The arrival in 2017 of microfinancing in the Ayeyarwady region village of Wachaung inspired in Daw Julie big ambitions.

She knew her betel plantation could make more money if she could increase production, but she didn’t have the capital to invest in growth.

What seemed like a blessing in 2017 has proven a burden that now has her family’s land hanging in the balance.

Julie borrowed 800,000 kyats and her son borrowed 300,000 kyats from VisionFund, a global faith-based lender, in 2019. But after planting more betel, the farm was ravaged by pests.

The family became saddled with a monthly 129,000-kyat debt they can’t pay.

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In an attempt to make good on those first loans, Daw Julie put her home and her family’s 4,800 square feet of land up as collateral on a 200,000-kyat loan from an unauthorized local lender.

The family is now more than a month delinquent on and that debt, leaving them facing the prospect of losing everything.

“We used to live comfortably with the money we earned from the plantation. Now we can’t even use the money we do make because we have to pay back the loan,” her husband, Lay Dewan, told Myanmar Now.

Daw Julie and Lay Dewan are not alone. More than five of their neighbours have fled the village to avoid defaulting on microloans.

Several have come to Yangon to find work, villagers told Myanmar Now.

Help or hindrance?

In 2011, the Thein Sein government passed the Myanmar Microfinance Law in an effort to reduce poverty. Microfinance companies quickly proliferated.

Several do not require collateral and have proved a saviour for borrowers previously without access to credit.

The practice is often touted as a means of reducing poverty, encouraging entrepreneurialism and small business development among impoverished communities.

For most of their existence in Myanmar, microloan interest rates were set at 3o percent annually, but in June 2019 the government reduced that rate to 28 percent (slightly over 2pc a month). However, unauthorized lenders often still charge up to 30 percent a month.

Myanmar Microfinance Association (MMFA) deputy chairman Myo Nyunt, who is also an assistant manager for Myanmar-based lender Microfinance Delta International, believes it’s been a success so far.

It’s made building small businesses possible for some of the country’s poorest, even if more could be done to extend it into more remote areas, he said.

More than 3 million people have collectively received about 172 billion kyats in microloans from the 189 registered local and international lenders operating in Myanmar, according to the Ministry of Planning and Finance.

But too often, many say, these loans just further entrench poverty.

Bad luck and poor financial planning leave borrowers unable to pay their debts, leading many to seek out additional loans from unauthorized lenders that send them further into debt. Often, they offer what little they do have as collateral.

It’s a scenario Htwe Yee, of Dala township’s Kamarkasit ward, also knows well.

She sells purified water and also runs a noodle soup shop out of her home, but increased competition, she said, has put a squeeze on her income.

“Work is not going well right now, so I can’t make my payments. So I took out another loan from another lender thinking that would solve my problem, but the debts just piled up,” the 56-year-old told Myanmar Now.

A 2018 report by parliament’s Banking and Financial Development Committee found that most borrowers were never taught how to manage their money before receiving loans and that Htwe Yee and Julie’s behaviour was widespread.

Cooperative borrowing

Myint Myint San, 37, also of Kamarkasit ward, may have found one solution.

She leads a borrower’s cooperative made up of 55 ward residents. The cooperative organizes members into groups of five to 10, each of whom acts as guarantors for one another’s loans.

If a group member can’t make their payments, the rest of the group pools together the money owed. Each member can borrow up to 2 million kyats.

Myint Myint San herself has taken out loans of 500,000 kyats from the MDI and 900,000 kyats from LOLC, a Sri-Lankan microlender, over the last five years, she told Myanmar Now.

She is able to pay her debt with the profits from her dry goods store. Her success thins out risk for the whole community, where not everyone is as lucky.

Several times she’s had to help pay off the debts of her fellow co-op members who’ve fallen behind, giving those less fortunate more time to pay back their loans without defaulting.

“Many people have run away because they can’t repay it. The interest piles up and the debt increases,” she said. “Their incomes alone aren’t enough.”

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Blame game

The parliamentary report was written after committee members met with 210 borrowers in Yangon, Mandalay, Bago and Ayeyarwady regions.

It said microlenders are not doing enough to educate borrowers about debt management and are more focused on making as many loans as possible than on reducing poverty.

Khin San Hlaing, the chair of the committee that authored the report, put the blame on the borrowers themselves.

“We have a Burmese proverb that says a person will buy as many elephants as they are years old if they can get a loan,” she said. “People say they’re taking a loan for agriculture but then they buy motorbikes, TVs and necklaces. The money is already lost.”

MMFA secretary Phyu Yamin Myat agreed.

“It used to be very difficult to get a loan. Now they take all the loans they can get because it’s easy,” she said. “People know they shouldn’t take out more than they can repay.”

“A loan is not a donation,” she added.

Zaw Naing, director-general of the planning and finance ministry’s regulatory body, told Myanmar Now the ministry is working with the MMFA on regulations to keep borrowers from taking on more debt than they can pay back, but did not elaborate on what such policies might look like.

Dr Zaw Oo, director of the Center for Economic and Social Development, agreed that the state must play a bigger role.

“The government needs to monitor this sector because people are being trapped in debt,” he said.

He thinks interest rates are being kept too low, encouraging low-income earners to take on too much debt and causing the system to stray from the original goals of microfinancing.

“Microfinance should allow low-income earners an equal opportunity to participate in economic development,” he added. “More lenders have popped up… but our country’s economy has not improved.”