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Easy Microfinance, a top licensed microfinance institution in the Republic of the Union of Myanmar, was created by Hong Kong headquartered investment firm Meridian Capital Limited in 2015. CEO Frank Snieders sat down to talk to EU Reporter.
Why was Easy Microfinance created in Myanmar? What makes Myanmar special from a microfinance point of view?
Back in 2015, when the microfinance project started, Myanmar was the most logical choice for an investment in a microfinance institution: the country had recently opened up to the world and had a large adult population of more than 34 million people, of which two thirds earned less than 75$ a month. About 80% of the population had no access to formal financial services: they were either excluded or relying on very expensive informal financial services, creating a huge opportunity for best practice Microfinance institutions offering reasonably priced financial services adapted to the needs of micro entrepreneurs.
How would you describe the microcredit environment in Myanmar prior to the entry of EM?
Very much underserved, especially outside the bigger cities like Yangon and Mandalay. The number of MFI’s was limited, and the number of clients and volume of loan portfolio were low. This was partly due to a very unfavourable regulatory environment: the maximum loan size at the time was capped at 500,000 Kyats (about USD 420), there was no access to external funding, and there were no deposit taking licenses. Essentially all MFI’s were funded through Equity, Grants and retained earnings. But there was a huge market for microfinance products and a very strong credit repayment culture already existed.
What are you trying to achieve?
To make Easy Microfinance a top five best practice microfinance institution in the country. We opened our first branch in October 2016 and disbursed our first loans one month later so we have essentially been operating a bit more than 3 years. In these three years we have built up a network of 22 branches in 7 States, employing almost 600 staff. In those 3+ years we have also disbursed almost 400 thousand loans for a total volume of more than 160 billion kyats (about USD 100 million) and are currently serving 150,000 active clients through an outstanding loan portfolio of more than 50 billion kyats (about USD 34 million). This already brings us very close to the top 10 MFI’s in the market; and we are continuing to take market share every month.
What are the key characteristics of the EM ethos?
I am a strong believer in what we like to call the ‘Easy’ approach: easy-to-understand products, which are easily accessible and efficiently delivered thanks to digitization but also exciting and fun for the staff who get to use technology and have a lot of chances for advancement in the organisation as the company mostly recruits externally at entrance level and uses internal promotion to fill higher positions based on merit, regardless of gender, race or religion.
Easy Microfinance is a microfinance institution which believes in empowering people through access to capital. How would you differentiate EM from other microfinance institutions?
Easy distinguishes itself from other Microfinance institutions in Myanmar by its client-centred hassle free approach and by using modern technology for efficient delivery and follow-up: our credit officers are equipped with tablets and our credit process is almost paperless: all information is captured and stored digitally, resulting in an efficient and fast credit process. Furthermore, we make things easy for the clients: they are not required to provide any documents or fulfil any bureaucratic requirements and we do not require them to attend weekly or monthly meetings. Lastly, we make sure that the loans we are providing to our clients are adapted to their business needs and repayment capacity ensuring that these loans help their businesses grow and clients avoid over indebtedness.
Your loans are described as ‘hassle free’; what does this mean?
It means that we are putting very little burden on our (potential) clients: all we ask from them in the credit process is a bit of their time; they are not required to provide any documents or pictures and they are not required to attend weekly or bi-monthly meetings or to repay on a weekly or bi-monthly basis, providing more time for the loan proceeds to be used in their businesses since the repayments are monthly.
How do you ensure that loans are repaid if they are quick and easy to obtain? How can you be confident that loans will be repaid?
Because of our thorough underwriting process that includes assessment of the repayment capacity as well as of the character/repayment willingness and stability of each and every applicant. Easy Microfinance Credit Officers visit each applicant’s business and home location and construct a detailed cash flow of the household unit in order to ensure that the applicant has the capacity to repay. The process includes a lot of cross checks on sales, purchases, expenses and household living standard as well as checking of credit history and payment behaviour of applicants. Furthermore, with group loans, there is a cross guarantee between the group members who commit to paying in cases when a member defaults; and in the case of individual loans there is a co-applicant and guarantor who have to pay if the borrower defaults.
What is your NPL ratio?
NPLs are usually defined as loans that are 90+ days in arrears. The ratio would take the total principal amount of those loans as a percentage of the total loan portfolio outstanding. For Easy Microfinance as of end of December 2019, this is 0.09%. However, from a management perspective this percentage is less interesting than the on-time repayment rate, as the probability of recuperation after 90 days is very low. This is why we focus much more on the on-time repayment rate. As of December 2019, the on-time repayment rate in Easy Microfinance was 99.82% in volume and 99.25% in number; excellent by any standards.
Why is trust so important? How do you create trust between lender and borrower?
Trust is important because our business model is a relationship model; not a transaction model: the purpose of Easy Microfinance is not to give just one loan to a client, but to finance clients over a long period of time, increasing loan amounts and durations over time. The first loan is usually a test loan with a relatively low loan amount and short duration: it is relatively expensive to source, while the revenue generated is low. But as we get to know a client and build a relationship and a history, renewing the loans becomes easier/cheaper while the revenue generated by that loan is also higher given the higher loan amount and longer duration.
How many borrowers do you have? How does this figure compare with a year ago?
Currently Easy Microfinance has about 150,000 borrowers; one year ago we had about 85,000 borrowers so we had about 76% growth in borrowers in the past 12 months.
Who are your typical clients?
Easy Microfinance’s typical clients are small entrepreneurs in need of loan amounts ranging from 100,000 kyats (about USD 70) to 10 million kyats (about USD 7,000). About 40% are active in the trade sector, 30% in the services sector, 25% in the agricultural sector and 3% in the production sector. There are about 80 business types that we frequently lend to; from these, the most common business type is street stalls selling cooked food: almost 16 thousand of our 150 thousand borrowers have this business. Other very common business types we lend to are grocery shops, clothing/shoes/textile shops, fruit and vegetable shops and meat shops; each of these counts for more than 8 thousand borrowers in our active loan portfolio.
Are your clients mainly from urban areas? How do people from remote areas access your services?
59% of our clients are rural. Our Credit Officers in rural areas have motorcycles for efficient loan delivery and follow-up. We have a rule that our branches serve an area of up to 1 hour away by bus or motorcycle. Clients will come to the branches by bus for the loan disbursements and repayments, while in the near future they will also be able to repay through agents located near their home or business: Easy Microfinance is currently piloting agency banking with Ongo, a Myanmar-based licensed mobile wallet and agent network.
How much of the country do you cover? Do you have plans to extend geographical coverage?
Currently, we cover 7 states through 22 branches. The geographical coverage is continuously extended at a rate of about 8 branches per year. In the coming year Easy Microfinance will be present in 3 or 4 additional States. In the medium term it is our ambition to have a nationwide presence: so to have operations in all 15 States of Myanmar.
You offer individual and group loans. What type of groups apply for group loans? What are the advantages of group loans?
Group loans target the smallest businesses in need of loan amounts lower than 1 million kyats (about USD 700). These types of loans are difficult to provide on an individual basis (it would cost too much to send a Credit Officer just for one loan), but by providing them to a group of 5 to 10 people that live near each other, know each other very well and are willing to guarantee each other, there is a good business case.
What kinds of problems do you encounter?
To be honest we encounter relatively few problems: of course there is the occasional defaulter and there can be clients who hide that they have loans with other institutions which can lead to over-indebtedness, but this is a very small percentage. Then there are the delays in regulatory approvals for funding and/or regional expansion which impact our ability to reach our budgeted targets, but we somehow usually manage to reach the most important KPI’s.
How would you describe financial literacy in Myanmar? How does EM aim to help improve it?
Amongst our target clientele financial literacy is low in Myanmar. Easy Microfinance addresses this by organizing financial literacy training for potential clients, by having clear and transparent loan conditions, by having a responsible and best practice underwriting process, respecting and applying client protection principles and by explaining the loan conditions in detail before disbursing the loans.
What impact do you believe that EM has in the context of Myanmar?
Quite a strong impact: of course there is the direct employment generation in Easy Microfinance which currently has almost 600 staff with well paid jobs, able to sustain their families. Then there is the direct impact on the businesses that Easy Microfinance has been financing: almost 400,000 loans disbursed for a total of more than USD 100 million has helped these businesses grow, improving the lives of these small entrepreneurs and their families. But there is also the indirect impact of employment generation by those businesses that have been financed and at the level of suppliers of these businesses.
EM was created by Hong Kong headquartered investment firm Meridian Capital Limited (MCL) in 2015. What role has MCL played in the evolution of EM?
An extremely important role; without MCL there would not have been an Easy Microfinance! Meridian Capital Limited had the risk appetite to invest in a microfinance institution in a regulatory environment which was not favourable for microfinance at the time. MCL had the vision and trust that this regulatory environment would improve over time (which thankfully it did), which enabled Easy Microfinance to have an early entry advantage. MCL showed its commitment by putting its money where its mouth was, committing sufficient capital to ensure a viable institution even in an (unlikely) scenario where the regulatory environment would not improve. But also personally I have received full support in the pre-launch phase, when it took a long time to acquire the Microfinance license: there were a lot of delays and at times it even seemed like we would not be getting the license. But MCL stuck with me, and we eventually got the license! MCL further played an important role in providing strategic guidance in the board of directors, ensuring the right choices were made, including bringing in a strategic second shareholder, Delta Capital which was able to further strengthen the capital base (Easy Microfinance, with a current paid in capital of USD 14.2 million, is one of the best capitalized MFI’s in Myanmar), and to help mobilize large amounts of debt funding.
EM received its microfinance license in the second half of 2016. What are EM’s key achievements since it began operations?
Achieving break even after only seven months of operations and being profitable ever since; launching our individual lending product 1 year after starting operations; establishing 22 branches, achieving 150 thousand clients and a 50 billion kyats loan portfolio of excellent quality after little more than three years of operations.
What are your biggest challenges?
Our most important challenges are external: I would say making sure debt funding is available on time and getting regulatory approvals for the funding are the biggest challenges, closely followed by making sure that we receive regulatory approvals for our geographical expansion.
What are you most proud of?
This would easily be the creation of Easy Microfinance: 4.5 years ago I came to Myanmar for this project when there was nothing: during the first year, the project was a one-man show during which I carried out market research, wrote the business plan, created the company and applied for the Microfinance license, while in the meantime writing all policies and procedures and selecting the banking software. I then was lucky to be able to also launch operations, selecting the head office and first branches, and hiring and training the first staff. It still sometimes blows my mind that this all resulted in the institution we have today: Easy Microfinance, a best practice MFI, which is amongst the 11 largest in the country and growing.
What ambitions do you have for EM? Where do you see EM in five years?
While I am very proud of what we have achieved so far, we have only scratched the surface: in 5 years time, Easy Microfinance will be a top 5 MFI operating nationally with more than 60 branches, employing more than 1,600 staff and serving half a million borrowers through an active loan portfolio of more than 230 billion kyats (about USD 155 million).
About the interviewee
Frank Snieders is the founding CEO and Managing Director of Easy Microfinance, a licensed microfinance institution in the Republic of the Union of Myanmar. Prior to his current position, Mr. Snieders occupied Senior Management positions in various international microfinance networks: as the CEO of Advans Bank Tanzania (2013-2015) and Advans Cameroon (2009-2013) and as the COO of Finca International in the Democratic Republic of Congo (2006-2009). Mr. Snieders holds a Masters in International Relations from the University of Groningen in the Netherlands and learned the ins and outs of microfinance and banking after his studies during a Bank Management Traineeship at Procredit Bank.