Ensuring Food Security in Myanmar- Targeting the Land and Credit Markets to Support Smallholder Agriculture

Ensuring Food Security in Myanmar:
Targeting the Land and Credit Markets to Support Smallholder Agriculture
Authors: Nicole Bacolod, Sanjan Haque, Julian Kirchherr
PAE Advisor: Yvonne Chen
Policy Analysis Exercise as partial fulfilment of requirements for the Degree of
Master in Public Policy.
Lee Kuan Yew School of Public Policy
National University of Singapore
April 2013

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ACKNOWLEDGEMENTS
The team would like to extend gratitude to the PAE advisor, Dr Yvonne Chen, and
acknowledge the support provided by Dr Kelvin Lee and his team throughout the PAE
process.
This report would not be possible without support from the research partner, Oxfam
Myanmar and especially Ms Jasmine Burnley, Mr Kyaw Nyi Soe and Ms Nilar Win
whose steadfast support during the primary research and feedback on different
iterations of the report were most helpful. Ms Burnley’s support at each stage was
crucial for its continued improvement and is a reflection of the dedication shown by
Oxfam towards the team and the report. A special thanks to Mr Htun Lin, Manager of
ASA, who painstakingly ensured the team, was able to undertake household survey in
his township. The team would also like to acknowledge the support provided by Dr
Michael J. Montesano of the Institute of Southeast Asian Studies and Dr David Dapice,
at the Harvard Kennedy School of Government for sharing their time and expertise
with our team. An extended acknowledgment towards the experts interviewed in
Myanmar for this report. Without their time and support the team would not have rich
information used to produce this document.
This PAE is dedicated to the millions of farmers across Myanmar working diligently to
ensure three meals per day and secure a livelihood for their family. The team hopes
that through the recommendations these households can lift themselves out of poverty
and contribute towards national development.

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TABLE OF CONTENTS
ACKNOWLEDGEMENTS 2
TABLE OF CONTENTS 3
EXECUTIVE SUMMARY 4
LIST OF TABLES 6
LIST OF FIGURES 6
LIST OF ANNEXES 7
1.INTRODUCTION 8
2.BACKGROUND 11
3.METHODOLOGY 12
4.STAKEHOLDER ANALYSIS AND PROBLEM TREE 15
5.PROPERTY RIGHTS & LAND 21
5.1 PROPERTY RIGHTS AND LAND: THE THEORETICAL STANDPOINT 21
5.2 PROPERTY RIGHTS AND LAND: DIFFERENCE-IN-DIFFERENCES ESTIMATIONS 26
5.3 PROPERTY RIGHTS AND LAND: THE CASE OF MYANMAR 36
6.CREDIT 45
6.1 CREDIT: THE THEORETICAL STANDPOINT 45
6.2 INTRODUCING THE CREDIT MARKET IN MYANMAR 47
6.3 ANALYZING THE CREDIT MARKET IN MYANMAR 58
7.POLICY RECOMMENDATIONS 66
7.1 EVALUATING LAND POLICY TOOLS: CRITERIA 66
7.2 LAND POLICY RECOMMENDATIONS 67
7.3 CREDIT POLICY RECOMMENDATIONS 81
8. CONCLUSIONS 87
BIBLIOGRAPHY 91
ANNEXES 108

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EXECUTIVE SUMMARY
This report concentrates on the processes behind ensuring household food security
across rural Myanmar. The report has been commissioned by Oxfam Myanmar to
address the following policy problem:
“Analyze the current agricultural challenges in Myanmar in the context of
land property rights and access to micro credit and suggest related policy
options that can promote agriculture and ensure food security”.
Thus, the focus of the report remains on two factors: land property rights and credit
and their accessibility and availability to support smallholder farming. The report
argues that unequal land distribution across Myanmar and weak supply for credit has
reduced the ability of smallholder farmers to cultivate land. Structural weaknesses in
the credit and land markets have concentrated resources within a small elite group,
creating the paradox of food exports at a national level and high levels of poverty and
malnutrition at the same time.
The report is divided into two sections: land and credit. This division is based upon
suggestions by the research partner Oxfam Myanmar. The land section agues that an
increase in property rights would exacerbate the landlessness situation as well as land
speculation. The new laws enacted in 2012 have improved the situation for smallholder
farmers by imposing a penalty on fallow land to discourage speculative purchases.
The success of these measures will be determined by compliance measures ensured
by the state. This report identifies land redistribution, land reform, political will as well
as compliance mechanisms as core recommendations to improve land equity and
ensure household food security.
The formal credit market for farmers is monopolised by the state-owned Myanmar
Agricultural Development Bank (MADB) and constitutes a fraction of the total rural
credit market as informal sector hold sway over farmers. The financial sector across

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the country suffered exogenous shocks after the 1997 and 2008 financial crisis, which
reduced confidence in the banking sector both for deposits and savings. This gave rise
to speculative purchases of all types of land across the country. The emergence of the
microcredit sector after Cyclone Nargis as well as informal private sector lending
schemes for farmers (such as the Special Agriculture Companies (SAC)) have
supported a smallgroup of farmers to borrow cheaply and cultivate profitably. However,
this has spatial limitations and located in low risk-high profit regions of the country such
as the Ayerwardy Delta, also known as the breadbasket of Myanmar. The informal
lenders and kinship networks hold sway across regions with ethnic nationalities, which
can also be interpreted as high risk-low profit areas. This report provides a set of
recommendations, which include the deregulation of the banking sector, encouraging
many suppliers of formal credit for farmers, building capacity and expanding MADB,
and increasing microfinance institutions.
The report has also analysed the motivations, resources and outcomes of the different
stakeholders across the country from the perspective of the status quo and created a
problem tree to graphically illustrate the problems in the land and credit markets across
the country. The report undertook in-depth semi-structured interviews with experts in
Yangon, Singapore and USA (via Skype) and a household survey in the Ayerwardy
Delta. Oxfam Myanmar provided research support and the findings of this report will
support the development of Oxfam’s institutional strategy to achieve household food
security across Myanmar.

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LIST OF TABLES
Table 1: Myanmar Land & Credit Stakeholder Analysis
Table 2: Gains from Trade (Land Model, Part 1)
Table 4: Myanmar, Laos, Thailand, Cambodia and Vietnam in Comparison
Table 5: Food Security CAGRs in Myanmar, Thailand & Laos (1996-2001)
Table 6: Short-Term Difference-in-Differences Estimations Myanmar, Thailand & Laos
Table 7: Long-Term Difference-in-Differences Estimations Myanmar & Laos
Table 8: Summary of Conditions of Different Agricultural Credit Lenders in Rural
Myanmar
Table 9: Number of Borrowers and Loans Disbursed- Action for Social Aid (2009-12)
LIST OF FIGURES
Figure 1: Problem Tree Analysis - Factors for Production: Land and Credit Markets in
Myanmar
Figure 2: GDP composition by sector in 2011 [percent, data from CIA (2012)]
Figure 3: Development of Property Rights Security in Myanmar [1996 – 2009; 0-100;
0-5]
Figure 4: Development of Property Rights Security in Thailand [1996 – 2009; 0-100; 0-
5]
Figure 5: Development of Property Rights Security in Laos [1996 – 2009; 0-100; 0-5]
Figure 6: Food Security in Selected Asian Countries [1995-2009; kcal/day]
Figure 7: Inflation Rate in Myanmar [1993-2013; %]
Figure 8: The New Land Laws: Level of Awareness among Burmese Farmers
Figure 9: Productivity among Burmese Farmers [Kyat/acres]
Figure 10: Average Food Security and Land Ownership among Burmese Farmers
[acres]
Figure 11: Increases in loan amount per acre

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Figure 12: Yearly Loan Disbursal of MADB Pyapon Township
Figure 13: Inflation Rate Trends for 2007-2011 (ADB 2012)
Figure 14: Sources of Credit in Myanmar (Lift 2012)
Figure 15: The Effectof Government Interest Rate Ceiling in the Rural Financial Market
Figure 16: Land and Credit Policy Recommendations
Figure 17: Indicative Implementation Timeline
LIST OF ANNEXES
Annex 1: Oxfam Myanmar
Annex 2: Industrial & Extractive Sector Projects Across Myanmar
Annex 3: Ethnic Nationalities Grievances
Annex 4: Further details of debt relief
Annex 5: Interviews with experts carried out in Myanmar
Annex 6: Household survey questionnaire
Annex 7: Original research proposal
Annex 8: Myanmar, Laos, Thailand, Cambodia and Vietnam in Comparison

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1. INTRODUCTION
This Policy Analysis Exercise (PAE) investigates the impact of land rights and access
to credit on household food security in rural Myanmar. Focusing on these two topics
follows two hot debates globally:
Indeed, a variety of leading development economists – most notably the Peruvian
economist Hernando De Soto – view secure property rights as a key to food security.
“Securing property rights is a necessary condition for agricultural growth” (USAID
2012).
In addition, access to micro credit is considered as a second enabler. Up-scaled by
Muhammad Yunus, winner of the 2006 Nobel peace prize, via his Grameen Bank this
tool is believed to hold “enormous potential (…) for hunger alleviation”(Cons &
Paprocki 2009).
Admittedly, there are a variety of variables likely to impactfood security.Such variables
comprise, inter alia: Access to technology, population growth, availability and access
to water or climate change. No report is able to cover all of these variables.
The focus of this PAE was developed in collaboration with Oxfam Myanmar, the team’s
research partner for this PAE. Additional information on Oxfam Myanmar may be
obtained in Annex 1.
1.1. DEFINING FOOD SECURITY AND SMALLHOLDER FARMING
Development policy may aim for a variety of goals, for instance: Fostering good
governance, ensuring continuous economic growth, adapting measures to combat
climate change or helping farmers to grow more crops.
Taking a look at Maslow’s famous hierarchy of needs helps to organize and prioritize
these goals. Indeed, in Maslow’s hierarchy of needs food security is considered as the
very most important physiological needs: “For the man who is extremely and

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dangerously hungry, no other interests exist but food” (Maslow 1943). “Food is not a
commodity like others” (Clinton 2011).
Unfortunately, food security is not a given in Myanmar, the case at hand. Currently,
the country’s level of food security is ranked as ‘serious’ by the latest World Hunger
Index – a considerable improvement already compared to previous years already:
Indeed, Myanmar decreased its GHI food security score from 29.2 in 1990 to 16.3 in
2011. A score of 5 is equivalent to full food security (Welthungerhilfe 2011).
This is surprising in a country where 70 percent of the workforce works as farmers and
36.4 percent of GDP is derived from the agricultural sector (World Bank 2010). This is
also surprising in a country which is a net food exporter. In 2013, Myanmar ought to
sell abroad as much as 750,000 tons of rice, for instance. It plans to double its rice
exports within the next five years (Bloomberg 2012).
Because of its significant change in food security over the past twenty years, because
of the great importance of agriculture in the country’s economy and because the
country still struggles to achieve a high level of food security despite its food exports,
Myanmar is a particularly interesting and relevant case to investigate.
Food security means “having sufficient quantity and quality of food throughout the year
for a healthy and productive lifestyle” (USAID 2012). Operationalizations of the term
are provided in Section 5 and Section 6 of the report.
Rural Myanmar refers to more all Burmese citizens which are farmers. Such farmers
are usually smallholder farmers which work on their land themselves. There is no
universal definition for smallholder farming in Myanmar. According to the primary
research undertaken, a smallholder farmer holds around 10 acres with 5 being the
minimum average needed to feed a household of five for a year.

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1.2. STRUCTURE OF THE REPORT
This introduction (Section 1) has outlined the research question and highlights its
policy relevance in the Burmese context. Section 2 provides background information
on the political and economic situation in Myanmar. Section 3 explains chosen
methodological approach. Section 4 describes core stakeholders and the team’s
problem tree.
Section 5 examines the impact of land rights on rural food security in Myanmar. The
1st
part of the section outlines theoretical linkages between land rights and food
production. The 2nd
part investigates the impact of expropriation on food security citing
the 2001 land confiscations in Myanmar. It is based on difference-in-differences
estimations. The 3rd
part discusses the findings from the team’s primary research
undertaken in Myanmar in January 2013. The authors find that the country’s current
land distribution is disproportionally skewed towards the elites. This distribution pattern
leaves large amounts of land fallow and exacerbates food insecurity.
Section 6 examines the impact of access to credit on rural food security in Myanmar.
The 1st
part investigates theoretical linkages between access to credit and food
security. The second and third part present and discuss findings from the team’s
primary research. The report argues there is a lack of competition in the rural credit
market, which causes more than half of the population to borrow from expensive
informal sources. The lack of affordable and sufficient credit in Myanmar also impedes
rural food security.
Section 7 develops a range of policy recommendations based upon the previous
analyses, which, if adopted, would foster household food security in rural Myanmar.
Section 8 summarises the central findings and implications of this report and provides
an indicative timeline for the implementation of the given recommendations.

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2. BACKGROUND
This section provides additional background information on Myanmar. It discusses the
country’s ethnic conflicts, its economic prospects and poverty in Myanmar. It also
discusses the impactof the new constitution and cyclone Nargis on access to land and
credit.
2.1. ETHNIC CONFLICTS IN MYANMAR
Just days ago reports of Buddhist monks instigating burnings, beatings and killings of
Muslim minorities in central Myanmar made international headlines (International
Herald Tribune 2013). Indeed, ethnic nationalities claim years of exploitation and unfair
distribution of profits from extractive sector and large industrial projects (see Annex 2:
Industrial & Extractive Sector Projects Across Myanmar). This was highlighted by the
national government ignoring customaryland transfer practices, commonwithin ethnic
nationalities, in its newest land laws (see Annex 3: Ethnic Nationalities Grievances).
2.2. ECONOMIC OUTLOOK AND HOUSEHOLD POVERTY STATUS
Nowadays Myanmar is at the centre of global attention not only because of ethnic
conflicts heating up, though. Ever since the Burmese President Thein Sein has
introduced a variety of economic and democratic reforms,many observers believe that
the country could be one of Asia’s next rapidly emerging economies (Reuters 2012).
The Asian Development Bank (ADB), for instance, suggests that the country could
triple its per-capita-income by 2030 becoming a middle-income nation provided it
continues its reform path (ADB 2012). Indeed, Myanmar is the last large country in
Asia which opens up. Growth projections standing at 7 percent for the next five years
are encouraging
Overall, Myanmar is income-poor, but resource-rich. However the government cannot
capitalize on the country’s resources; government revenue sources are limited
compared to ASEAN neighbours. Gratefully, in January 2013 the government cleared,

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settled and received bridging loans up to US$7 billion (Annex 4: Further details of debt
relief).
The banking system in Myanmar is only slowly re-developing. The 1997 and 2008
financial crises weakened the financial sector leading to speculative purchase of land
for investment security.
Partly because of ethnic conflicts and a dysfunctional financial system Myanmar has
high incidences of poverty. The GDP per capita was USD 1,246 in 2010, ranking the
country 161 out of 182 (IMF 2010). At national level, 10 percent of the population falls
below the Food Poverty Line (FPL) indicating food insecurity. The President targeted
poverty reduction to 16 percent by 2015 (further information in Annex 3).
2.3. RECENT EVENTS AFFECTING NATIONAL FOOD SECURITY
Cyclone Nargis in 2008 adversely affected national food security. The large death toll
resulted in the availability land, which was largely usurped through land-grabs. Oxfam
claimed farmers suffered from cyclical indebtedness due to the unavailability of
affordable loans (2009).
Recently government policies have shifted from subsistence farming to commercial
agriculture (UN Myanmar Agricultural Sector Investment Strategy 2011). The
agribusinesses sector is focused on crops such as jathropa, palm oil and rubber for
export; evidently, none of these crops directly support household food security (TNI
2011). A total of 204 agribusinesses received 1.9 million acres of land in 2011.
Currently, only 27.8 percent of land in Myanmar is cultivated and developed
(Department of Agricultural Planning 2011).
3. METHODOLOGY
This section outlines and explains the basic rationale of this PAE’s methodology. The
chosen mixed-methods researchdesign for this report was revised numerous times as
a result of the travel constraints for non-Burmese citizens in Myanmar. The final PAE

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now builds upon the review and analysis of existing literature and data, 18 semi-
structured interviews undertaken in Yangon as well as a household survey undertaken
with 15 farmers in Pyapon.
3.1. SECONDARY RESEARCH
As an initial step and following the research questions outlined in the introduction, the
team undertook literature reviews from September 2012 onwards under three main
thematic areas:
 Land usage, availability and reform in Myanmar and across the world;
 The impact of property rights and access to credit on food security;
 Microfinance (reforms) and availability of rural credit in Myanmar and globally
The research was restricted to English language-based literature. Peer reviewed and
non-peer reviewed articles, reports published by NGOs, reports published by CSOs,
country analyses by private companies, country analysis by intergovernmental
organisations, annual reports by government as well as unpublished articles and
reports were taken into account.
The literature review helped developing an initial understanding of the topics at hand
as well as assessing theoretical links between the chosen variables. It also indicated
to what extent theoretical links have been corroborated by empirical findings. This PAE
attempts to build upon such previous theories and empirical findings. The empirical
data collected for analyses was sourced from FAO’s FAOSTAT, the Global Hunger
Index, the Heritage Foundation Property Rights Index, the World Bank, UNDP
Myanmar and the IMF.
3.2. PRIMARY RESEARCH: SEMI-STRUCTURED INTERVIEWS
The primary research attempted to validate and complement the secondary research
and analyses undertaken. It was conducted from 5-14 January 2013 in Myanmar.
During this time period the team undertook 18 interviews in Myanmar with experts and

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practitioners involved in property rights, land, microcredit, and food security as well as
a household survey in Pyapon Township (Annex 5: Interviews with experts carried out
in Myanmar & Annex 6: Household survey questionnaire).
The research design for this report was revised as a result of the constraints of field-
based research for non-Myanmar citizens (see Annex 7: Original research proposal).
The snowball technique, a “technique for gathering research subjects through the
identification of an initial subject who is used to provide the names of other actors”
(Atkinson & Flint 2004), was utilised to identify relevant individuals. The interviews
broadly followed five distinctive themes with questions being modified when suitable:
 Status quo or current situation of the sector/industry/policy
 Establish relationship between the industry/sector and the research question(s)
 Reform measures on this industry/sector
 Impact of reforms on this industry/sector
 Prospects for Myanmar’s future
3.3. PRIMARY RESEARCH: SURVEY
The survey was undertaken in the Pyapon Township in the Ayerwardy Delta on 12-13
January. The survey was a closed questionnaire with 31 questions (Annex 6).
Respondents were borrowers of the NGO Action for Social Aid (ASA). The location of
the village was selected with ASA. There were only 15 farmers present in the village
at the time of the field research. All 15 farmers were interviewed.
The chosen sample is not representative and continuous support provided by ASA
may indicate that this village may be more affluent, on average, than most villages in
the region. The sample size does not allow for any statistically significant analyses.
Nevertheless, the analysis of the sample – in combination with the semi-structured
interviews undertaken as well as the comprehensive literature review undertaken -
may help complement and validate the team’s initial hypotheses.

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4. STAKEHOLDER ANALYSIS AND PROBLEM TREE
This section provides a comprehensive list of stakeholders relevant for this report. The analysis was undertaken with the status quo in mind, i.e.
if the recommendations of the report are not implemented.
Table 1: Myanmar Land & Credit Stakeholder Analysis
Stakeholders Motivations Resources Desired outcome
Myanmar
Agriculture
Development
Bank (MADB)
Achieve high rates of credit disbursement
& repayment from all borrowers
Monopoly in the formal credit
market for farmers across the
country
Expand annual budget, resources for
staff, financial services for borrowers
Ministry of
Agriculture &
Irrigation
Expand agriculture production for both
staple items and cash crops for national
food security
Ability and capacity to mobilise
farmers and civil servants to
cultivate land for food production
and cash crops
Improve extension services for farmers;
provide high quality irrigation; contribute
to national growth & reform via different
types of agriculture products

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President’s Office Legacy of transition to democracy;
integration within regional and international
community; continue tacit involvement of
military within civilian governance
Support of parliament, military
and international community
Transition to a functional democracy,
increase inward investment,
industrialization, and achieve food
security
National League
of Democracy
Prepare ground for national elections in
2015; engage with national government for
stable democratic transition; involve
international community within national
development
Grass-roots support base for
democratic reform; strong
alliances with global powers;
Aung San Su Kyi
Successful campaign at national
elections in 2015: critical mass within
Parliament to influence policy making
process; maintain democratic transition;
restrict military's influence within policy
making process
United Nations
agencies
Contribute to democratic transition through
capacity development in public sector
employees and institutions; establish
strong regulatory framework; interlocutor
between government and donor;
specifically build capacity of CSOs
Expertise in good governance;
interagency coordination; linked
to international resources of
experts.
Develop local capacity to maintain
democratic institutions; enable strategic
public sector institutions to dispense
public goods and enable government to
function; promote good governance;
inclusive growth framework

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Asian
Development
Bank
Contribute to democratic transition through
capacity development public sector
employees and institutions; establish
strong regulatory framework; monitor
economic growth indicators & effective
expenditure of loans & debt clearance
Loans at preferential rates of
interest; capacity development of
public sector for economic
governance; interlocutor with
regional donors
Sustainable economic growth; inward
investment from other Asian nations;
government compliance to
commitments on growth and stability.
International
NGOs
Support government development
programme in health and education;
reduce poverty: child malnutrition and
income inequity; promote inclusive growth.
Expertise on working with
marginalised group; capacity to
support livlihoods, primary health
care, non-formal education
programmes
Close cooperation with national
government to reduce poverty; higher
level of autonomy to create, expand and
implement programme; expand local
partners.
NGOs (national) Support local development programme in
health and education; reduce poverty: child
malnutrition and income inequity.
Local knowledge of poor and
vulnerable groups; weaknesses
in local institutions; gaps in the
market & local capacity
Close partnership with regional and
national government for development
programmes; financially sustainable
through microfinance

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Agribusiness Continue expropriating large farmland for
monoculture agriculture for commercial
farming
Expertise and network for
commercial farming; input
suppliers and buyers of products
from home and abroad
Weak compliance of VFVLM law;
Farmland Law ensures land tenure
security for large holder farmers
Land speculators Strong investment returns on land across
Myanmar
Capital investments in land
across the country; strong
linkage with national government
and military
security
Large holder
farmers
Secure current landholdings; continue
cultivating land using current techniques
Local knowledge of land, people,
resources; network with different
suppliers and buyers
security
Smallholder
farmers
Improve productivity of landholding; raise
household income to meet basic need
requirements
Local knowledge of land,
cultivation technique, access to
limited capital from MADB
Sustainable livelihood to raise
household income and meet basic
needs; increased access to land and
capital; more support from local
Agriculture Extension officer.

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Special
Agriculture
Companies
Purchase paddy at lower than market price
through cheap credit to small-medium
sized farmers
Capital investment in loans to
farmers; market access for rice
Low levels of competition in the credit
market; small-medium sized farmers
unable to increase productivity & access
market
Informal credit
providers
Few suppliers of credit to farmers Large amounts of capital
available at short-notice for
lending for both consumption &
productive loans
Continue to be the dominat providers of
credit to farmers
Commercial
banks
Unable to supply credit for agirculture;
prohibitive cost of business for all other
financial services in the rural market
Capacity to reach urban and
peri-urban dwellers
Deregualtion of the financial sector;
expand scope of competition in the
credit market across the country.

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Figure 1: Problem Tree Analysis - Factors for Production: Land and Credit Markets in Myanmar
This PAE aims to address the problem of food insecurity from the supply side and improve two distorted markets, namely land and credit. The
Problem Tree Analysis provides a top-down summary of the team’s understanding of the causes of the neglect of smallholder agriculture that
leads to household food insecurity. The following sections expand and elaborate on this problem tree.

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5. PROPERTY RIGHTS & LAND
This section examines the impact of land property rights on food security. First,
theoretical linkages between land property rights and food security are described.
Second, the link between land property rights and food security in Myanmar, Laos and
Thailand is investigated empirically via a difference-in-differences set-up. Third, the
central findings of our field research on land property rights in Myanmar are discussed.
5.1 PROPERTY RIGHTS AND LAND: THE THEORETICAL STANDPOINT
Among economists, there is now a growing consensus “that institutions protecting
property rights are essential for successful long-run economic performance”
(Acemoglu 2003). This section explores from a theoretical standpoint this consensus
and channels through which property rights may affect economic activity (including
food production). The structure of this section is based upon Besley & Ghatak (2010).
The section starts out by defining property rights. Then it reviews the three main
channels through which property rights may affect economic activity. These channels
are related to (i) expropriation risks, (ii) collateral and credit markets and (iii) gains from
trade.
It is argued that a high risk of expropriation reduces and distorts investments.However,
a low risk of expropriation in selected markets may also reduce and distort
investments. Likely a lack of collaterals due to insecure property rights impairs the
functioning of credit markets. Furthermore, resources may not be managed by those
who can use them most productively if assets such as land cannot be traded. The
section concludes by pointing out that high levels of economic activity (including food
production) may not necessarily lead to high levels of food security in a country.
5.1.1. DEFINING PROPERTY RIGHTS
The term ‘property rights’ entails at least three dimensions: First, it refers to an owner’s
“right to use (…) an asset for consumption and/or income generation (referred to as

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“use rights”) (Besley & Ghatak 2010).” Secondly, “it (…) also includes the right to
transfer it to another party” (Besley & Ghatak 2010). Thirdly, the term ‘property rights’
implies that one may exclude other parties’ from using one’s good or asset. Thus,
property rights are not items such as music, cars or land themselves, but only “an
economic concept about the house, embodied in a legal representation” (de Soto
2000). If a party holds the legal right to use land for income generation, to transfer this
land and is able to exclude other parties from using it, property rights would be
considered as a given. Following this definition, a party may even hold property rights
on land when there is a government monopoly on land ownership as long as the
government would grant land use and transfer rights.
However, land used under customary law would not necessarily fall under such
categorisation. If a government does not recognise such customary laws from a legal
standpoint, those using land only under customary laws would not hold any property
rights. This is important to remember in the case of Myanmar.
5.1.2. PROPERTY RIGHTS & EXPROPRIATION RISKS
This section explains how the level of expropriation risk may affect economic activity
(including food production) and cites relevant studies supporting this claim.
Indeed, high risk of confiscation may “not only affect the magnitude of investment, but
also the efficiency with which inputs are allocated” (Knack & Keefer 1995). If citizens
intend to invest, they will focus on those assets least prone to confiscation. However,
those might not be the most productive ones. This channel has been corroborated by
a variety of studies. This report is citing two examples below.
Johnson et al (2002) finds that profit reinvestment rates of private companies in
Eastern Europe are lowest in Ukraine and Russia(where perceived property rights are
lowest) and highest in Poland and Romania where the opposite holds true. Meanwhile,
Banerjee, Gertler & Ghatak (2002) investigate the impact of introducing tenancy laws

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(a proxy for increased property rights) on crop share production in West Bengal. The
authors find that reform program explains around 28 percent of the subsequent growth
of agricultural productivity. However, a high trust in the government’s ability to protect
citizens from confiscations may not always be desirable in our point of view. This line
of thought is driven by our analysis of land distribution and usage patterns in Myanmar.
Assume,for instance, a setting in which the government is able to protect citizens’land
while high levels of inflation prevail. Most likely, investments would then be distorted
towards the ‘safe havens’ such as land. Indeed, if land acted as an (unproductive)
repository in such a setting, a seemingly high level of property rights may also limit
economic activity.
5.1.3. PROPERTY RIGHTS, COLLATERALS & CREDIT MARKETS
This section explains how a high level of property rights security may support other
transactions, which, in turn, then increase economic activity (including food
production). Consider this simple example: A creditor considers providing a loan of 100
units for one year with an annual interest rate of 10 percent. Property rights are non-
secure in this scenario. The repayment probability is estimated at 50 percent. The
expected value (EV) of such an investment would be zero units. Assume that the
creditor would not provide a credit with such an EV. Now consider the same scenario,
but assume that property rights are secure. The potential recipient, a farmer, owns
land worth 20 units which now can be offered as collateral. Suddenly, the EV would
increase to 20 units so that the creditor is likely to provide the loan. The increased
property right would increase his food production.
Indeed, creditors are more likely to support a project if the property of the beneficiary
can serve as collateral. Furthermore, creditors are likely to lower interest rates if
property of a recipient can serve as collateral. Again, this channel has been
corroborated by a variety of studies. Two examples below are provided below. Indeed,

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Field & Torero (2006) concludes that urban land titling, a proxy for increased property
rights, is associated with a 10-percentage point increase in loan approval rates from
banks. Besley (1995) finds a similar correlation in Ghana.
5.1.4. PROPERTY RIGHTS & GAINS FROM TRADE & ECONOMIC GROWTH
This section explains how incomplete property rights may impair trade, which, in turn,
may limit economic activity. This line of thoughts assumes that the ability of an owner
to transfer his property rights, in our case his land use rights, is limited. Based upon
Besley & Ghatak (2010) a simplified model has been built to illustrate gains from trade:
FARMER A FARMER B
Cultivation Capacity 20 5
Acres Owned 100 1
Yield/Acre 20 10
Output 400 10
In this simple scenario, inspired by the field research in Myanmar, farmer A’s amount
of land owned exceeds his cultivation capacity, the opposite holds for farmer B.
Assume now the following scenario in which the transfer of land use rights is allowed:
FARMER A FARMER B
Cultivation Capacity 20 5
Acres Owned 100 1 + 4
Yield/Acre 20 10
Acres Rented 4 4
Rent/Acre 9 9
Output 436 14
Although farmer A charges farmer B a rent of nine units per acre, both farmers are
better off in this scenario. Total output increases by as much as 50 units because the
transfer of land use rights is now allowed. Gains from trades are realised because

25
someone else can make better use of the land at hand. “Economic efficiency is
enhanced by having assets managed by those who can use them most productively”
(Besley & Ghatak 2010).
This particular model rests upon the assumption that there is such a thing as a
cultivation capacity. The primary research undertaken in Myanmar finds that making
suchan assumption is realistic. Chernina, Dower& Markevich (2004) also demonstrate
with a robust difference-in-differences approach how the “introduction of individual land
titles [allowing land trade] improves the allocation of resources” in the late Russian
Empire.
5.1.5. PROPERTY RIGHTS & FOOD SECURITY
The previous sections argued from a theoretical standpoint that protection from
confiscations would directly enhance economic activity (including food production).
This sectionnow explains why an increased economic output (including increasedfood
production) does not necessarily lead to increased food security from a theoretic point
of view, though. Indeed, food produced in a global free market economy is likely to be
targeted at those markets, which yield the highest profit margins. If the ability of the
local population to pay for food produced domestically is limited, then food produced
in the home markets might be sold abroad – despite domestic food insecurity at home.
This line of thought is of particular relevance for Myanmar. Indeed, the country already
exports a lot of food – and is projected to export even more in the future. In 2013, the
country ought to export as muchas 750,000 tons of rice, for instance. It plans to double
its rice exports within the next five years (Bloomberg 2012). At the same time, the
Global Hunger Index still ranks the country’s level of food security as “serious” (GHI
2011).

26
5.2 PROPERTY RIGHTS AND LAND: DIFFERENCE-IN-DIFFERENCES ESTIMATIONS
Citing the example of Myanmar, the previous section suggested that high levels of
property rights security may not necessarilylead to food security at the household level.
Accordingly, low levels of property rights may not always lead to low levels of food
security. This section now emprically investigates the link between land property rights
and food security with a difference-in-differences approach.
First, this section explains the main ideas behind difference-in-differences estimations.
Second, the operationalizations for the variables at question are developed. Third,
suitable control groups are identified. Fourth, a suitable policy intervention is identified.
Fifth, the difference-in-differences calculations are conducted before the results of the
investigation are discussed. The authors find in this section that the immediate impact
of confiscations (reduced property rights) on food security is negative. However, the
medium-term impact is likely to be more nuanced. The authors decided to examine the
outlined question empirically with a first-hand research set-up because no comparable
studies (regarding topic and region) with (rather) robust quasi-experimental techniques
could be found in the literature.
5.2.1 THE DIFFERENCE-IN-DIFFERENCES APROACH
This section explains the rationale behind difference-in-differences estimations, the
chosenmethodology to investigate the question at hand. Sincethe work by Ashenfelter
& Card (1985), using difference-in-differences approaches, a quasi-experimental
technique, has become widespread in policy evaluation. Its key idea is “to exploit
naturally occurring exogenous variation” to mimic a randomized experiment (Remler
et al. 2010). If conducted correctly, results may yield causal effects. In its simplest set-
up (adopted in this PAE) outcomes are observed for two groups for two time periods.
Whereas one of the groups is exposed to a treatment, the secondgroup is not exposed
in either period. In this set-up, the change in the control group outcome variable is

27
subtracted from the change in the treatment group yielding the net treatment effect
(Imbens 2007).
This procedure allows researchers to remove biases from permanent differences
between the treatment and control groups at hand as well as differences in the
treatment group that could be the result of certain time trends. A central assumption in
this approach is that both treatment and control group truly underlie identical trends
except for the policy intervention at hand.
The difference-in-differences approach developed below is inspired by Banerjee,
Gertler & Ghatak (2002). However, the methodological set-up for this report maybe
particularly innovative because a negative policy treatment (confiscations) is used as
policy intervention. Usually, positive policy treatments are utilised.
5.2.2 OPERATIONALISING THE LEVEL OF PROPERTY RIGHTS
This section outlines the chosenoperationalizations for the property rights security, the
indendent variable at question. The level of property rights has been operationalised
via a variety of indexes. For suitability this report examined four: the International
Property Rights Index, the Maplecroft Expropriation Index, the Property Rights Index
within the Heritage Foundation Index of Economic Freedom and the Rule-of-Law-Index
of the World Bank Worldwide Governance Indicator (WGI) project. The International
Property Rights Index had to be excluded because it does not rank Myanmar
(Zahourek 2013). The Maplecroft Expropriation Index was excluded becauseone must
purchase the index. In 2013, the Index ranks Myanmar among the 21 countries in the
world with an “extreme risk for expropriation” (Maplecroft 2013). Thus, the level of
property rights security is first operationalized by drawing on the Index of Economic
Freedom, based upon surveys, from the Heritage Foundation. A score of 100 in the
Index indicates “private property is guaranteed by the government.” (The Heritage
Foundation 2013). A score of 10 indicates, “private property is rarely protected.”

28
Second, the level of property rights security is operationalised by drawing on the Rule-
of-Law-Index of the World Bank Worldwide Governance Indicator (WGI) project; this
index, based upon surveys independent from the Heritage Foundation, releases a rule-
of-law score ranging from -2.5 to 2.5. The index score is normalized by the authors of
this PAE to a range from 0 to 5. A high score ought to capture “perceptions of
confidence in the rules of society, and in particular the quality of (…) property rights”
(World Bank 2013).
Both operationalizations are in line with the previously discussed definition of property
rights. The authors are aware that the quality of data is generally believed to be poor
in most countries in South East Asia, the area of interest. Two indices are chosen for
the independent variable in order to be (more) able to identify possibly random
variations within the data.
5.2.3 OPERATIONALIZING THE LEVEL OF FOOD SECURITY
This section outlines the chosen operationalizations for the level of food security, the
dependent variable at question. The level of food security has been operationalized
via a variety of indexes. The authors examined four for suitability: The Global Food
Security Index (GFSI), the Maplecroft Food Security Risk Index (FSRI), the World
Hunger Index and data on daily per capita calories consumption by the Food and
Agricultural Organization (FAO).
The GFSI had to be excluded because it only provides 2013 data for free. In 2013, the
Index ranks Myanmar 78/105 (bottom 25 percent) (Global Food Security Index 2013).
The FSRI was excluded for the samereason. It ranks Myanmar at high risk with regard
to food insecurity (Maplecroft 2011). Data from the World Hunger Index is available,
but only for selected years (2011, 2009, 2007, 2001, 1996). The index ranks countries
from a scale from 0 – 30 whereas values higher than 30 indicate high levels of hunger.

29
The data on per-capita-daily-calories-intake from FAO is also taken into consideration
as one operationalization of food security.
5.2.4 IDENTIFIYING CONTROL GROUPS
This section explains the rationale for choosing Laos and Thailand as control groups
for Myanmar. The authors examined five countries via the criteria outlined in the table
below (criteria taken from Banerjee, Gertler & Ghatak (2002)).
Table 4: Myanmar, Laos, Thailand, Cambodia and Vietnam in Comparison
LAOS THAILAND CAMBODIA VIETNAM
Level of Food Security ✓ ✓ ☓ ☓
Geographic Proximity ✓ ✓ ☓ ☓
Agro-Climatic Features ✓ ✓ ✓ ✓
Level of Economic
Develpoment
✓ ☓ ✓ ✓
Total ✓✓✓✓ ✓✓✓ ✓✓ ✓✓
Additional information on the assessment and underlying data may be found in Annex
8.
Laos and Thailand are most similar to Myanmar with regard to the chosen criteria.
Indeed, and as outlined in Annex 8, their food security (in kcal per capita per day)
developed similarly (CAGRs 1996-2009; Myanmar: 1.16 percent, Laos: 1.21 percent,
Thailand: 1.75 percent). They are neighboring countries implying exposure to similar
external shocks such as hurricanes or local conflicts, they share similar agro-climatic
features with rice is the most important agricultural commodity in all three countries
(Encyclopaedia of the Nations 2012a; Encyclopaedia of the Nations 2012b) and similar
levels of GDP composition.

30
Figure 2: GDP composition by sector in 2011 [percent, data from CIA (2012)]
5.2.5 IDENTIFIYING POLICY INTERVENTIONS
This section outlines the process through which the authors identified possible policy
interventions. First, a comprehensive literature review on the development of property
rights in the past twenty years in the three chosen countries. Second, an examination
of whether shocks identified in the literature were reflected in the data. At the end of
the section the policy intervention to be examined, Myanmar’s 2001 confiscations, is
presented. The literature review revealed three property rights shocks in the past 20
years.
Shock 1: Myanmar’s government massively confiscated land from 2001 to 2002
(International Land Coalition 2011). This event is reflected in the operationalisation, as
depicted in the Figure below (HF for Heritage Foundation, WB for World Bank).
Figure 3: Development of Property Rights Security in Myanmar [1996 – 2009; 0-100;
0-5]
42 37
44
19 35
43
39
28
13
Myanmar Laos Thailand
Services Industry Agriculture

31
Shock 2: Thailand’s economic crisis of 1997 and the accompanying real estate glut led
to a government revision of the domestic property law making it more restrictive for
foreigners (Brodney 2009). This event is reflected in the Heritage Foundation data, but
not in the Rule-of-Law-Index (see Figure below) suggesting this is only a weak policy
intervention.
Shock 3: Thailand’s undertook a second reform in 2003, which restricted rights for
foreigners to buy property in the country even more (Asia Times 2003). Again, this
event is reflected in the Heritage Foundation’s Property-Rights-Index, but not in the
Rule-of-Law-Index (Figure below), again suggesting only a weak policy intervention.
Figure 4: Development of Property Rights Security in Thailand [1996 – 2009; 0-100; 0-
5]
No shocks were identified during the literature review on Laos. This is also reflected
in the data.
0.7
0.8
0.9
1
1.1
1.2
0
5
10
15
20
25
30
35
1996 1998 2000 2002 2004 2006 2008
Myanmar…
Myanmar…
2
2.2
2.4
2.6
2.8
3
3.2
40
50
60
70
80
90
100
1996 1998 2000 2002 2004 2006 2008
Thailand (HF)
Thailand (WB)

32
Figure 5: Development of Property Rights Security in Laos [1996 – 2009; 0-100; 0-5]
Because the drop in the World Bank index on Thailand is not sharp, and because the
property rights events identified only affected foreigners (indicating a ‘weak treatment’),
our group chose not to view Thailand’s change in property rights laws as policy
interventions to be investigated. Thus, the chosen policy intervention is the Myanmar
2001 confiscations with Thailand and Laos as control groups.
Indeed, Thailand and Laos followed similar time trends with regard to the dependent
variable:
Table 5: Food Security CAGRs in Myanmar, Thailand & Laos (1996-2001)
CAGR [1996-2001; FAO] CAGR [1996-2001; WHI]
Myanmar 1.19 percent -2.4 percent
Thailand 1.58 percent -4.4 percent
Laos 0.73 percent -1.3 percent
The next figure also outlines the development of food security from 1995 to 2009.
1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
8
10
12
1996 1998 2000 2002 2004 2006 2008
Laos (HF)
Laos…

33
Figure 6: Food Security in Selected Asian Countries [1995-2009; kcal/day]
The GHI operationalisation of food security also underscores the countries’
comparability (from 1996 – 2009: Myanmar’s -1.97 percent, Laos -2.15 percent,
Thailand’s -2,82 percent). The following two sections present the results of our
difference-in-differences estimations. We split them in short-term and long-term
impacts of insecure property rights on food security.
5.2.6 SHORT-TERM IMPACTS OF INSECURE PROPERTY RIGHTS
The calculations in this section revel that the short-term impactof confiscations on food
security (one year past the intervention) is decisively negative. Only two calculations
were conducted in this section because there was no data available from the Global
Hunger Index for 2002.
Table 6: Short-Term Difference-in-Differences Estimations Myanmar, Thailand & Laos
Pre-Treatment (2001) Post-Treatment (2002) Difference
Myanmar 2224 2258 34
Laos 2142 2172 30
Difference 82 86 4
Pre-Treatment (2001) Post-Treatment (2002) Difference
Myanmar 2224 2258 34
Thailand 2713 89 89
Difference -400 -455 -55
1900
2100
2300
2500
2700
2900
3100
1995 1997 1999 2001 2003 2005 2007 2009
Myanmar Laos Thailand

34
If one had only considered the case of Myanmar, one would have falsely concluded
that confiscations increased food security. Indeed, Myanmar’s daily calories intake
increases by 34 calories from 2001 to 2002.
However, the difference-in-differences estimations controlling for time-trends reveal
that such a conclusion may be erroneous. Indeed, the treatment effect with Thailand
as a comparison group is now a negative 55 calories. In the case of Laos, the initial
rise in Myanmar’s calories intake is almost entirely neutralized. As economic theory
suggests, confiscations negatively impact food security. With only four observations at
hand, the results obtained are evidently not statistically significant.
5.2.7 MEDIUM-TERM IMPACTS OF INSECURE PROPERTY RIGHTS
The calculations in this section revel that the short-term impactof confiscations on food
security (six year past the intervention) is rather negative.
Our chose to conduct a medium-term impact assessment because we initially
assumed that it might take some time until confiscations actually translate in changed
investment behavior and then, in turn, food security.
A six-year-time frame was chosen due to data limitations. Indeed, there was only GHI
data for 2001 and 2006, not any years in between.
Thailand cannot be utilized as a control group in this setting because it experienced a
‘treatment’ (new law on property rights), whereas weak, in 2003, as displayed in Table
7. Thus, only two calculations were conducted:
Table 7: Long-Term Difference-in-Differences Estimations Myanmar & Laos
Pre-Treatment
(2001/FAO)
Post-Treatment
(2007/FAO)
Difference
Myanmar 2224 2435 211
Laos 2142 2287 145
Difference 82 148 66

35
Pre-Treatment (2001/GHI) Post-Treatment (2007/GHI) Difference
Myanmar 22.5 15.8 -6.7
Laos 23.6 23.23 -0.37
Difference -1.1 -7.43 -6.33
The results, depicted above, are surprising from the viewpoint of economic theory (at
first sight): Whereas the difference-in-differences estimations decrease the seeming
increase in Myanmar’s food security from 2001 to 2007, the confiscations seem to still
have had a positive net effect of +66 calories per head per day on Myanmar.
Myanmar’s controlled World Hunger Index score also improved by 6.33 points.
Additional calculations with Thailand are to be found in the appendix. These
calculations corroborate the findings of this section and the previous section. Again,
the findings are statistically not significant, though.
5.2.8 DISCUSSION
Traditional economic theory would suggest that confiscations decrease food security.
Indeed, if land, our item at question, is expropriated, a farmer cannot use it anymore
for growing crops. In addition, his access to credit might be limited because he lost his
main collateral. Furthermore, the new land might now be used by someone who makes
less effective use of it than the initial owner. The predictions of economic theory are
partly confirmed by this section. All difference-in-differences estimators decreased the
initially seemingly positive effect of less property rights on food security. However, we
had originally expected that the estimator would always reverse this effect. This is not
always the case.
Indeed, the short-term effect of less property rights on food security is negative. The
medium-term effect seems to be more nuanced, though: In our medium-term
calculations, individuals possibly had adopted substitution strategies to cope with the
confiscation of their land and the fading of creditors. For instance, illegal self-
subsistence cropping could have emerged. New land also could have been seized

36
legally. Thus, a loss of property rights may not impede food production and individual
food security in the medium-term because food security is such a basic need that it will
be sought under any circumstances. At the same time, a loss of property rights may
still impede more advanced economic activities such as running a factory or saving for
larger investments.
Putting these numbers in context: How much is 55 kilocalories, for instance, the
decrease found in the short-term estimations? In the industrialized world, the daily
caloric intake is currently at about 3,500 (FAO 2012). The suggested daily calories
intake is about 2,300 for women and about 2,700 for men (average of 2500). Hence,
decreasing the calories intake by 55 kilocalories would probably boost a country’s
health. The situation is different in our selected countries, though: Indeed, Myanmar’s
average reported intake of 2,258 kcal reported in 2002 as intake, is not sufficient. It is
242 calories below the suggested level. Hence, dropping from 2,258 to 2,203 on
average can have real negative health impacts. 55 calories are, after all, one 100g
grilled chicken salads at Burger King, for instance (Burger King 2012). Starvation
already starts at less than 1,700 kcal per day (FAO 2012).
We also want to reiterate that these reported numbers are averages. If the average
Myanmar citizen consumes 2,258 kcal a day, many will consume significantly less.
Think of the famines we initially mentioned. Our now indicated impacts of less property
rights on food security (such as – 55 kcal) may seem little at first sight, but they can
make a real difference in the life of an individual in our selected countries.
5.3 PROPERTY RIGHTS AND LAND: THE CASE OF MYANMAR
This section presents the team’s main analysis on land property rights and land usage
in Myanmar. The beginning of the section explains why there is a lack of land mapping
and land records in the country. Indeed, the state monopoly on land in combination
with a mainly rural population utilizing land according to customary laws offer little

37
incentives for the government to provide accurate and up-to-date records. In addition,
the inaccessibility and inexistence of suchrecords may help disguising the current land
distribution in Myanmar, which is most likely highly skewed towards the country’s
affluent elites.
However, the team assumes that better land records are likely to emerge in the near
future. Indeed, the opening-up of the country has led to an exceptional prominence of
land on the country’s policy agenda. Many activists now call for better records. First,
the prominence of land is fuelled by land confiscation across the country, mainly
undertaken to create space for large industrial projects. Second, the prominence is
fuelled by land speculators, which aim to benefit from the country’s potential rise in the
current decade by buying large amounts of land, but without utilizing them.
As a response to these land policy challenges, the Myanmar government has enacted
two new land laws in 2012, the Farmland Law , which legalises the trading of land use
rights, and secondly, the Vacant, Fallow and Virgin Lands Management Law, which
hinders land speculations. Ideally, these laws would provide additional would make
land more productive, would equate the current land distribution patterns and would
cool down the country’s real estate market. Our team believes it is too early to judge
whether these ambitions can be met. In the final part of this analysis, the team explores
land productivity among small landholders.
5.3.1 LAND RECORDS AND LAND MAPPING IN MYANMAR
With a total land area of 677,000 square kilometers Myanmar is the largest country in
South East Asia. However, the country currently lacks clear records and maps of its
land. Indeed, the “land classification is chaotic” (World Concern 2009) and there are
“no updated land use maps” (Shwe Thein 2012).
UN Habitat agreed to these judgments in the interview: “There need to be better maps
and better records, (…) re-surveying”. Using GIS and satellite imagery, his team

38
intends to provide a stepping stone for the Myanmar’s land policy via the UN Habitat
land administration program which re-surveys the entire country, a process which may
take at least six years.
5.3.2 LAND LAWS IN MYANMAR
A central reason for this lack of records in our point of view may be the government’s
monopoly on land ownership combined with the prevalence of customary land laws.
From a legal standpoint, the government owns all land in Myanmar. This was decided
in 1953 already; until today it remains a central article in the country’s constitution
(UNDP 2002). Citizens need to register for user rights before cultivating any land. Until
2012 these land use rights were non-transferable. Indeed, countries with land
exclusively in the hand of the government tend to “treat [land] records as a state secret”
(The Economist 2012). Because land does not change its owner frequently in such a
setting – as opposed to a country with lots of private land – there is only little incentive
for governments to keep records precise and up to date. After all, the land remains in
the state’s hands in any case. Whereas the government de jure owns all land, it has
been common for citizens to trade their land use rights (Invest in Myanmar 2012).
In addition to the government monopoly, there is only limited potential for pressure
groups and civil society, which could ask for the creation of up-to-date records as long
as the population remains rural. Such rural population is likely to be distant from
political processes.
5.3.3 LAND DISTRIBUTION PATTERNS IN MYANMAR
Myanmar is likely to lack up-to-date land records because of the state monopoly on
land and the lack of organized pressure groups. A third reason for Myanmar’s dismal
land records could be the country’s currently skewed land distribution. Indeed, today
land (use rights) seem(s) to be mainly in the hands of a small elite, there is “a very
unequal distribution of land” (Oxfam Hong Kong 2013).

39
According to an interview of Sai Myint, a business owner from Yangon, “90 percent of
the raw land, especially in non-urban areas, is owned by the ministers [in the current
cabinet]”. If this is truly the case, it would be little of a surprise that no preciseestimates
on land distribution in Myanmar are be provided. The non-provision may serve as a
disguise of this skewed distribution.
5.3.4 LAND CONFISCATIONS IN RURAL MYANMAR
However, the team believes that it is likely that land mapping and land records will
improve vastly and will become accessible in Myanmar within the next ten years. After
all, the country’s opening-up has lifted land on the country’s policy agenda. A core
reason is land grabbing [expropriation risks].
Whereas the rural population is still allowed to settle and utilize land when necessary,
land grabbing – as a tool to create space for large industrial projects – is now an
increasingly common in Myanmar. Indeed, “there is land confiscation going on in a
massive scale across the country” (Leckie 2013). “In many areas of the country rural
livelihoods are under threat as smallholder farmers are being displaced from their land
due to granting of large-scale land concessions”(Food Security Working Group’s Land
Core Group 2012).
For instance, more than 7,800 acres were seized in 2012 to allow the one-billion-USD
expansion of a coppermine in northwestern Myanmar. The police crushedthe resulting
protests (Thun 2013). Seemingly, example is not an outlier. According to Asian Legal
Resource Centre (ALRC), people are forced out of their houses or lose their farming
land to state-backed projects almost daily (Mizzima News 2012). Sometimes, a paltry
compensation is offered, oftentimes nothing. Not only industrial projects, but also agri-
businesses increasingly replace smallholder farmers in Myanmar (Oxfam Hong Kong
2013) and threaten their food security.

40
5.3.5 LAND SPECULATIONS IN MYANMAR
A second reason of land’s prominence in Myanmar is the rise of land speculations and
the accompanied rise of vacant land. This is also associated with the skewed
distribution of land. Sai Myint exemplifies the rationale behind land speculations. His
family owns two ‘farms’ close to Yangon with holdings of 25 and 35 acres. However,
the main purpose of these ‘farms’ is not to produce crops. The farmer he allows living
on the land only cultivate as much as necessary to sustain for a living. Most of the
remaining land remains virgin. “This is highly unproductive land”, Sai admits.
He bought the land two years ago and he plans to keep it for at least another three
years. According to him, the square meter price in Yangon where land speculation is
particularly prevalent has reached USD 20,000 by now. “Land prices have risen 10,000
times in the last 30 years in this region. In the last 2 years, prices have risen by about
ten times,” he told us.
“In the early 1990s, my relatives had to sell 20 houses in Myanmar in order to get a
very small apartment in New York. Now, they already sold their huge mansion in Long
Island, but it could only finance 10 percent of their house in this country,” Sai told us.
Indeed, the high prices are incited partly by the anticipated influx of foreign capital due
to the opening of the country. Westernfirms are excited by “the country's big population,
abundant natural resources and palpable demand for modern products” (The
Economist 2012b). Investing in land now means profiting from even higher land prices
in an industrializing Myanmar later on, the rationale goes.
A second reason for the rising prices might lie within the country’s abundant resources.
The cash generated via the exploitation of these resources must be invested
somewhere. “It is the Dutch disease”, Sai told us. The real estate market most likely
seemed to be a viable option at first sight, which not prone to inflation for the cash
generated by the elites via natural resources.

41
Indeed, the country’s inflation rate developed in an unpredictable manner over the
previous 20 years (Trading Economics 2013). Whereas it stood at a (for Myanmar’s
standards) moderate nine percent in the previous three years, it reached its peak in
2002 with 58 percent. Thus, land may serve as an (unproductive) repository for the
elite. Ironically, the little risk of land confiscations for Myanmar’s elite may fuel
economic inactivity and food insecurity.
Figure 7: Inflation Rate in Myanmar [1993-2013; %]
5.3.6 THE FARMLAND LAW AND THE VACANT, FALLOW AND VIRGIN LANDS
MANAGEMENT LAW
Seemingly and despite allegedly vested interests within the Burmese government, the
government still might have recognized that it must fight land speculations and
unproductive land use if it wants to advance Myanmar economically.
-10
0
10
20
30
40
50
60
70
1993 1995 1997 1999 2001 2003 2005 2007 2009 2010 2013

42
Figure 8: The New Land Laws: Level of Awareness among Burmese Farmers
Indeed, the government enacted two new land laws in August 2012 which attempt to
address the previously described challenges: The Farmland Law and the Vacant,
Fallow and Virgin Lands Management Law.
Seemingly, these new land laws are widely known in the country, even among the rural
population. Among the farmers interviewed in Pyapon, Myanmar, 80 percent had
heard about the new laws.
Eight of the farmers we interviewed believed the new lands laws would affect them
positively, e.g. by granting them more secure land rights. Six were unsure. According
to the Farmland Law land remains in the hands of the government. However, this bill
now allows a person with land use rights to transfer, exchange, or lease their land.
Gains from trade, as discussed in the initial theoretical section of this analysis, may be
more feasible now.
However, the law does not allow disputes over land use rights to be carried to the court
yet (Invest in Myanmar 2012). Indeed, such disputes must be settled alongside
administrative lines only (Leckie 2013). What this means in reality is yet to be seen.
In addition, the government reserves for itself the right to confiscate land in exchange
for ‘suitable’ compensation. Hence, the risk of expropriation for the rural population
may stay high. Also, the land use rights exclude the permission to extract natural
resources such as gems, minerals, petroleum and gas (Leckie 2013).
80%
20%
Yes
No
Have you heard about the new land laws? [%]

43
The Vacant, Fallow and Virgin Lands Management Law is an amendment to the
Farmland Law. It stipulates that any unused land can be claimed and utilized by “willing
individuals” including foreign investors. This means that land can no longer be simply
purchased and then left vacant. If done so, this land becomes available for investors
again who have an interest in making the land economically productive (Invest in
Myanmar 2012).
If those owning large amounts of land in Myanmar fail to cultivate it from now on, this
law might change – provided it is actually implemented – land distribution patterns in
the country. It would cool down the real estate market because holding and trading
large amounts of virgin land would become practically infeasible.
5.3.7 LAND AND FARMER’S PRODUCTIVITY
Previous sections of this analysis have largely focused on land productivity among
large land owners. This section discusses land productivity among those with only little
land at hand.
Indeed, such small farmers seem to be a key to productive land use in many
developing countries. “Smallfarms produce more per hectare per year than large farms”
(Lipton 2009). Development reports on seven Latin American countries also evidence
that production per hectare was three to five times higher in small farms than large
farms (Berry & Cline 1979; Binswanger et al. 1995, Sen 2003).
The small-farm-equals-productivity-hypothesis is also evidenced in the sample our
team collected in Pyapon. Whereas the sample is too small to yield any statistically
significant results, the plotting of revenues generated per acre alongside acres of land
owned by a farmer indicates that farmers owning moreland seem to be less productive
(Figure below). Indeed, an increase of land by one acre is associated with a decrease
in revenue per acre of 4292 Kyats (p-value at 0.177).

44
Figure 9: Productivity among Burmese Farmers [Kyat/acres]
Obviously, land speculation cannot be an explanation for this decrease. Indeed, this
data provides space a second argument: Economies of scale among non-
industrialized farmers do not seem to exist. Indeed, farmers will less land cultivate it
more efficiently because they have to in order to ensure a sufficient level of food
security. At the same time, any farmer with little land at hand will somehow cultivate it
more effectively than investors who leave it virgin. Food security is higher among those
farmers with more acres at hand. Indeed, farmers with three meals per day in our
sample own 16.3 acres, on average, while those with two meals per day only own 11.5
acres. Again: Due to the limited sample size, these results are not statistically
significant, though.
Evidently, total revenues increase if a farmer owns more acres. Indeed, an increase of
one acre of lands is associated with an increase in total revenues of 139,330 Kyats in
our sample.
100000
150000
200000
250000
300000
350000
5 10 15 20
Revenue/Acre(Kyat)
Acres of Land owned

45
Figure 10: Average Food Security and Land Ownership among Burmese Farmers
[acres]
6. CREDIT
This section examines the impact of access to credit on food security. First, theoretical
linkages between access to credit and food security are described. Second, the main
credit providers in Myanmar are examined. Third, the main problems of each of the
main credit providers are discussed.
6.1 CREDIT: THE THEORETICAL STANDPOINT
This section discusses the theory behind microfinance: first, determinants of interest
rate, second modalities of including and excluding borrowers. It builds upon Karlan &
Morduch (2012).
Indeed, microfinance theories assume the borrower is the sole operator of a single
income generating activity, the output of which is constrained either by lack of capital
or by the high marginal cost of credit relative to its marginal returns. Easing the capital
constraint permits the operator to increase output, net income, profits, and hence their
own welfare (de Mel et al. 2008). Ability to borrow, or debt capacity, depends on the
capacity of actual or potential income from the business to meet borrowing costs and
collaterals.
owning 11,5
acres
owning 16,3
acres
2 meals/day 3 meals/day

46
The first strand of literature related to determinants of interest rate largely builds upon
using collaterals such as land in order to gain access to credit. This channel has been
explained in the previous theoretical section already. The second strand of literature
refers to the modalities of including and excluding borrowers.
Moral hazard is a key concept in this context. It refers to the loan utilisation by the
borrower. The lender cannot be certain that a loan is used for its intended purpose, or
that the borrower applies the expected amount of effort and entrepreneurial skill
necessary to succeed. If inputs are less than expected or if a loan is misused, then the
borrower may be less able to repay it (Ghatak and Guinnane 1999). If the lender has
only little information on the credibility of potential borrowers, whichis the casein many
rural regions, he may choose not to provide a loan at all. Micro-credit ought to close
this demand-supply-gap. Microfinance advocates claim that the formation of so called
Joint Liability Groups (JLGs) with its focus on peer pressure and monitoring respond
to moral hazard. With regard to volatile household incomes (Sebstad et al. 1995), the
impact of credit on consumption smoothing may be as important as its impact on
enterprise promotion (Morduch 1995, Rutherford 2001, Collins et al. 2009).
6.1.1 EMPIRICAL EVIDENCE
In 2010, nearly 200 million people were clients of micro-credit institutions. In 2012, the
number is around 1 billion people (Deutsche Bank 2012). The previous section
discussed the theoretical underpinnings behind microcredit. This section investigates
whether these underpinnings hold empirically.
There are two ‘phases’ of micro-credit impact research:
 Phase 1 (Pre-Randomization-Phase): Overwhelmingly positive towards micro-
credit until 2006. However, many impact assessments were non-randomized;
 Phase 2 (Randomization-Phase): Researchers “in the last few years have
started using randomized controlled trials (RCTs) to test microfinance impact”

47
(Rosenberg 2010). This most recent evidence is “less clear-cut about [micro-
credit] effects” (Steward et al. 2012).
This paper only assesses micro-creditimpactresearch from the secondphase. Below,
two main criticisms from the most recent literature with regard to this policy tool are
outlined. One criticism argues that donors are now more concerned with making profits
than with lifting people out of poverty. This line of thought is corroborated, for instance,
by a recent Deutsche Bank report indicating that “microfinance has to achieve a new
balance between social and commercial objectives” (Deutsche Bank 2012),. Yunus
also argued in 2011 that many donors are now “sacrificing micro-creditfor mega profits”
(2011). A second criticism with regard to micro-credit is that it shifts the blame for
poverty on the poor. Bateman and Chang (2012) make this point. Assume the poor
remain poor although they have been given micro-credits. From a policy-maker
perspective, one is tempted to argue that sufficient support has been provided already.
Criticisms on the (non-) impact of micro-credit are refuted by a number of recent
randomized evaluations, though. Banerjee et al. (2012), for instance, report on the
effects of a random introduction of microcredit in slums in Hyderabad, India. They find,
among other things that 15 to 18 months after lending began in treated areas,
expenditure on durable goods increased – just as the number of new businesses
increased by up to one third. Karlan and Zinman (2010) randomly assign credit to small
businessmen in Manila. They also conclude that microcredit works broadly.
More comprehensive reviews than ours on micro-credit impact assessment can be
found in Rosenberg (2010) and Steward et al. (2012).
6.2 INTRODUCING THE CREDIT MARKET IN MYANMAR
This section introduces the current rural financial situation in Myanmar and describes
the country’s main credit providers.

48
6.2.1 THE CURRENT RURAL FINANCIAL SITUATION IN MYANMAR
The section introduces the current rural financial situation in Myanmar. According to
the Myanmar Agricultural Development Bank Law (MADB Law) of 1990, the MADB is
the only legal entity that may provide loans for agricultural purposes. However, such
loans, currently at 50,000 MMK per acre, cover only 50 percent of production cost for
farming (Turnell 2009; Myint 2013, interview). Indeed, the amount necessary for a
farmer to achieve a profitable yield is estimated to be around 100,000 to 130,000 MMK
(US$117-152) per acre (Microfinance Industry Report 2010).
The rural financial situation in Myanmar changed dramatically when Cyclone Nargis
struck the country in May 2008, causing a credit crunch particularly in the Ayeyarwady
Delta (Oxfam 2009). Microfinance Institutions (MFIs) and Special Agricultural
Companies (SACs) started propping up in the rural area to augment the incapacity of
the MADB to provide sufficient credit for the affected population. MFIs were considered
illegal entities until November of 2011 when the MFI Law finally passed. SACs, entirely
funded by the private sector, on the other hand, were encouraged by the government.
Despite these new sources of credit, the majority of the population still borrows from
informal sources with high interest rates (Microfinance Industry Report 2010). Hence,
despite the increases in the loan size of the MADB and sources of credit in the rural
area, farmers continue to suffer a high level of chronic indebtedness (LIFT 2012).
6.2.2 A PERSPECTIVE FROM THE SUPPLY SIDE: CURRENT RURAL CREDIT PROVIDERS
This section discusses the rural financial situation from the supply side perspective of
the credit market in Myanmar and provides a brief description of each credit provider.
A summary of the different rural credit providers for agricultural production and their
services are provided in Table 8 below.
Table 8: Summary of Conditions of Different Agricultural Credit Lenders in Rural
Myanmar

49
Lender/
Conditi
ons
Total
Loans
Given
Out
(2012)
Loan
Amount per
Acre
Interest
Rate/
Annum
Requirements to
Borrow
Repayme
nt
Dates
MADB 426,452,
000,000
MMK
50,000
MMK,
capped at
10 acres
8.5
percent
Land use rights, two
personal guarantors
OR approval from
village committee
January
MFIs
(ASA) 122,810,
000 MMK
100, 000
MMK
24
percent
land use slip, village
authority
recommendation,
and RDG approval
February
(PACT) More
than
300,000,
000 MMK
No acre.
Ranges
from 60,000
to 150,000
15
percent
None but under the
discretion of village
committee
Weekly
payment
for 25
weeks
SACs 550, 000,
000 MMK
20, 000
MMK + 3
bags of
fertilizer
(worth 15,
000 MMK
each)
24
percent
Recommendation
from a current SAC
borrower
February
Input
supplier
Price of
the good
ie seeds,
fertilizer,
etc.
N/A 4-8
percent
Relationship with
input seller
After
harvest
6.2.3 PROVIDER 1: THE MADB
The main credit provider in Myanmar is the MADB, and it will be discussed in this
section.
In 1990, the Myanmar Agricultural and Rural Development Bank Law created the
Myanmar Agricultural and Rural Development Bank (MADB) to provide “banking
services” for agriculture. Currently, the MADB is supervised by the Ministry of
Agriculture and Irrigation Authority (MAIA).
In 2012 the national budget for MADB was MMK 426,452 million or US$ 500 million
(Myint 2013, interview). In 2009, the MADB only loaned 8,000 MMK ($9.50 USD) per
acre (ASH 2011). In 2010, the amount increased to 20,000 MMK; in 2011, it was

50
increased to 40,000 MMK per acre;and in 2012, it was increased to 50,000 MMK (LIFT
2012, Myint 2013, interview) (Figure 11).
Figure 11: Increases in loan amount per acre
There is a loan cap of 10 acres per farmer (maximum loan: 500,000 MMK). Although
the loan amount per acre has significantly increased, it is still half of the 100,000 MMK
- 130,000 MMK per acre necessaryfor a profitable yield. Despite this, the MADB claims
it has 2 million borrowers (Turnell 2006).
The government at 8.5 percent/year sets the MADB interest rate. The loan is disbursed
in May-June during the rainy season with repayment in January the next year. In fact,
and as mentioned in the introduction of this section, official records claim that the
MADB has a 100 percent repayment rate (Turnell 2009). The research team initially
took this as a very tall claim as it is highly unlikely that a country which is, for instance,
only able to collect 3 percent of taxes as part of its GDP (ADB 2012) – one of the lowest
rates worldwide – will at the sametime have the institutional capacity to collect all loans
it provides. However, interviews conducted in MADB Pyapon revealed that farmers are
forbidden from writing off their bad debts. If debts are not repaid, access tocredit fades.
Thus, a high repayment rate might actually be the case.

51
6.2.4 CASE STUDY 1: MADB PYAPON
The team visited a local MADB office in Pyapon. According to MADB Pyapon Township
manager Daw Khin Saw Wa Ti Myint, MADB Pyapon serviced more than 9,000
borrowers in 2012. Myint believes this is about 50 percent of farmers in Pyapon. In
2011, the number of borrowers stood only at 7,000. The manager mentioned plans to
increase the loan caps per acre in the following year, depending on financial capacities.
Figure 12 shows the trends in loan disbursement of the branch in the last five years.
Figure 12: Yearly Loan Disbursal of MADB Pyapon Township
6.2.5 PROVIDER 2: MICROFINANCE INSTITUTIONS
This section discusses the MFIs as providers of micro-credit. As mentioned, the
aftermath of Cyclone Nargis resulted in a ‘credit crunch’ in Myanmar (Oxfam 2009).
The devastation to livelihood caused by Nargis warranted an exponential increase in
available credit for reconstruction: houses were destroyed and paddy fields were
flooded. Seeing that Myanmar’s bureaucratic capacity was insufficient to respond to
the crisis, the government allowed the entrance of International Non-Governmental
Organizations (INGOs) into the credit market. Most of these INGOs have remained in
existence as MFIs until now, serving as alternative sources of credit for borrowers.
In Myanmar, there are currently 5 INGOs involved in credit provision: Association of
Medical Doctors of Asia (AMDA), Private Agencies Collaborating Together (PACT),

52
Group de Recherce et d'exchange Technologique (GERT), Save the Children and
World Vision.
Unfortunately, these INGOs service only a fraction of rural households, as their targets
are mainly women with micro-enterprises; 90 percent of borrowers were women in
2009 (Microfinance Industry Report 2010). In 2009 there were only 385,283 loans
made which amounted to a total of USD$27 million (Microfinance Industry Report
2010). MFIs exist in 46 townships out of Myanmar’s 325 townships.
Of these five, PACT, which is the official UNDP microfinance lending arm in Myanmar
has the largest market share and reach. Among MFIs, it provided 90 percent of loans
made since Nargis (Microfinance Industry Report 2010). In 2009, UNDP-PACT
provided farmers with up to 80,000 MMK per acre for cultivation, 10 times more
compare to the 8,000 MMK per acre loaned out by the MADB in 2009.
When the Microfinance Report was published in 2010, it outlined the need for a
Microfinance Law: “Without the Microfinance Law, however, microfinance institutions
are in a precarious situation as there does not exist any microfinance law which clearly
defines what microfinance institutions can and cannot do” (Microfinance Report 2010).
The Microfinance Law was enacted in December 2011, allowing these microfinance
institutions to provide microcredit to the poor without collateral. In reality, however, the
team’s interviews with two microfinance institutions in Pyapon revealed that both are
unaware of the existence of such laws, citing that technically, they are ‘illegal entities’
as only the MADB is legally allowed to lend to farmers for agricultural purposes.
The two-microfinance institutions the research team interviewed are Action for Social
Aid (ASA) and Private Agencies Collaborating Together (PACT). Both MFIs are located
in Pyapon Township.

53
6.2.6 CASE STUDY 2: ACTION FOR SOCIAL AID
This section discusses ASA as an MFI. Action for Social Aid (ASA) is one of the non-
governmental organizations birthed by Cyclone Nargis. Located in Pyapon township,
it was initially involved with distribution of relief goods and renovation. Right after
Nargis, it was active in distributing food in the Delta; it then partnered with UNICEF in
their water and sanitation project. In 2010, five businessmenfrom Pyapon1
who started
ASA decided to continue its support to the community through a microfinance project
by providing loans to smallholder farmers in Pyapon. Currently, together with providing
microcredit,ASA also provides training programs (land preparation and seed planning)
to their beneficiaries.
Through the years, the number of borrowers from ASA has decreased. Htun Lin, the
manager of ASA, cites non-repayment of loans as the reason. “People thought it was
a donation,” he said. He argues that the decision to cut off these people from the
program was made to ensure its sustainability. There are no legal actions against
people who have defaulted.
The initial capitalization of 300,000,000 MMK was provided by DFID and CIDA. The
organization offers ‘farmer loans’: farmers borrow in May during the planting season
and repay in February during the harvest season. Table 9 shows the total amount of
loans disbursed and total number of borrowers from 2009 until 2012.
Table 9: Number of Borrowers and Loans Disbursed- Action for Social Aid (2009-12)
Year Total Amount of Loans Disbursed Total Number of Borrowers
2009-2010 223,501,960 MMK 210
2010-2011 153,878,920 MMK 128
2011-2012 122,810,000 MMK 107
1 Htun Lin decided itis best to withhold the names.

54
The interest rate provided by ASA is 24 percent per annum. Loans are up to 100,000
MMK per acre, thus sufficient. There is no acre cap; loan size is only dependent on the
number of acres owned. ASA believes that this loan amount enables farmers to invest
more in necessary factors of production to ensure maximum profit, thereby ensuring
repayment. This policy is also made to ascertain that farmers have sufficient credit to
discourage them from borrowing elsewhere to avoid indebtedness (Lin 2013,
interview). Requirements to borrow are land use slip, village authority
recommendations, and RDG approval. Hence, the way ASA works, only farmers with
land, capable of repayment, and of good character(according to the RDG) can borrow.
Currently, ASA considers increasing the interest rates in order to ensure sustainability
of the organization and competitiveness. Htun Lin said this would be an important step
since the initial capital from DFID is already used up. Currently, according to Htun Lin,
ASA have savings that can sustain the organization for another 7 to 8 years, though.
Htun Lin believes that the new Farm Land Law will provide an additional safety net for
ASA. The Farm Land Law allows land use slip rights to be used as collateral and this,
he believes, will create a big disincentive for farmers who are scared of losing their
land to default on their loans.
6.2.7 CASE STUDY 3: PRIVATE AGENCIES COLLABORATING
This section discusses PACT Pyapon as an MFI. PACT started in 2006 with funds
provided by the UNDP as part of its efforts towards poverty alleviation in Myanmar.
Currently, it is the primary microfinance institution in the country (Microfinance Report
2010). In 2011, UNDP has stopped its support for the program. It is currently in
partnership with Livelihoods and Food Security Trust Fund (LIFT).
According to Mr. Aung Myo Min, manager of PACT Pyapon, there are currently 4,400
main borrowers, 98 percent of which are women. Unlike ASA, PACT’s lending is not
restricted to agricultural purposes. It is mainly utilized for other income-generating

55
activities (IGA) like small family-run business. Farmers are required to attend a semi-
formal education from PACT to handle their small business before obtaining a loan.
The current budget of PACT Pyapon is more than 300,000,000 MMK.
Unlike ASA where payment is during harvest time, PACT runs like the traditional
microfinance institution. Payments are required weekly, and starts two weeks right
after the loan was made. The amount must be repaid in 25 weeks, with 25 equal quota
payments each time. For example, a loan of 100,000 MMK yields 15,000 MMK, with
4,600 MMK done weekly for 25 consecutive weeks.
There are no stringent requirements to obtain a loan but there is a committee per
village composedof 5 people who decides who will receive loans. Loans start at 60,000
for the first year of borrowing. If the borrower has a good track record, the loan amount
for the next year is increased to 80,000 MMK. The highest loan given to an individual
is 150,000 MMK. The interest rate is 15 percent.
PACT Pyapon is active in 51 villages all over Pyapon Township. The office has 16
officers: 10 field officers and 6 information clerks. Mr. Aung believes that business for
PACT is ‘booming’, saying that they are expanding year by year. “Our work can go on
for generations,” he said.
6.2.8 PROVIDER 3: THE SPECIAL AGRICULTURAL COMPANIES
This section discusses SACs. In an effort to aid reconstruction and recovery after
Cyclone Nargis in 2008, the private sector initiated what is now known as Special
Agricultural Companies (SACs). SACs are a partnership between several agriculture-
based companies— providing services ranging from loan provision to rice milling— to
farmers in a specific township. Each township has one SAC and there are currently 40
SACs in Myanmar in total. They are mainly clustered around the Ayeyarwaddy Delta.
Approximately 12, 802,470, 666 MMK ($15 million USD) were supposedly lent out to
farmers by existing SACs in 2009 (ASH 2011).

56
The SAC in Pyapon Township is the Aung Ya Da Nar Social Association. An interview
with the financial adviser of the company, Mr. U Ohn Han, provided valuable insight to
the role that SACs play in the agricultural sector and its business framework. Aung Ya
Da Nar Social Association’s primary work is credit provision to the farmers of Pyapon
Township. However, not just any farmer can obtain loans. SACs primarily work on a
trust network; although there are no stringent requirements for borrowing, a farmer
must be guaranteed by an already existing borrower. Mr. Han was able to explain the
informal application process more explicitly to the team:
“They just continue with those farmers they have. And those farmers then recommend
newcomers. This process then goes on. So that is how more farmers come. And if the
new farmers return back loans, and there is mutual relationships, trust, then there are
more loans coming.” Moreover, there are 6 shareholders and 8 board of directors—
local large-holder farmers in Pyapon who have been in the rice farming business for a
long time— who assess the character of farmers who want to borrow. In 2008, they
only had 350 farmers; in 2012, the number has risen to 550.
The current budget amounts to 550, 000, 000 MMK. Loans given are only 20, 000
MMK per acre, but 3 bags of fertilizer (worth 15, 000 MMK each) are given with it. The
interest rate is also 2 percent per month or 24 percent per annum. Moreover, loans do
not have an acre limit. The average land size of their farmers is 20 acres and can go
as high as 400 acres. Loans are paid in February the following year, but payment is
rather flexible overall. Farmers are not required to repay instantly if the weather was
bad during harvest time.
Mr. Han clarifies that SACs are non-profit companies. He also dispels the authors’
initial knowledge that SACs are public-private entities. “SACs are all private money,”
he says.He explains that initially the government wanted to use the local businessmen
as partners. However, it was not able to provide funding; the project then continued
even without government funding.

57
The 24 percent per annum interest rate is only meant to sustain the operational costs
of the company. The profit, however, lies in other businesses tied to the lending
program such as the rice mills. Although there is no formal agreement that borrowers
will utilize non-lending services of the SAC, it is usually part of a tacit agreement.
6.2.9 PROVIDER 4: THE INFORMAL MONEY LENDERS
This section discusses informal moneylenders. The MADB acknowledges the need for
farmers to borrow from informal lenders in order to compensate for their small loan
provision. Meanwhile, both PACT and ASA believe that their institutions ‘save’ the
farmers from the excessively high interest rates of informal lenders. However, where
there is no credit provider in the village, farmers are have no choice but to borrow from
informal credit sources (LIFT 2012). Credit in the informal credit market comes in a
variety of forms in rural Myanmar; sources include input suppliers, kinship networks,
loan sharks, and pawnshops. Although the team was unable to interview informal
moneylenders, people we interviewed— from farmers to credit providers—
acknowledged their existence and importance.
6.2.10 CREDIT FOR CONSUMPTION
This section discusses source of informal credit for household consumption. Asizeable
amount of rural household relies heavily on informal money lenders for credit when
small loans are desperately needed to buy food for the family (ASH 2011). Through
kinship networks, farmers are sometimes able to acquire loans without collateral and
interest (LIFT 2012).
In cases of emergency, farmers have no choice but to resort to loan sharks whose
interest rates range from 10 percent to 30 percent per month (LIFT 2012). Those who
have gold use it as collateral to borrow credit from pawnshops at a 3-5 percent interest
rate per month (ASH 2010). Some pawnshops accepted collateral in the forms of
household appliances (LIFT 2012), while some accepted anything including

58
identification cards (Sai 2013, interview). Interests varied greatly depending on the
collateral.
6.2.11 RESULTS FROM THE HOUSEHOLD SURVEY: THE DEMAND SIDE
This section discusses the rural financial situation from the demand side of the credit
market in Myanmar. It provides a snapshot of rural households through a case study
of ASA farmers from Pyapon Township.
Comprising of both formal and informal lending, the UNDP IHLCA Survey 2011 shows
that total access to credit has further decreased from 38 percent in 2005 to 33 percent
in 2010 in Myanmar. Meanwhile, the average amount borrowed rose by 23 percent in
real terms: from 167,974 MMK ($197 USD) in 2004 to 206,966 MMK ($242.5 USD) in
2009. These numbers exceed the MADB loan cap because of credit obtained from the
informal sector. From this data it is already apparent that those who were able to
borrow have increased their amount of borrowing, which signals the increase in price
of inputs for agricultural production. Indeed, all of the farmers interviewed pointed out
that prices for agricultural inputs rose drastically over the past few years.
6.3 ANALYZING THE CREDIT MARKET IN MYANMAR
After outlining the rural financial situation in Myanmar, describing both the demand and
supply side of the rural credit situation, this section will now provide our analysis. It is
apparent that the depressed market of rural credit affects food security.
The recent entrance of MFIs and SACs in the rural credit market point to a constant
demand from farmers for affordable and sufficient credit. It also points to the incapacity
of the MADB to provide for the credit needs of the rural populations. The recent
enforcement of the Microfinance Law, which gives legal status to MFIs and the
Farmland Law, which allows land to be used as collateral for loans, shows an
acknowledgement from the government of these market distortions and points to a
general willingness for necessary reforms. Our analysis led to the following

59
government and market failures in the rural credit market in Myanmar, and these are
the following:
1. Inefficiency of the MADB
a. Financial incapacity
b. Institutional incapacity
2. Lack of competition: Scarce and Alternative Source of Credit
3. Non-entrance of private rural banks
6.3.1 UNDERLYING FACTOR THE INEFFICIENCY OF THE MADB
Since the MADB has the institutional apparatus and state support to fix the rural credit
market, it is imperative that the analysis starts here. There are contrasting reviews of
the MADB, Prof. Sean Turnell argues farmers were dissatisfied with its services
(Turnell 2009) while the UNDP Report shows that it has a “good reputation” (UNDP
2002). Based on the assessment of the authors, it finds that there are two major
problems of the MADB: financial and institutional.
A. Financial
According to our analysis, the MADB is financially inefficient because of regulations
that inhibit its asset accumulation. This includes a limit on paid-up capital, interest-rate
ceiling, and insufficient deposits for higher profits. The MADB loans majority of its
loanable funds from the government through the Myanmar Economic Bank (MEB) with
an interest rate of 10 percent. In FY 2003/04, 73 percent of its funds were from MEB,
22 percent from deposits and 5 percent camefrom capital and reserves (Turnell 2009).
Moreover, the MADB Law of 1990 states paid-up capital is limited to 1 billion MMK
($1.2 million USD). Essentially, a bank’s capital is equivalent to a bank’s net worth,
which is generated from the balance of its assets and liabilities (Mishkin 2009).
Essentially, the bigger a bank’s capital is, the more resistant it is to economics shocks:
thereby reducing the possibility of a bank failure. Hence, the limitation on the paid-up

60
capital (or basically the amount that shareholders can invest in MADB) presents a huge
detriment to the growth of the bank as investments cannot go beyond what is set by
the law.
In terms of profits, according to the MADB Law of 1990, 25 percent of its profits must
be allocated for a reserve fund and the 75 percent balance must be transferred to the
government as a dividend. Instead of increasing profits by diverting the profit to more
productive assets, dividends are paid to the government. Policies such as this greatly
hinder the capacity of the MADB to accumulate necessary capital necessary to fund
the agricultural sector.
Moreover, non-transaction deposits are the primary sources of a bank’s fund (Mishkin
2009). Banks gain profit via interest rates when loans are made but acquire capital
when deposits are made. According to the FI Law of 1990, deposit can be used as
collateral against borrowing from MADB. However, MADB Pyapon not holding a single
deposit account (Myint 2013, interview) shows that farmers, and even MADB itself,
prefer to use the land-use rights as collateral more than deposits. This then poses a
great question with regards to the sustainability of the MADB as deposits may be
necessary sources of funding for future loans.
Holding deposits presents another challenge to the financial sustainability of the MADB
and the general banking sector of Myanmar. According to the Financial Institutions (FI)
Law of 1990, deposits can be made to the MADB with a 10 percent interest rate.
However, an important caveat is that deposits cannot be withdrawn.
Unless this important provision is corrected, no farmer will opt to deposit any of their
savings to the bank as the rate of inflation does not provide sufficient incentive for
farmers to deposit their savings to the bank. Figure 13 shows that although the inflation
rate trend has been going down for the past five years, an inflation rate of almost five
percent results to only a five percent interest rate on deposits. Myanmar remains to be

61
a cash-based economy and therefore a high inflation rate translates to bigger
economic costs for poor farmers to keep money in the bank.
Furthermore, assumingthat farmers are rational, farmers will only make deposits when
it believes that doing so is safe and profitable. Currently, most people would rather
keep their savings at home (like the poor productive farmers) or in real estate. This is
because of the big interest-risk in Myanmar: let us say for example that with inflation,
a 100, 000 MMK deposit with 10 percent per annum interest may equal 110, 000 MMK
but with an inflation of 5 percent percent results to only 104,500 MMK in real terms.
Hence, with the same amount of money, purchasing power is greatly decreased. This
is why, some people, like those who participate in land speculation, invest it in other
more profitable assets such as real estate.
Figure 13: Inflation Rate Trends for 2007-2011 (ADB 2012)
B. Institutional
Aside from financial recapitalization, the MADB also needs to restructure itself
institutionally. Currently, institutional inefficiencies result in higher transaction costs for
farmers and profit losses to the bank. Moreover, interviews with the Ms. Myint of MADB
Pyapon reveal the need for and increase in number and capacity of human resources.
Farmers who borrow mention things such as: “cost of paperwork”, “multiple visits to
bank offices”, “forming lending groups”, and “speed money to process loan forms
quickly” as some of their expenses incurred in acquiring loans form the MADB (ASH
32.9
22.5
8.2 7.3
4.2
0
5
10
15
20
25
30
35
2007 2008 2009 2010 2011
CPI (% change per year)

Ensuring Food Security in Myanmar- Targeting the Land and Credit Markets to Support Smallholder Agriculture

Ensuring Food Security in Myanmar- Targeting the Land and Credit Markets to Support Smallholder Agriculture

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