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close this bookFinancial Systems for Rural Development (GRET)
close this folderPart two: Rural Credit in Laos, Vietnam, Cambodia and Myanmar
View the document1. Lao People's Democratic Republic (Lao PDR)
View the document2. Socialist Republic of Vietnam
View the document3. Kingdom of Cambodia
View the document4. Union of Myanmar

4. Union of Myanmar

When the country went from a planned economy to a market economy, a new banking law was passed by the Government. As from 1990, the State Banks were restructured. The new economic policy enabled local and foreign contractors to set up joint-ventures, companies and private trade so as to launch itself in production, manufacture and trade in fields previously reserved for the State.

The Myanmar Agricultural and Rural Development Bank (MARDB) is a State-owned bank that succeeded the State Agricultural Bank established in 1953. It is run by a Board made up of representatives from the ministries.

It has a countrywide network, composed of 14 regional agencies, 166 branches and 47 offices offering short- and long-term credit to over 2 million farmers. The banking law enacted in July 1990 notably enabled an increase in the bank's capital, from 40 million to 1000 million kyats.


The MARDB makes loans to State agricultural structures, to organizations dealing with cattle, private contractors, village banks, farmers and farm laborers. The loans are classified into three categories:

- annual loans ( the length is adapted to the crop cycle);

- mid-term loans ( two to four years );

- long-term loans ( five years and over) essentially for the purchase of farming equipment, draught animals, carts, pumps, motorized cultivators, etc., as well as for integrated farming projects.

The annual loans are granted for farming 34 varieties. The total amount spent for 1993-94 was 2607 million kyats and it concerned 1.48 million farmers. The interest rate in effect has been 13% since 1939-90.

Village banks

The MARDB relies on a network of "village banks ". These are groups organized on the village level. There are 12,280 of them and they form the basic units for channeling agricultural credit. Village banks are autonomous legal entities with over 3 million farmer-members. A minimum of 25 members is needed to create a village bank.

Each member must purchase a minimum of 10 shares at 1 kyat each. Registration fees are optional. Given that non-members cannot borrow from the village bank, all the farmers become members.

The village bank is governed by a committee of five people elected by the shareholders and this committee is liable with respect to the members. All the village bank committee members are volunteers. They are in charge of collecting payments and accounting management.

The MARDB loans to village banks at a rate of 13% per year, then the latter loan to the member-farmers at 18%. The 5% interest differential allows them to cover their costs and, at best, to make a profit or to increase their equity which will be used as guarantee funds with the MARDB.

The members borrowing money from the village bank also make mandatory savings 11% of the loan ).

Credit Granting Procedures

The MARDB does not have any bans for obtaining credit as long as the farmer is not a debtor. An official application by the member-farmers is made through the village bank and then at the branch by the village bank committee by means of forms mentioning the area of activity, crops, etc. The main criteria for approving a term loan are the viability of the business and the borrower's capacity to repay.

Guarantee System

In the village bank system, the guarantee for the seasonal loans relies on liability and no other material guarantee is required. For mid- and long-term loans, the farmer must have two personal guarantors. Farm machines and equipment bought with the loan can be used as a security.


The bank launched a rural savings programme in October 1993. Within that framework, 2 million rural people were encouraged to deposit their surplus income at the bank in a savings account with 10% interest. Saving allows them to contract a farm loan for an amount four times higher than the amount of their deposits at a rate of 15% instead of the normal 13% rate.

Note: Since 1995, the GRET has been conducting an experiment within the framework of the UNDP projects in the State of Chin. As the latter is too recent to be presented, it is not included in the diagram.

As of July 31, 1995, 1.63 million people had opened savings accounts and deposited 24,021 million kyats. The MARDB staff also offers a mobile service to the rural population throughout the country. Nearly 0.6 million farmers are saving their surplus income by opening accounts.

The main problems to be faced by the banking system in Myanmar are:

- high and unpredictable inflation lit is around 30-40% per year ).

- the MARDB interest rates are artificially maintained below inflation, which leads to annual needs of recapitalization of the bank by the Public Treasury. A high public deficit, in turn, feeds inflation.

- the incapacity to cover the financing needs of non-agricultural activities of the majority of the rural producers, in spite of an efficient system of village banks developed by the MARDB that reaches a large number of farmers in Myanmar. The crops recognized as being able to serve as a security do not include the crops behind slashand-burn. Hence, the system is not very applicable in the surrounding mountainous areas.

Lastly, it is noteworthy that the repayment rates are excellent, close to 100%, probably due to pressure by the local officials rather than to social appropriation by the villagers.



The rural financial system in Myanmar is, by its organization alone, mixed. The State determines the levels of interest, the credit policy, etc., whereas the village banks, set up at the ground level, take on the disbursement of credit, its follow-up and its repayment.

Myanmar must nevertheless confront two essential problems: interest rates too low with respect to inflation, which, as mentioned previously, presupposes recapitalization by the State, and the difficulty of defining a credit policy for non farming activities in mountainous areas in which slash-and-burn is performed.