A rural microloan scheme mooted by the Burmese government has been met with caution by economists who claim that conditions inside Burma, where corruption is endemic, make such initiatives highly vulnerable.
The bill that sets out the microfinance law, ostensibly aimed at alleviating poverty, has already been drawn up for submission to parliament, according to the Weekly Eleven.
Sean Turnell, an economist at Macquarie University in Australia, said however that manifold problems related to macroeconomic instability and broad financial insecurity in Burma all dampen the chances of the scheme proving a success.
He also questioned whether Burmese, one third of whom are below the poverty line, can really afford to repay loans, particularly given the country’s disparate interest rates.
“The maximum interest rates allowable by the Central Bank of Myanmar [CMB] are far below what most microfinance schemes need and do charge – the CBM puts a cap of 17 percent per annum, while microfinance charges about 30 to 45 percent,” he told DVB.
Han Htun, an economist and former customs official in Burma, said also that “not everyone has the capacity to run a business” and doubted the success rate of similar schemes in Africa, where the contribution of microfinance to the alleviation of poverty has in many cases been questionable.
But one of the biggest problems the scheme faces is institutionalised corruption in Burma, which took the penultimate spot in Transparency International’s Corruption Perceptions Index last year.
A resident of Pegu division’s Shwekyin township, where the government has experimented with microfinance over the past month, said that its impact has been minimal, with officials either pocketing the loans or favouring those close to them.
What Burma really needs to lift its rural poor out of poverty, Turnell says, is “to come up with decent and well-capitalised rural financial institutions, and to create a functioning financial system more broadly”.
The latter, he claims, would also stem the influence of businessmen known to be close to top-level government figures, whom with little legitimate competition have been able to open banks and major companies and increasingly orchestrate the direction of Burma’s economy.
The Shwekyin resident said that schemes for job creation are more important than highly problematic microloans.
“If they give out a 30,000 kyat [$US40] loan, for example, one can pay back other urgent debts but have no chance to save enough to repay the loans. But it would be different if people are provided with something to invest in.”
Additional reporting by Francis Wade