Executive Summary of Monthly Financial Sector Discussions
Wednesday, January 17th, 2018
Introductory discussions centered around the historical highlights of the Myanmar Banking sector. Myanmar stakeholders stressed the hardships that the country has faced and how the historical context is an important consideration for development in the Financial Sector.
Thereafter the Discussion Agenda included an overview of IFC’s two current financial infrastructure initiatives. The following is an excerpt from a summary of what was shared by IFC.
1. The establishment of a Credit Reporting system:
This project aims to improve access to credit for individuals and businesses, especially microentrepreneurs and SME’s in Myanmar by helping the country develop a credit reporting system through the establishment of the required enabling environment.
This will pave the way for the launch of at least one credit bureau, which will allow lenders to access borrowers’ credit history, evaluate loan risks, and make lending decisions more quickly. The Project implementation was started in May 2014. Since then, the IFC project team has been closely working with the CBM on three main areas (1) Develop a Regulation on Credit Reporting; (2) Strengthen Supervision Capacity for the Central Bank of Myanmar (CBM); and (3) Support Public Education on Credit Reporting and Financial Consumer Protection.
2. Secured Transactions Reform Project:
This project will set up the required legal and institutional foundations for movable assets lending. It will entail the following three components: (1) Legal and Regulatory Reform: to review the existing legislative environment, and work with the Myanmar counterparts to prepare a Secured Transactions Law and get it passed through the legislature; (2) Registry development: to work with the CBM to host the registry, and write appropriate provisions into the Secured Transactions Law; prepare a detailed proposal for a central electronic registry for the filing of movables security interests; and (3) Lender Education: In collaboration with the project counterparts, particularly the CBM, to provide the basic concepts and practice of movables finance to the lending industry through conferences and workshops; and mobilize their support for the secured transactions reform and their participation in the law and registry development.
The Discussion Agenda thereafter went on to receive an update on Myanmar Payments Industry.
Excerpts from the discussions were as follows:
Myanmar’s Personal Consumption Expenditure (PCE) which sizes all commerce that is eligible to be digitized currently stands at ~$42USD Billion annually. Undoubtedly, this represents an incredible opportunity for companies in the business of digitizing cash. Especially when considering that today’s penetration of electronic payments is estimated to be a mere 0.5% of PCE.
Since sanctions were dropped in late 2012, progress in this area had been limited due to restrictive Central Bank of Myanmar (CBM) policies that prevented International Payment Schemes (IPS) to operate domestically in favor of a regulated monopoly by the National Payment Scheme (i.e. Myanmar Payment Union). However, this situation changed on January 10th, 2017 when CBM allowed IPS’s to issue domestic, local currency denominated Prepaid and Credit products (Debit remains monopolized by the National Payment Scheme). Since then however, substantial progress has been made as fair market access and competition has led to increasing rates of investment and innovation by all market participants.
This increased investment and innovation, compounded by Myanmar’s young and dynamic population and high digital quotient (i.e. ~$45M smart phones, +20M Social Media accounts, etc.) is already leading to fast adoption rates of new payment technologies (e.g. card, mobile, etc.) in a wide array of channels (e.g. face to face, e-commerce, online to offline, etc.).
Global market participants remain optimistic about the progress to date in Myanmar, but it is important to note that behavioral change takes time and requires large investments to provide consumers continuous incentives to change old habits. This is particularly true in Myanmar where an entrenched consumer preference for cash and suboptimal regulatory infrastructure will take time and investment to overcome. Looking across the border at Myanmar’s ASEAN peers that have been on their own “cashless” journeys for decades and only recently breaking double digit PCE penetration rates would temper the general market optimism but some stakeholders firmly believe that Myanmar has the opportunity to carve its own and faster path towards a more efficient digital payments economy.
Closing Remarks and other Observations
- Members and invited local and global stakeholders agreed that reform processes and economic growth has been hampered by the Rakhine crisis. An economic indicator discussed was a significant decrease in revenues from the tourism sector.
- An important point raised was that the potential effect of financial sanctions (even targeted individual’s sanctions) from certain countries will likely add to the economic costs for international financial services which could potentially curtail business from several countries.
- Members shared their current activities and future plans for financial literacy training and capacity building in banking and financial management. Stakeholders range from Banks, Universities, SME’s and rural villages. There was strong consensus amongst the members that these activities are critical to increasing financial inclusion and will have positive benefits for all stakeholders.
- Additional global stakeholder comments focused on the need for better access to the Myanmar accounting community and the downside of no access could potentially lead to disruptions of normally accepted accounting and financial disclosure compliance which could create an additional negative sentiment for the global stakeholders to operate in Myanmar. Some members raised the possibility of increasing accounting vocational workshops to broaden the accounting talent pool in Myanmar.
The Discussions thereafter adjourned, with the next Discussion date confirmed for Tuesday, February 13th, 2018.