Myanmar in 2012, when we started our financial sector engagement, and Myanmar today seem like two different worlds. Back then, sim cards cost close to US$500, visitors carried wads of crisp, new dollar bills, Yangon streets were filled with old models of Toyotas and Nissans, while the capital Nay Pyi Taw had only rickety hotels. Now streets lined with old shops have given way to $1 sim cards, brand new car models, international hotel chains and gleaming new shopping malls. ATMs and “We accept Visa and Master Card” signs are now nearly ubiquitous in the country’s cities.
Our financial sector journey with Myanmar began with the World Bank supporting the micro-finance sector, providing legal and regulatory assistance to the Central Bank of Myanmar, the Financial Regulation Department of the Ministry of Planning and Finance (MOPF). This resulted in the independence of the Central Bank of Myanmar (CBM) in 2013 through its new CBM Law, the licensing of 12 domestic insurance companies in mid-2015, adoption of the Financial Sector Development Strategy in 2015, and establishment of 13 foreign banks. In 2016 the new Financial Institution Law, the launch of the Myanmar Stock Exchange along with the Mobile Financial Services Regulation all came to fruition.
The financial sector has come a long way and I am full of hope. Though the system is dominated by banks, the non-banking sector is on route to growth. The Central Bank of Myanmar and the Myanmar Payment Union Foundation have laid out the foundation for a payment system. Though there are still long queues at the banks, limited financial products, only collateral-based lending and heavy use of cash, the financial system is poised for growth and universal inclusion.
Overcoming some of the remaining challenges can help strengthen Myanmar’s financial sector. Some of those include regulators and market players’ lack of technical skills, the disintermediation caused by state-owned banks, distortion caused by subsidized funds and interest rate caps, lack of technology, poor governance, and lack products and innovation in the market. In addition, there is no functioning credit information system and efficient payment system, inefficiency of banks and poor access to finance continues. Competing and sometimes conflicting policy advice given by donors adds to the woes.
State-owned banks have mostly operated without adequate supervision, and their real financial conditions are not known to the owner, MOPF. Thus, reforming state-owned banks will be critical in making the financial system more stable.
These are some of the opportunities on the road ahead for Myanmar to strengthen its financial sector:
Make Myanmar’s financial system stronger on anti-money laundering and countering the financing of terrorism to decrease its reputational risk.
Strengthen the supervisory capacity (both regulatory framework, supervision tools and supervisors’ knowledge and skills) and ensure that compliance-based inspection and off-site supervision continues.
Put in place financial stability mechanisms. Though Myanmar has not experienced a major crisis since 2003-2004, it is more exposed to external shocks now. An effective early warning system, with adequate and reliable information for off-site analysis and monitoring, is critical.
Improve transparency. The new regulations to improve corporate governance and the accounting and auditing of banks are still in progress. This applies to other financial institutions too. Implementation of the new regulations can help strengthen corporate governance, accounting and auditing.
Expand access to finance. In spite of impressive credit growth in the last few years, access to finance remains low. Credit is given to few big borrowers with ample guarantees. Even the leading banks have only a few hundred borrowers. Though the Financial Institutions Law helped to improve Myanmar’s ranking in the Doing Business 2017 report, without credit information services, lenders ability to make credit decision is affected.
An area of concern is the fact that Myanmar’s financial sector remains concentrated in urban areas. Also, Myanmar is one of the few countries where the majority of financial transactions is still conducted in cash— approximately 95% of adults including civil servants receive salaries in cash, the highest ratio in ASEAN.
Build a stronger foundation for corporations. The Companies Act of 1914 is still in the process of being amended and making substantive improvements in procedural law for collateral enforcement and a strong court system can help optimize the environment for financial system development.
Through the Financial Sector Development Project supported by the World Bank’s fund for the poorest, IDA, a credit of $100 million will help restructure state-owned banks, further strengthening of the legal and regulatory framework, improving the efficiency and effectiveness of the payment system, modernizing and strengthening the Central Bank of Myanmar and the Financial Regulatory Department.
This coming Thingyan New Year in Myanmar, my wish is that the financial sector may grow and prosper with sound policies and innovation, supported by efficient infrastructure and steered by able hands.