Tin Mg Oo & Moh Moh Kyi
While running a small business in Yangon can be a way out of a low-paid laborious job it can also create a cycle of debt, most often financed by black market money lenders.
Ni Ni Tun (not her real name), who sells Mot-phat-htote (a sweet and spicy ball of sticky rice), said that paying back money to lenders is a routine chore – the money she loans to do her business must be paid back every 24 days before more can be borrowed for the next round of supplies.
She moved from Mandalay to Yangon’s suburban South Dagon township, where she started from scratch.
“I am not educated so I can only earn a small salary if I work somewhere as a full-time worker. Instead, I borrow money at a daily interest rate from a money lender and use it for my snacks business. I earn about K8,000 per day,” she said.
During the term of the recent government, the Ministry of Cooperatives and even some political parties and organisations have provided loans to finance people in need. The Ministry of Cooperatives asked for $400 million from China to provide loans to individuals, out of which $200 million has arrived.
Banks and government departments also provide loans for small and medium enterprises. However, informal money lending at exorbitant and unfair interest rates is still widespread in the society, especially among poor people.
U Win Shwe, a union level lawyer, told Myanmar Business Today, “Although some loans are provided by government organisations there is still illegal money lending at 20 percent interest rate. There are people who are running away without paying back loans and some have been accused of theft in court. Many lives are getting destroyed.”
When people borrow money from an illegal money lender, a contract is written mentioning that the owner entrusts this person with the money for a period, but it does not mention the interest paid. If someone does not pay the money back, the original principal can be recovered in court.
Currently, illegal lending of money takes many forms, with interest rates of 10, 20 or as high as 25 percent, to be paid back daily or monthly. When it is the time to pay back the loans people usually borrow from other money lenders and the vicious cycle continues.
A woman living in South Dagon said, “I lend money at 10 percent interest rate to people who I know. But for those who are not familiar to me, the interest rate will be 20 percent. If it is with
a daily interest rate, for instance, a customer borrowing K10,000 has to pay K500 per day for 24 days.”
U Win Shwe said that there is a Microfinance Law that was enacted in 1954, but the law has not been updated and is completely out of date. For instance, the amount of fines for illegal money lending specified in the law is a maximum of K200 (16 cents). There is a provision of two years’ imprisonment also, but U Win Shwe said illegal money lenders usually bribe their way out of it.
This is only a part of why many illegal money lending businesses have thrived in Myanmar. These illegal businesses have persisted because people can borrow money easily, without the hurdles of official channels. Accurate data and documents are needed to borrow money from banks or other official lenders. For example, there are associations providing loans but papers like household member list need to be submitted. The loans are provided after 10 days of application and it can amount only up to K100,000 ($78).
Daw Ye, a resident of South Dagon township, said, “There are some associations providing loans with only small interest rates in our ward. But the household member list needs to be submitted. I rent my house so I don’t have the household member list with the address of this house. Therefore I can’t borrow money.”
Interestingly, political parties and associations also provide loans with cheap interest rates, claiming to “reduce poverty and provide investment to develop small industries”. One person living in South Okkalapa said these loans are usually used by people to pay back informal money lenders.
U Aung Thein Lin, head of the Yangon branch of the Union Solidarity and Development Party (USDP), said that USDP provided K500 million (US$388,000) in loans with cheap interest rates in Yangon region in 2011.
“I was fired from my position because of problems about the loans. We encountered huge issues when the time arrived to get back the money. I just couldn’t make people to pay back their loans. I was fired after being accused that my persuasive skills are not good. Now, I know it is not appropriate to provide ‘monetary help’ in this way for the development of people.”
Currently there are many illegal money lenders in the country and businesses have expanded widely. U Aung Thein Lin said that actions can be taken and a sentence of two years’ imprisonment can be handed if such operation is found illegal according to the law.
Daw Ye said, “We know the interest rate is unfair. But when we need money urgently, we borrow from them. My husband transfers money every month but it is not enough. We cannot borrow money immediately from associations when we need. But it is easy to get from money lender.”
A member of the Parliament U Thein Nyunt recently urged the Parliament to take action on illegal money lenders. Brigadier General Kyaw Zan Myint, deputy minister for home affairs, promised that actions will be taken against illegal money lenders according to the Microfinance Law. However, one police officer said that no such actions have been taken against illegal money lenders until now.
(This article was originally published in Myanmar Business Today on 17 September 2015.)