Myanmar has been grappling with poverty for decades. The country was classified as a “least developed country” by the United Nations in 1987 and remains so now. In 2015, the World Bank estimated Myanmar’s poverty rate to be 32%. While there has been some economic progress, particularly seen in the oft-shifting skyline of Yangon, approximately 30% of Myanmar’s population still lives in poverty, according to State Counsellor Aung San Suu Kyi, who cited the statistic during a stop on her recent trip to Mon State.
Poverty is a vicious cycle. It leads to financial exclusion, cutting off means to acquire capital from those who need it most. In Myanmar, only five percent of the population have a bank account and more than three-quarters are financially excluded or informally served. Without access to financial services, people are unable take out loans from traditional financial institutions. Instead, some resort to borrowing from loan sharks with interest rates hovering around 10% per day just to get by.
But those conditions are changing, because 95% of Myanmar’s population is online via their mobile phones. That makes the country fertile ground for fintech developers. The people behind one Yangon-based micro-financing platform, Daung Capital, believe that access to short-term capital is the best antidote to income inequality.
Its “rent-to-own” model
Personal mobility is a crucial prerequisite for escaping poverty. Yet in Myanmar, inadequate infrastructure and substantial disparities in living conditions between rural and urban areas deter the populace from relocating for better employment opportunities. Many seek to acquire a motorcycle to take ownership of their own movements, but they are often unable to afford one.
An average working class individual in Myanmar earns about USD 300 per month, but a motorbike costs at least MMK 400,000 (USD 263). To remedy this, Daung Capital came up with its rent-to-own model, offering those with low incomes the possibility of owning a piece of machinery that could change their fortunes.
The company works closely with motorcycle dealers across Myanmar. Together, the two companies assess applicants before approving a rent-to-own regimen. In this partnership, the dealer provides a corporate guarantee on the motorcycle, while Daung Capital incentivizes the customer with a program of installment payments. Leon Qiu, the founder of Daung Capital, revealed to KrASIA through an email interview that the company has financed over 3,200 motorcycles to date.
Riding on that success, Daung Capital is now adding white goods such as kettles, rice cookers, and refrigerators to its rent-to-own program.
Cash advances and microlending
Aside from microfinancing for individuals and corporate financing for local SMEs, the firm also offers cash advances for salaried workers.
For individual borrowers, Daung Capital does not charge a fixed interest rate. Instead, the rate is the result of a calculation that factors in one’s monthly income, the period of repayment, and borrowed amount. Using the loan calculator on Daung Capital’s website, KrASIA generated a test case.
With a monthly wage of USD 300, an intent to borrow USD 600, and a repayment period of 12 months, the total repayment amount arrives at USD 744, with a monthly payment of USD 62. Based on these figures, the interest rate works out to be 1.24%, which is much lower than the average rate of 2.5% charged by conventional microfinance institutions.
Currently, the Central Bank of Myanmar has its loan interest rate set at 10% and capped at 13%. Since February 1, individuals without collateral have been allowed to borrow from banks, but at an interest rate of 16%. Local lenders or loan sharks can even charge up to 60% per month.
Microfinancing is a risky segment. There is a tendency for borrowers to default on loans, but Daung Capital’s facial and optical recognition act as deterrents as the biometric data can help the company track down borrowers who renege on their contracts.
Focus on growing for 2019
Established only in December 2018, Daung Capital is a newcomer to Myanmar’s fintech and lending sectors. Yet the company already closed its Series A round, and is valued at SGD 16.5 million (USD 12 million). Daung Capital is backed by Bod Tech Ventures, which was founded by Burmese entrepreneur Mike Than Tun Win, as well as Majuven, an early and growth stage venture capital firm from Singapore.
Qiu told KrASIA that having Majuven on board is Daung Capital’s greatest achievement thus far, considering this is the venture capital firm’s first investment in Myanmar. “A veteran VC like Majuven is testament to the tactic and make-up of the team,” Qiu said.
As we proceed towards the halfway point of 2019, KrASIA asked Qiu for Daung Capital’s goal for the year. He said the firm doesn’t have a specific goal, but the team isn’t about to rest on their laurels. Rather, Daung Capital will focus on growing their credit portfolio safely and incorporating practical technological advancements to grow the platform.
This article is part of KrASIA’s “Startup Stories” series, where the writers of KrASIA speak with founders of tech companies in Southeast Asia.