China Eximbank provides $300 million loan tranche (2) to Myanmar Foreign Trade Bank for DOC on-lending to rural farmers (Linked to Record ID#65347, 98029, 96221)

Project narrative

On October 18, 2013, China Eximbank and Myanmar Foreign Trade Bank signed a Microfinance Facility Agreement for Poverty Reduction and Rural Development. Under the terms of the agreement, China Eximbank agreed to provide a $400 million loan in two tranches. The first tranche (captured via Record ID#65347) was a $100 million loan with a 10 year maturity, a 2 year grace period, a 4.5% interest rate, and a 1% management fee (with repayment beginning in 2015). This tranche was fully committed through the October 18, 2013 agreement. The second tranche (captured via Record ID#66127) was a $300 million loan with a 10 year maturity, a 2 year grace period, a 4.5% interest rate, and a 0.5% management fee (with repayment beginning in 2017). The proceeds from these loan tranches were to be used by Myanmar’s Department of Cooperatives (DOC) and the Central Cooperative Society (CCS) to on-lend to rural farmers and thereby facilitate the acquisition of agricultural production materials by smallholder farmers. The loan proceeds were to be disbursed to lower-tier cooperatives through the CCS and the final borrower (members of the lowest-tier cooperatives) were to pay an 18 percent interest rate, of which the Department of Cooperatives (DOC) would set aside 4.55 percent for repayment to China Eximbank, while the following shares of the premium would be divided between different tiers: i. Central Cooperative Society (CCS) and Reserve Money 7.02 percent ii. State and region cooperative unions 0.63 percent iii. Township cooperative unions 2.9 percent iv. Village cooperative unions 2.9 percent v. China Eximbank repayment interest rate 4.55 percent vi. Total (interest rate charged to final borrowers) 18.00 percent. As of July 2016, this microlending program had reached 2,679,636 beneficiaries from 294 townships across 15 states and regions. The total amount of the loan allocated was 513 billion kyats. One obstacle to program implementation was the fact that DOC had to manage the effects of international sanctions, as China Eximbank could not effectively remit US dollars directly to Myanmar. As a result, two state-owned banks exchanged US dollars into euros first, and then back to US dollars before finally converting to kyats. On November 14, 2014, China Eximbank, Myanmar Foreign Trade Bank, and Myanmar’s Ministry of National Planning and Economic Development signed a $300 million loan agreement to facilitate the provision of the second tranche (known in Chinese as 小额农业贷款二期项目). Myanmar's Assembly of the Union approved this loan agreement on February 25, 2015. $220 million from the second tranche was reportedly earmarked for microloans to farmers who did not benefit from the first tranche In 2013. Another $50 million was reportedly set aside to increase the borrowing limits for farmers who benefited from Tranche 1. $30 million was reportedly set aside for an agricultural mechanization program, with loans being specifically focused on the acquisition of agricultural machinery. There are some indications that the China Eximbank $400 million Microfinance Facility Agreement for Poverty Reduction and Rural Development financially underperformed vis-a-vis the original expectations of the lender. In 2020, China Eximbank and the Government of Myanmar signed a debt suspension agreement as part of the G-20 Debt Service Suspension Initiative (DSSI). Under the terms of the agreement, the lender agreed to suspend principal and interest payments due between May 1, 2020 and December 31, 2020 under 3 buyer’s credit loan (BCL) agreements, 6 government concessional loan (GCL) agreements, and 27 preferential buyer’s credit (PBC) agreements (as captured via Record ID#98029). Debt service payments under many of these loan agreements were again deferred in 2021 (as captured via Record ID#96221). Then, in August 2023, after the kyat depreciated against the dollar (from 1 USD = 1,000 MMK to 1 USD = 3,400 MMK), the country's military junta disclosed that it was having difficulty repaying the (dollar-denominated) $400 million Microfinance Facility Agreement for Poverty Reduction and Rural Development from China Eximbank.