1) When did you start BC Finance? What is your main business and current scale of operations?
We have been present in Myanmar, since 2012, prior to most foreign businesses and many embassies. We received our micro finance institution (MFI) licence in 2013, commencing business in October of that year, so we have been operating for more than three years now. We have around 100 staff serving clients through 19 branches in 8 states. The national roll out that we undertook in 2013/14 was unprecedented, and we are the only national commercial MFI in the country.
We lend to individuals, micro and small enterprises. As we lend for income generating activities, in an economy growing as fast as Myanmar is - the Asian Development Bank forecasts 8.4% GDP growth this year - credit performance is excellent. Since inception, we have had zero bad loans. Although microfinance as a sector generally has very low default rates, this performance surprises even us. Going forward, bad loans will not always be zero, but should be very low. A common misconception is that microfinance clients are poor credits. They are not.
2) Why did you choose to start your firm in Myanmar? What opportunity did you see?
2) Why did you choose to start your firm in Myanmar? What opportunity did you see?
Many people are not aware just how large Myanmar is. It has a population of 52 million and is the second largest country in ASEAN. Banks provide for the elite, and we provide for the average person, and there are many of them. The demand for microfinance in Myanmar is tremendous, at around USD 10 billion. This compares with current supply of only USD 300 million or so. In my career I have never been involved in a business with fundamentals as good as this. We can lend everything that we have, it is always repaid (to date), and yet we have tens of thousands of clients still waiting for loans. We simply need more inventory, which is capital. Hence we are currently doing a raising.
Given the above, it is obvious that returns to investors are extremely robust, but, in addition, providing formal financial services to those who did not have them before is of significant social value. Most of our clients are women, and they are able to better care for their children with the increased income that comes from growing their businesses. Financial services for the under banked is not just about lending. As a deposit-taking institution, we also provide our clients with savings accounts. This is an important offering for their financial security.
3) Where do you see the opportunity for your firm to grow? What key advantage do you have today in Myanmar?
As touched on above, for the immediate term, the growth opportunities are in Myanmar, and few other markets could provide a similarly attractive growth profile. Our aim is to build our loan portfolio to USD 150 million as quickly as is prudent. We are fortunate to have started early in Myanmar, and hence have a licence scope that is superior to virtually all other market participants. We can support deployment of significant amounts of capital. There is no shortage of profitable lending opportunities. Our national footprint also gives us the ability to offer remittance services in a meaningful way.
That said, there are other markets that can provide significant scale or other opportunities. These include ASEAN countries such Indonesia and Vietnam, although differing regulatory requirements dictate different approaches between markets. We are also looking at Sri Lanka, and have been shown interesting transactions in Cambodia, although that market requires a different approach to Myanmar, given that it is no longer “blue sky”. The Philippines also has much to offer.
4) Tell us about your Fintech and Blockchain initiatives for mobile banking services in future.
During 2016, we were involved in testing blockchain technology against our core banking system. Although we were the first MFI in Myanmar, to introduce a core banking system, and are satisfied with what we have, we need to seek continual improvements. Confirming that private distributed ledger (blockchain) technology could smoothly and accurately record all of our clients borrowing and saving transactions, was an important proof of concept step. We did this in connection with Japanese partners. It could form the basis for development of a next generation MIS. Personally, I see that blockchain likely has more utility in applications that are client facing and we are working on some of these. Cryptocurrency as a basis for remittance transactions, and identity or credit data verified via blockchain could offer significant benefits not just for our business, but more broadly throughout Myanmar.
We are currently developing a P2P platform for emerging markets that will further enable those who wish to borrow and those who wish lend, to connect. This platform will leverage off the network of any financial institution with clients in excess of their capacity. I can't disclose more than this for now.
5) Have lending opportunities in Myanmar changed in any way due to government actions or new technologies like Blockchain?
Myanmar actually has a fairly good core legal regime for microfinance, but there is still room for improvement. As financial inclusion is important for the average person to participate in the economic growth that the country is now experiencing - a point of concern for the new government under Nobel Peace Prize winner, Aung San Suu Kyi - we expect continual improvements in the regulatory environment over the coming year. We actually had some significant deregulation a few months ago, but we expect to see even more.
Like many other countries, how regulation evolves in Myanmar, to deal with the emergence of new technologies such as blockchain, will be an important area to watch. This is of particular interest to me. In my downtime I am currently pursuing a PhD on the regulation of blockchain with an emphasis on applications in emerging markets and smart contracts.
6) Are there gaps in Myanmar lending that overseas investors do not fully understand that BC Finance try and fill?
Many misunderstand what microfinance is. The easiest way to explain it is to say that microfinance in an emerging economy such as Myanmar, fills the role of a retail bank in a more developed economy. We are the financial institution for our customers. They will have an account with us, they will have a mobile money account with us or linked to us, but they will likely never have a bank account. The opportunity is significant.
Generally, we also find that investors do not understand the high credit performance of microfinance. Commercial microfinance globally, has default rates in the low single digits. In Myanmar, defaults rates are even lower. After more than three years of operations, BC Finance is yet to experience even one bad loan - although we will, of course, experience them over time. As long as loan decisions are appropriately managed, microfinance customers are a better credit risk than the average developed market credit card holder. Like any market, there are different segments within microfinance. The provision of microcredit in a post-conflict zone in the Middle East by an NGO, is a charitable activity and would likely experience well in excess of 50% bad loans. While extremely important, this is not our business.
From a macro perspective, because credit provision in Myanmar is coming from a very low base, there is not yet a credit cycle and certainly not a credit bubble. It is a robust environment to be lending into. The opportunity for BCF is in how quickly we can supply the market. The more we can supply, the more businesses we can support, and the greater returns we will make. There are no unknowns in our business model. Myanmar is a country of wonderful people and we are proud to be building our business there, contributing as the country builds its future.
7) Where do you see your firm growing the most in the next 2-3 years? Will this continue within the mobile Fintech space? Are you seeking investors for new projects or service offerings?
Most of our growth over the next few years will come from meeting the incredible demand for credit we are seeing in Myanmar. This will be achieved by expansion of our direct balance sheet (traditional) lending, as well as via our P2P (Fintech) platform. Over that time, mobile phones will certainly become established as a primary transactional tool, in our view. Within this, we will be rolling out new products and technologies at the appropriate pace – to be neither to early nor too late to provide the right mix for the market.
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