Myanmar Economy | Banking and Financial Services in Myanmar
Myanmar is in the early stages of financial reforms which the government has made an economic priority. At present Myanmar’s financial system remains one of the least developed in the world. Myanmar remains a cash-oriented economy. A history of high inflation, bank runs, and insider lending has fuelled public distrust of the banking and financial services industry. Even now, government owned banks still have more than U.S. $7 billion of foreign reserves on deposit with overseas banks. It is estimated that less than 10% of Myanmar citizens have a bank account and that less 0.1% of the public are active in the credit market. A large informal banking system in Myanmar still exists. Remittance companies – licenced and unlicensed – remain popular as is the black market for foreign exchange.
Modern banking and financial services in Myanmar are in their infancy. The banking sector comprises the Central Bank of Myanmar (CBM) which was established pursuant to the Central Bank of Myanmar Law in 1990, 4 other state-owned banks, and 19 domestic private banks. Foreign banks in Myanmar are only permitted to open representative offices. To date 30 foreign banks have established a Myanmar presence in anticipation of future legal and market liberalization. According to the CBM, foreign banks will be allowed enter Myanmar in three phases. In the first phase joint ventures with local banks will be permitted. In the second foreign banks will be permitted to establish locally incorporated 100% foreign owned subsidiaries. In the third and final stage they will permitted to open branches.
In April 2012 the CBM took the first step towards reforming the country’s exchange rate system when it scrapped the country’s fixed exchange rate in favour of a managed float. On 11 July 2013 the new Central Bank of Myanmar Law (CBM Law) was introduced. The law establishes the independence of the CBM and contains measures aimed at increasing transparency and accountability.
Pursuant to the CBM Law the State is the sole shareholder of the CBM with an authorized capital of three hundred thousand million kyats, of which one hundred thousand million kyats shall be fully paid up by the State. The CBM is also required to establish a General Reserve. At the end of each year, an amount equal to 40% of the net profits shall be allocated in multiples of million to the General Reserve until it amounts to 100% of the paid-up capital of the CBM. The Head Office of the CBM is in Naypyitaw but the CBM may open branches inside or outside the State with the approval of Board of Directors. Among other things, the CBM Law contains provisions in relation to:-
- Kyat stabilization and issuance
- Foreign exchange and International Reserves Management
- Stabilizing the monetary system
- Management of financial markets, the foreign exchange market, currency payment and settlement of accounts
- The CBM acting as a lender of last resort
The CBM is also in the process of developing an Automatic Clearing System and Real Time Gross Settlement System. CBM approval is required to repatriate profits.
Local Myanmar banks are playing their part in reform initiatives by seizing the opportunity to expand their branch network and introduce new financial products. They are also entering into agreements with international credit card providers. Since 2012 the number of ATM’s in Myanmar has increased significantly. CB Bank (CB) and Kanbawza Bank (KBZ) have led the way. Master, Visa and Union Pay cards are accepted. Withdrawals up to $1200 per day are permitted with a maximum limit of USD$360 per transaction. Transaction fees are high. KBZ charges approximately $6 per transaction while CB charges approximately US$5. Machines are frequently out of order for a lack of cash. Aside from certain hotels, businesses generally do not accept credit cards in point of sale (POS) transactions although it is anticipated that POS facilities will become more common.
Myanmar Economy | Micro-finance in Myanmar
In 2011 the government introduced a new Micro-finance Law. The new law’s objectives are to:-
- reduce the poverty ;
- develop the social, education, health opportunities among the “grass roots” (defined as “low-income farmers, labors and vendors who reside in rural and urban areas”);
- create job opportunities;
- encourage a ‘savings’ culture;
- encourage the emergence of new small-scaled businesses;
- to improve incomes in the agricultural sector and to encourage livestock breeding;
- to help improve technical know-how
The law provides for the establishment of a Micro-finance Development Working Committee (Committee). Among other things the Committee is empowered to scrutinise an application by a micro-finance charity or micro-finance institutions proposing to carry out micro-financing, and prescribe the formats of accounts and report obligations for such institutions. A separate Supervisory Committee shall grant licenses to institutions involved in micro-finance in Myanmar.