Daung Capital: Managing the Credit Risk Challenges of Microfinance in Myanmar
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Publication Date:
May 30, 2020
Industry:
Financial Services
Source:
Singapore Management University
In September 2019, Daung Capital (Daung), a microfinance institution (MFI) in Myanmar, was preparing to launch a new loan product for farmers which entailed a lump sum repayment instead of monthly repayments like its other products. Leon Qiu, the co-founder of Daung, wondered how he could implement an appropriate credit risk model for the new product. Credit Risk was particularly high in the MFI sector in Myanmar due to the absence of a Credit Bureau and lack of information sharing amongst MFI providers which indirectly encouraged borrowers to take multiple loans from different providers leading to over-indebtedness. Daung had implemented a rent to own model in collaboration with dealers to provide loans to borrowers for purchasing motorcycles under a monthly repayment scheme. Similarly, the company had launched a loan scheme for factory workers in partnership with factories and small businesses, deducting the monthly repayment directly from the workers’ salary to reduce credit risk. For granting loans to farmers, the company had partnered with rice mills to minimise credit risk. Qiu was unsure if these measures were sufficient and ruminated on how to create the perfect balance between managing risk and generating value in microfinance. How could Daung mitigate the credit risks of loan products designed for low-income populace? What risk management processes could it implement to ensure the sustainability of its business? Could technologies like data analytics and machine learning hold the panacea for credit risk in microfinance?
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Daung Capital: Managing the Credit Risk Challenges of Microfinance in Myanmar
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