Myanmar’s military drives country’s largest micro-lender out of business
[BANGKOK] Myanmar’s largest micro-finance provider – the US-based Pact Global Microfinance Fund (PGMF) – will cease operations for good on Friday (Jun 30), after failing to meet a regime deadline to register itself as a commercial enterprise, or face criminal charges.
Upon its departure, the PGMF has agreed to forgive more than US$156 million in outstanding debts to 890,000 borrowers (99 per cent of whom are women) and set aside money to repay creditors, the fund said in a statement.
The micro-lender, which has been operating in Myanmar for 25 years, claimed 22 per cent of the total lending share of the 22 largest Myanmar-based micro-finance institutions, as indicated by the latest available data. It was reportedly one of the most profitable micro-finance providers in the country, at least prior to the military coup in February 2021.
“We have sadly concluded that we can no longer operate in the country despite working diligently over the last two years to persuade the government in Myanmar to allow the organisation to continue serving hundreds of thousands of borrowers and savers,” said the fund’s chairperson Ellen Varney.
The PGMF’s departure is the result of its failure to meet the Jun 30 deadline to register itself as a commercial entity, thus ending its status as an international non-governmental organisation (NGO).
Under the Myanmar Registration Law enacted last year, all NGOs face criminal charges – including imprisonment – if they do not meet the deadline. Myanmar law also prohibits these organisations from participating in the micro-finance sector.
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Nearly all other significant micro-finance providers in Myanmar have met the deadline and now operate as private companies, not NGOs, industry sources noted.
While the Myanmar Regulation Law with its criminal charges is new, the requirement for micro-finance firms to transform themselves from NGO status into private companies predates the 2021 coup, and was generally welcomed by the industry, said an adviser to the sector, who did not wish to be named.
The PGMF has been working on its own transformation for several years, but faced unusual obstacles in doing so.
Following the passage of the Myanmar Microfinance Law in 2014, which legalised micro-finance operators and provided a licensing system for micro-finance institutions, the PGMF received a substantial grant from the United Nations Development Programme, which sparked a surge in the PGMF’s lending and growth nationwide.
The funding has been a source of dispute, as past governments and the current military junta claimed that the money should have been transferred to the state as it was a form of development aid, said industry sources.
This requirement ultimately blocked the PGMF’s transformation and registration as a private company. It is not clear which agency within the current regime was responsible for the decision.
“One agency in the Myanmar government withheld its consent to registration of the PGMF, unless it agreed to cede certain controls over assets, profits, operations and the board,” said an executive from the fund, who did not want to be named.
While the PGMF case is perhaps unique in Myanmar’s micro-finance sector, it has highlighted the growing difficulties that all micro-finance operators now face.
Since the coup, strict foreign-exchange controls have blocked all external transactions, including interest payments to creditors. Without government approval, micro-finance organisations are barred from making principal payments on foreign debt.
These restrictions on payments to creditors mean that foreign credit to the sector has dried up, forcing micro-finance operators to look for means of raising funding locally, which will be difficult.
Visas for top PGMF executives to visit the country have been denied.
The closure of the PGMF – once present in as many as 15,000 villages nationwide – is another negative signal from Myanmar’s ruling generals to potential foreign investors in the finance sector. Myanmar is already one of the least-banked countries in South-east Asia.
PGMF was a relative success story, both financially and in terms of its social impact. It had initially refused to leave, despite the growing security concerns expressed by other multinationals about armed resistance to the regime in the countryside.
“Security is not the reason for the closure, it’s the inability to register,” said PGMF sources. “Staff have successfully continued to conduct activities over the past two years, with some disruptions due to the Covid-19 pandemic.”
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