Andrew Thomson considers the role of internal migrants in promoting financial inclusion in rural areas.
Myanmar’s internal migrant workers have the potential to be the vanguard of financial inclusion. Presently, the vast majority of Myanmar’s population do not have access to the formal banking system, mostly the product of economic mismanagement under the previous military regime. As a result, building an inclusive financial sector is an essential step towards achieving sustainable economic growth. However, this cannot occur until incomes have increased to a level high enough to access the majority of financial products.
It has proven extremely difficult to build an inclusive financial sector in Myanmar as the majority of the population are forced to live hand to mouth, lacking the disposable income to use the majority of financial products on offer. This suggests that financial services are not designed to fit the needs of low-income individuals, particularly in rural areas, where 70% of Myanmar’s poor live. This widespread poverty causes many young people to migrate to urban centers such as Yangon and Mandalay in search of higher wages and a reliable source of income.
These migrant workers can play a crucial role in improving financial inclusion as they maintain strong links with the rural population and in most cases have a more substantial and more consistent source of income than their rural counterparts. Unlike agricultural workers who receive their pay seasonally and whose wages largely depend on the success of the harvest, migrant workers who find jobs in garment factories or teashops are paid a higher wage, at more regular intervals. This positions them perfectly to act as a vanguard, a group of people to lead the rest of the population out of the unregulated informal financial sector and into the formal banking system.
The ability of migrant workers to act as a vanguard rests primarily on the custom of remitting money to relatives in the countryside, which creates a strong rural-urban linkage. Until recently, the practice of remitting money was a time consuming and expensive process, especially if either party lacked a bank account. In these circumstances, the only option available for migrant workers is to travel back to their village to remit money in person. The time and money spent represent a significant opportunity cost to migrant workers, time that could be spent working or resting.
The introduction of mobile money has created an efficient and formal service to make remittance payments. This type of formal financial product has been explicitly designed for low-income individuals. As such, it is becoming increasingly commonplace in present day Myanmar, significantly decreasing the opportunity cost of remitting money by providing an online platform to transfer money that is easy to use and is accessible around the clock. The reduced cost of accessing the formal banking system allows migrant workers to access financial products that were previously unavailable to them.
Once migrant workers have access to formal banking services, they can recommend the formal banking system to their friends and relatives. Already we can see migrant workers using apps like Wave Money to transfer money to their families, beginning the process of breaking down the distrust of financial institutions that has been ingrained in older generations. This process will neither be quick nor easy, as people still remember the disastrous demonetizations that occurred in 1964, 1985 and 1987 when people’s savings were repeatedly wiped out overnight, creating a deeply entrenched fear of their savings being stolen yet again. Migrant workers can help reduce this fear by demonstrating to their relatives how mobile money apps work and that they can be trusted.
Nevertheless, the private sector cannot turn migrant workers into the vanguard of financial inclusion without support from the Ministry of Planning and Finance, as the government sets the rules that govern the financial sector and incentivises private sector investment to support the expansion of financial services. The current rules and incentives are outlined in the Financial Inclusion Roadmap, which does not target migrant workers as a priority segment, instead focusing on agricultural workers, SME’s and low-income consumers.
While the Financial Inclusion Roadmap has many merits, its focus is on public policy and lacks a grassroots strategy to realize its objectives. The lack of a firm plan is likely due to the large size and low density of the priority segments, making it difficult to implement strategic objectives.
It is, therefore, necessary to develop a strategy to promote financial inclusion at the coalface, with the priority segment being migrant workers. According to the 2014 Myanmar Population and Housing Census, there are over 9 million migrant workers, primarily located in urban areas. The concentration of individuals in urban areas reduces the difficulty of running workshops to promote financial literacy and assist workers in setting up bank accounts.
A program of this nature would have far-reaching effects on financial inclusion, as workers would be able to use their newfound knowledge to help their relatives in rural areas connect to formal providers of credit and other financial services.
In rural areas, there is a large demand for credit, particularly amongst farmers. With better access to credit, farmers can afford agricultural inputs like fertilizers and machinery, raising their outputs and further increasing their access to financial services. However, due to the absence of formal providers, this demand for credit is currently met by pwezas, informal moneylenders, who for generations have been the primary providers of credit to farmers.
As informal moneylenders are unregulated, they can charge higher rates of interest than formal credit providers, trapping farmers in a vicious cycle of debt. Despite this, many rural residents have warm relationships with moneylenders and consider them an important part of village life, as they are both their neighbours and their main suppliers of loans.
To break the spiral of debt, farmers need to access formal financial services, in particular, money transfer apps such as Wave Money or credit providers like Zigway. Apps like Zigway aim to provide microloans to low-income individuals and break their reliance on informal moneylenders.
Microloan providers could potentially replace informal moneylenders as a means for low-income individuals to cover living expenses until payday or to buy agricultural inputs. To break the grip informal moneylenders have on credit provision in rural areas, formal credit providers need to redesign their financial products to suit low-income individuals.
Nonetheless, lowering barriers to financial services and expanding the range of financial products means very little if the majority of the population has insufficient income to use them. A report by the Centre for Financial Inclusion shows that as incomes rise, people begin using services offered by the formal financial sector. In Myanmar we have seen migrant workers begin to use the formal sector once their disposable income rises to a sufficient level, moving away from cash-based transactions. It is, therefore, necessary to develop not just a roadmap for financial inclusion but a detailed plan to effectively industrialise Myanmar’s economy. Industrialisation has resulted in higher incomes around the world, which has resulted in greater financial inclusion.
Empowering migrant workers to enter the formal financial system is an important step to building an inclusive financial system. Unlike the majority of the population, they have a high demand for financial services and have sufficient income access the formal sector. With the support of the private sector and government ministries, internal migrant workers can be at the forefront of Myanmar’s financial inclusion. From here they can lead their friends, families, and co-workers into the formal banking system.
Andrew Thomson has a Bachelor of Commerce from the University of Western Australia. This article was written as part of a research project on financial inclusion in Myanmar that he was involved in while at Consult-Myanmar, a Yangon-based consulting firm.