A half century of isolation from the global economy has left Myanmar facing many challenges, not least the need to modernise a financial system where cash is still king. It’s not unusual to see people carrying large bricks of banknotes for transactions, even cars and houses. Most people completely bypass the banks to keep their money at home.
As the reformist government opens up its economy, prospective investors from all over the world are looking to do business in Myanmar, but they too are finding that the banking services they will need are almost non-existent.
For consumers, access to even basic services such as loans is very limited. The upside of all this, though, is that the country has an opportunity to build a new financial system based on inclusiveness and access, with technology such as mobile payment helping to play an important role.
“We cannot ignore that [some] targeted US sanctions against Myanmar remain in place, including key areas such as financial services,” said Jaspal S. Bindra, CEO of Standard Chartered Asia, referring to Washington’s decision last month to extend some sanctions for one more year.
“ However, we need to recognise that the Myanmar government has opened up much faster than many would have expected. Exchange rate unification is an example; the opening of the telecom licensing process is another,” he said at the World Economic Forum on East Asia held in Nay Pyi Taw recently.
Mr Bindra said it was noteworthy that the government had made fixing the banking system a priority, showing willingness to gather skills and resources from outside. However, the problem authorities face is still quite big, as the development process is only in its infancy.
“The strength of inclusiveness in order to achieve greater economic equality among every person in the market is very strong. That comes first and foremost from connectivity,” said Jon Fredrik Baksaas, president and CEO of Telenor Group, Norway's biggest mobile operator.
“To be included or to not be included is a big difference. Myanmar’s market has phenomenal potential, and optimism around the use of financial services through the mobile phone is very strong here.”
According to Mr Baksaas, mobile phone security mechanisms will help expand a person’s capacity to carry out a transaction easily. “Mobile phone banking can do everything like the ATM, except for dispensing the paper money for you.”
Another big believer in the potential of digital technology in Myanmar is Peter Maher, group country manager, Southeast Asia and Australasia of Visa. He also is hopeful that the adoption of good IT platforms could help shorten the liberalisation process and also lift the potential of the tourism sector.
“[Mobile technology] is a non-traditional business that can reach parts of the country which the bank can’t,” said Mr Maher. “Because the cost structure of e-money and mobile banking is different from the cost of traditional banking, the digital era provides some fantastic opportunities for Myanmar.”
However, he is very concerned about the lack of basic knowledge about banking services among the majority of people in Myanmar. The government has to focus on creating trust among the people in the banking system as well as make sure that appropriate regulations are in place, he added.
Teeranun Srihong, co-president of Kasikornbank of Thailand, agreed. “My first advice is to work on payments and the efficiency of the clearing system. The deposit side is vital — people have yet to trust the banks, let alone the mobile system,” he said.
In addition to building confidence and trust, he said, financial safety is very important. As well, Myanmar may not be fully ready for the complexity of credit and risk management systems used in many parts of the world.
“Banking is very important for the economy. The country should be very cautious in opening up the sector,” said Mr Teeranun. “In Thailand, in the past, we had a regulation that if a local bank opens a branch in the city, it had to open three branches in rural areas. This helped us improve inclusiveness.”
“The role of the central bank in promoting the capacity of the financial system of the country is very crucial,” added Florencio B. Abad, Budget and Management Secretary of the Philippines.
Mr Abad said the government needs to work side-by-side with the microfinance system to create the right environment. It is essential to understand the level of poverty in the community in order to be able to select the appropriate type of intervention.
U Than Lwin, deputy chairman of Kanbawza Bank (KBZ), Myanmar’s largest private bank, agreed the central bank would have a big influence.
“The central bank always has to play a big role, especially in terms of creating trust for the people. Whenever a crisis comes, it must be able take rapid action, being more proactive rather than passive.”
However, there are still many hurdles that banks have to overcome, notably the enormous mistrust in the system which had been built up over two generations. Small steps in the right direction to improve the financial sector in Myanmar have already been taken. The country has the great advantage of being able to start with almost a clean slate.
Applying the 21st century technologies of choice and the ability to utilise and learn from both successes and failures of other countries will help get the country ready to be part of an integrated global financial system.