to the outside world, she’s eager to access the kind of financial services that are only just starting to become available. Here is Daw Thet Thet Oo’s story, in her own words.</em></p>
<p id="15f7" class="graf graf--p graf--startsWithDoubleQuote graf-after--p">“We have 14 staff that work in our two businesses, and we treat them like family. My husband runs our printing press business, and I am in charge of the rice snacks. Our staff come from the local community, and we pay them a good daily wage. They come in each morning at 8 a.m. and leave at 5 p.m. When the business is doing well, I like to reward my workers with a group retreat to a park or a nearby pagoda. We also celebrate whenever a worker has a birthday.</p>

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<figcaption class="imageCaption">The family print shop</figcaption></figure>
<p id="bd03" class="graf graf--p graf--startsWithDoubleQuote graf-after--figure">“I only finished high school, but I’d like for my sons to attend university. They are only 11 and 9 years old now. The older one likes to learn English, the younger one excels at math. Maybe one of them will take over the family business, but the other one has no interest in it.</p>

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<figcaption class="imageCaption">Daw Thet Thet Oo and her family</figcaption></figure>
<p id="097d" class="graf graf--p graf--startsWithDoubleQuote graf-after--figure">“I have two bank accounts, but I don’t borrow from the bank. I only save a little bit in my accounts, I mainly use them to receive transfers from my family. When I need money for the business, I ask my family to send me money, and then I collect it from the bank. The loan from DAWN helps because I don’t have to ask my family for as much, but I still need to borrow from them if we have to fill a large order. I’d like to be able to borrow a much larger loan directly from DAWN, instead of having to ask my family for money, even though my family doesn’t charge me any interest.</p>
<p id="d949" class="graf graf--p graf--startsWithDoubleQuote graf-after--p">“My biggest hope is that I can keep growing this business and hire more staff. It makes me happy to have so many people relying on my business for their income, for them to be able to take care of their families because of this work.”</p>

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<figcaption class="imageCaption">Rice snack production</figcaption></figure>
<p id="6443" class="graf graf--p graf-after--figure graf--trailing"><em class="markup--em markup--p-em">Interview conducted by </em><a class="markup--anchor markup--p-anchor" href="https://medium.com/@jasonloughnane" target="_blank" rel="noopener noreferrer"><em class="markup--em markup--p-em">Jason Loughnane</em></a><em class="markup--em markup--p-em"> for Accion</em></p>

Daw Thet Thet Oo’s Story of access to financial services

In 2011, a SIM card in Myanmar cost $1,500 and mobile phones were used by less than 5 percent of the population. Following the entry of two foreign mobile operators in 2011, the price of a SIM card dropped to $1.50. Today, <a href="http://www.mmtimes.com/index.php/business/technology/21466-ministry-puts-mobile-penetration-at-90-percent.html">over 90 percent of the country’s population has a cell phone</a>, and over <a href="http://www.mizzima.com/business-domestic/myanmar’s-mobile-revolution">80 percent of those users have smartphones</a>. And yet, only <a href="http://map.uncdf.org/myanmar">6 percent of the population uses a formal financial institution</a>, making the country ripe for adoption of mobile financial services.

Since the mobile phone revolution began in 2012, there has been <a href="http://www.channelnewsasia.com/news/asiapacific/pocket-change-myanmar-banks-on-mobile-money/3144028.html">widespread excitement and significant hype</a> about the <a href="http://www.accion.org/5-themes-european-microfinance-week-2016/">potential</a> for mobile money to take hold in Myanmar, but it seems like 2017 may be the year the industry finally gains traction. The <a href="http://www.magentaglobalevents.com/8th-mobile-money-agent-banking-summit/">8<sup>th</sup> Annual Myanmar Mobile Money and Agent Banking Summit</a>, held in late February in Yangon, brought together industry experts to discuss the current status of the market and its potential to promote financial inclusion.
<h2>Mobile money in Myanmar</h2>
All three of Myanmar’s major telecommunications companies have applied for a license to offer mobile money services, but to date, the Central Bank has only approved one application, for <a href="https://www.wavemoney.com.mm/about-us/">Wave Money</a>, which is majority-owned by telecom operator Telenor. Wave Money currently allows customers to make person-to-person transfers (P2P) and buy airtime top-up for mobile phones.

Customers cash in and out of the mobile money system with one of Wave’s 5,500 agents, currently located in 61% of Myanmar’s townships nationwide. This <a href="http://www.accion.org/agency-banking-technology-gap-nigeria/">agent network</a> allows Wave to cover a lot of ground with very little infrastructure. Wave’s parent company, Telenor, has over 100,000 agents selling airtime scratch cards across the country, so Wave has enormous potential to scale up to more distribution points. Wave will soon begin offering bill payments and plans to offer international remittances later on. These functions are particularly important to advancing financial inclusion, as <a href="http://www.accion.org/myanmar-the-final-frontier/">microfinance institutions</a> will be able to use the bill payments channel to collect loan repayments.

<img class="alignnone size-large wp-image-7578" src="http://blogs.accion.org/wp-content/uploads/2017/03/42A5751-1024x683.jpg" alt="DAWN Microfinance client with cell phone in Myanmar. Image by John Rae for Accion" width="1024" height="683" />

Currently, Wave is only available to Telenor customers, who represent 38 percent of mobile users in the country. Wave’s strategy is to provide a universal platform for microfinance institutions and formal financial institutions to offer services to those underserved by the current financial system. To that end, Wave plans to make its mobile money service available to customers of the other two mobile operators in Myanmar by July 2017.

Their competitors will put up a fight, however. Myanmar’s largest telecom, the formerly state-backed Myanmar Post &amp; Telecom (MPT), aims to launch MPT Mobile Money by April of this year. MPT has more subscribers than Telenor – almost half of all mobile customers in Myanmar. As a formerly government-owned company, they are strategically positioned to corner the market for government salary payments and government-to-person (G2P) transfers. Ooredoo, Myanmar’s third telecom provider, also plans to launch mobile money services, initially targeting their own SIM card users.
<h2>What does this mean for financial inclusion?</h2>
Mobile money is key to bringing affordable financial services to those unserved by traditional financial institutions. In the context of Myanmar, the near-ubiquity of mobile and smartphones creates the potential for mobile money to <a href="http://partners.wsj.com/metlife/multipliers/articles/enabling-new-business/">reach underserved populations</a> that are particularly difficult to serve through other means, such as rural clients and informal unregistered businesses, which are <a href="http://www.accion.org/understanding-financial-inclusion-gender-gap/">primarily run by women</a>. Using mobile money to deliver loans and collect repayments significantly expands the coverage radius and number of people that a single branch can serve, as loan officers do not need to visit each client as frequently if they do not need to collect loan repayments in person.

<img class="alignnone size-large wp-image-7581" src="http://blogs.accion.org/wp-content/uploads/2017/03/42A3544-1024x683.jpg" alt="Cash in Myanmar. Image by John Rae for Accion" width="1024" height="683" />

Hal Bosher, CEO of Yoma Bank, Myanmar’s fifth largest commercial bank and a shareholder of Wave Money, explained the time and money that is wasted managing the physical cash at each branch. He described how each branch has at least a dozen individuals counting bundles of cash using electronic counting machines, tying the bundles together, and packaging them into pallets for customers making large withdrawals. A similar process is required for companies to pay suppliers for large shipments or deliveries. Digital transfers would drastically improve efficiency both for customers and for bank staff. Mr. Bosher posited that while the traditional evolution of money acceptance has been from cash to card, then from card to digital, Myanmar is well positioned to <a href="http://www.accion.org/fintech-in-myanmar-leapfrogging-to-mobile-money/">leapfrog the credit/debit card phase and go directly from cash to digital</a>.

Mobile money transfers also provide an opportunity to use the data they generate to drive further financial inclusion, by creating alternative credit scores and using that scoring to offer nano-loans through mobile phones. Fintech companies like Konfío, Destácame, and Shubham are already doing this in other countries.
<h2>The future of mobile money in Myanmar</h2>
<img class="alignnone size-large wp-image-7580" src="http://blogs.accion.org/wp-content/uploads/2017/03/42A3386-1024x683.jpg" alt="Kids with cell phones in Myanmar. Image by John Rae for Accion" width="1024" height="683" />

Wave Money’s CEO Brad Jones emphasized the importance of following the <a href="http://www.gsma.com/mobilefordevelopment/programmes/mobile-money/policy-and-regulation/code-of-conduct">GSMA Code of Conduct for Mobile Money Providers</a>. Following repeated bank failures and demonetizations in the past, there remains widespread mistrust of formal financial institutions in Myanmar. Mobile money providers have an opportunity to provide useful services to the country’s financially underserved population, but the industry must collectively work to maintain the reputation of the entire sector in its nascent stages, or customers will not trust any single provider.

Jacques Voogt, the current CEO of <a href="http://www.ooredoo.com.mm/">Ooredoo’s</a> mobile money service, is also the former head of mobile money giant M-Pesa’s Tanzania operations. Mr. Voogt sees many parallels between Myanmar and Tanzania’s ecosystems for mobile banking adoption, including similarities in total population (51 vs. 55 million, respectively), percentage of financially underserved population (80 percent vs. 90 percent), number of bank branches countrywide (about 1,500 in Myanmar, about 2,000 in Tanzania), and urban/rural split (30 percent/70 percent in both countries). Mr. Voogt noted that in Tanzania, the mobile money ecosystem took about four years to fully develop – including merchant acceptance, agent saturation, and customer adoption. Myanmar is just entering year one of this promising process.

Mobile money in Myanmar: Going directly from cash to digital

Microfinance in Myanmar is <a href="http://www.mmtimes.com/index.php/opinion/19326-maturing-microfinance-in-myanmar.html">developing</a> at an incredible pace. <a href="https://www.cgap.org/sites/default/files/Microfinance%20in%20Myanmar%20Sector%20Assessment.pdf">Prior to 2011</a>, only four NGOs were allowed to offer microfinance services among their charitable activities. Save the Children’s Dawn Microfinance program, one of the original four, began in 2002 providing small loans to pregnant women to help cover expenses for prenatal care. The program evolved to become a more traditional group-lending microfinance program, growing its portfolio to over 25,000 female business owners by 2015. Myanmar’s 2011 Microfinance Law formalized the industry, allowing for-profit microfinance companies to register and begin lending to clients. Over 250 licenses have been approved in the five years since the law’s passage, as local and international microfinance providers race to capture the country’s vast untapped market. Despite the increasing competition, over 70% of Myanmar adults had <a href="http://www.uncdf.org/sites/default/files/Documents/myanmar_fi_roadmap.pdf">no access to the formal financial</a> sector as of 2013. The situation has not significantly improved since.

In early 2014, Save the Children, seeking to focus on its child protection activities in Myanmar and move away from microfinance operations, invited a consortium consisting of Accion, Netherlands-based Triodos Investments, and FMO, the Dutch development bank, to take over management of the program. Dawn’s transformation from a donor-funded program to a for-profit microfinance company was completed in March 2015.

Dawn finished its first fiscal year as a standalone microfinance company on March 31, 2016. As of that day, Dawn served 60,778 borrowers across 19 branches, with an outstanding loan portfolio of 9.03 billion Myanmar Kyats (approximately US $8.0 million), and a 30-day Portfolio at Risk of 0.00 percent.

<img class="alignnone size-full wp-image-295" src="http://blogs.accion.org/wp-content/uploads/2015/12/Myanmar-Accion-champions-financial-inclusion-fish-seller-Ma-San-Hew-microfinance-client-of-Accion-Dawn-image-by-John-Rae.jpg" alt="Myanmar-Accion-champions-financial-inclusion-fish-seller-Ma-San-Htwe-microfinance-client-of-Accion-Dawn-image-by-John-Rae" width="972" height="651" />

These figures represent a 119 percent increase over last March’s active borrower total of 27,776 and a 222% increase over last March’s gross loan portfolio of 2.78 billion Myanmar Kyats (U.S. $2.3 million). Dawn finished its fiscal year as the third-largest microfinance institution in Myanmar measured by the number of active borrowers.

While the entire microfinance sector in Myanmar has grown over the last 12 months, Dawn’s performance has been a positive outlier in the industry. But Dawn’s growth over the last twelve months was by no means assured, nor was it easy. Dawn’s recent success came from a commitment on the part of shareholders to provide sufficient capital, comprehensive technical assistance from Accion, aggressive adoption of technology to improve efficiencies, and fierce loyalty and hard work from Dawn’s staff.
<h2>Strategy</h2>
Shortly after Accion and its partners <a href="http://www.accion.org/accion-fmo-and-triodos-investment-management-form-consortium-to-strengthen-financial-inclusion-in-myanmar/">invested in Dawn in March 2015</a>, the technical assistance team sought to improve Dawn’s competitiveness and social impact. Upfront fees – the amount that borrowers pay at the disbursement of their loan – were reduced from 3 percent to 2 percent, and Dawn began providing payment for funeral expenses, along with loan forgiveness, to the families of clients who died with a loan outstanding.

Dawn also instituted an employee incentive plan, rewarding staff for recruiting new clients, increasing portfolio under management, and maintaining a very low rate of delinquent loans. Branch Managers were encouraged to adopt monthly growth targets and work closely with loan officers and cashiers in the branches to see those targets met or exceeded. Staff motivation skyrocketed – branch managers and loan officers began spending the majority of their days outside the physical branch office, constantly recruiting new clients at orientation sessions or visiting the businesses of potential borrowers.
<h2>Technology</h2>
When Accion first began working with Dawn, loan officers relied entirely on hand-written notebooks to manage their daily collection schedules. Up to half of the loan officers’ time each day was spent manually copying clients’ names, loan balances, and amounts from the prior collection page to the next. Accion worked with Dawn to develop a platform and process to generate “readymade collection sheets” for each loan officer. These collection sheets would be distributed from the head office to each branch on Fridays, giving every loan officer a pre-printed worksheet detailing the amounts due from each of their borrowers for the coming week.

Loan officers suddenly were able to spend much more time outside the branch instead of sitting at their desk copying collection details into their notebooks. Loan officer productivity jumped from 332 borrowers per loan officer as of March 31, 2015, to over 450 borrowers per loan officer one year later. While some loan officers complained about the increased time spent outside the branch, most were excited to have more ownership of their productivity and were willing to hustle to earn their monthly incentives.

<img class="alignnone size-full wp-image-5957" src="http://blogs.accion.org/wp-content/uploads/2016/02/Daw-Myint-Han_DAWN_2015-6.jpg" alt="fintech-in-Myanmar-Accion-Dawn-client-Daw-Myint-Han" width="802" height="535" />

Readymade collection sheets were a modest first step toward a technology-focused MFI. Dawn also installed wi-fi at each branch, enabling email communication between head office staff and branch managers. Messages that previously were communicated by cell phone and that took hours to relay from head office staff to a dozen branch managers could now be instantly communicated without doubt or confusion.

Dawn also began adopting a Management Information System called Kredits in June 2015, enabling each branch to digitize its loan files, generate disbursement and collection sheets automatically instead of writing them by hand or receiving them from head office, and giving head office staff access to client-level detail on the institution’s entire portfolio.
<h2>Capital</h2>
No innovations in strategy or technology would have expanded Dawn’s portfolio without sufficient funding to lend to new borrowers. As a grant-funded project of Save the Children, Dawn had limited access to capital. Clients were constantly requesting larger loans than what Dawn was able to offer.

Once the transfer from Save the Children was complete, the new shareholders provided Dawn with almost $8 million in additional capital. The additional capital allowed Dawn to increase its average loan size from $150 to $244 during the year, providing a much-needed boost to loyal clients who had patiently repaid lower-sized loans. In addition to increasing loan sizes for existing borrowers, the additional funding helped DAWN open seven new branches and recruit almost 33,000 new clients.

As this expansion capital is gradually being invested in portfolio growth, Dawn is now seeking debt funders. <a href="http://www.mmtimes.com/index.php/business/13784-microfinance-stagnates-due-to-tough-rules.html">Regulations</a> have eased in the year since Dawn was first capitalized, which will hopefully enable Dawn to receive the financing necessary to continue on its path of healthy and sustainable growth.

<img class="alignnone size-full wp-image-294" src="http://blogs.accion.org/wp-content/uploads/2015/12/Myanmar-Accion-champions-financial-inclusion-dragon-detail-from-temple-image-by-John-Rae.jpg" alt="Myanmar-Accion-champions-financial-inclusion-dragon-detail-from-temple-image-by-John-Rae" width="974" height="648" />
<h2>The Year Ahead for Dawn</h2>
Beginning in April 2016, Dawn introduced a twelve-month loan product at all branches, with a plan to gradually phase out six-month loans. Shifting to higher-size, longer-tenor loans will allow Dawn to increase its interest income and loan officer productivity while continuing to offer manageable repayment schedules tailored to the capacities of Myanmar’s low-income population.

Dawn will also begin offering a “Top-Up” loan to borrowers of its twelve-month loan product, allowing the institution and the borrower to decide if they have the capacity to manage additional financing at the halfway point of their twelve-month loan cycle.

During this second year, Dawn will continue lending exclusively to groups of low-income, working women, but will begin the process of identifying high-performing borrowers to “graduate” to individual loans in the future.

With Kredits expected to be fully operational at all of Dawn’s branches by the end of June, senior management will have far more insight into borrowers' financial behavior, which will help Dawn tailor its marketing and growth strategy to most efficiently serve the greatest number of people. Dawn will also begin layering on technological enhancements to its newly-installed management information system, potentially including the use of digital field applications, credit scoring for groups and individuals, and alternative delivery channels for disbursement and repayments.

As formal financial services in Myanmar develop and improve, the microfinance industry will become increasingly competitive, with borrowers having access to a broader selection of providers, each offering better service and lower interest rates to potential customers. On April 5, Myanmar’s Central Bank <a href="http://www.mmtimes.com/index.php/business/technology/19851-mobile-money-regulations-released.html">published regulations</a> on mobile financial services, clearing the way for a cluster of new providers to offer remittance and mobile banking services to the same clients that MFIs have traditionally served.

Dawn’s growth during its second year will not simply be a continuation of its first, but the principles underlying its success will remain the same. Continuous technological innovation, client-centered products and services, development and retention of staff, and ongoing support from funders will be critical to the institution achieving its goal of providing affordable, high-quality financial services to the vast population of underserved women in Myanmar.

<em>Early Dawn Microfinance Company Limited (Dawn) is a partner of Accion, based in Yangon, Myanmar.</em>

Jason Loughnane

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