On the back of a 6.3% increase in GDP in 2012, Myanmar’s economy is growing, fueled by tourism, foreign investment and a rich supply of low-cost labour. However, after years of political isolation, Myanmar’s financial infrastructure is understandably limited in its scope and reach. But as the economy continues to grow, opportunity abounds to shift its cash-based economy into one that’s driven by electronic payments and formal financial services.
Some studies estimate that less than one-fifth of Myanmar’s population has access to formal financial services. This leaves consumers, businesses and others to rely on risky and costly cash-based ways of managing their daily finances. It also makes it hard for the government to curb shadow-market activity conducted in cash.
Myanmar is in a unique position in that it isn’t restrained by antiquated infrastructure that has traditionally presented barriers to developing an inclusive financial system. The undeveloped nature of its infrastructure should be seen as an opportunity for Myanmar to start with a clean slate, and adopt best practices and approaches right for its marketplace.
This provides an opportunity to introduce formal financial services that provide valuable access to capital, savings, credit, payment services and risk management tools to move, grow and protect funds. Going hand-in-hand with these are the secure, reliable and convenient electronic alternatives to cash, such as pre-paid, debit, credit and person-to-person money transfers.
Recent research by Moody’s Analytics shows a clear correlation between increased usage of electronic payments and increased economic growth. For example, between 2008 and 2012, electronic payments contributed US$ 1.8 billion to Thailand’s GDP and US$1.2 to Vietnam’s GDP. This illustrates the potential broader benefits to be gained from a new and effective financial infrastructure, which is already taking shape in Myanmar. ATMs are now connected to global networks and merchants of many categories are able to accept cashless payments.
However, as Myanmar upgrades its financial system, there are three key factors that need careful consideration:
- Technology – For the last decade, developments within mobile technology have made it possible to bring branchless banking to people otherwise excluded from financial services. Services like M-Pesa in Kenya and bKash in Bangladesh are cases in point. Today, less than 4% of Myanmar’s 48.3 million citizens have access to a mobile phone. As the mobile infrastructure develops, this will undoubtedly change and more people in rural and urban areas will have in their hands a tool to access financial services.
- Sustainability – Historically, lack of an enticing economic proposition limited banks’ willingness to offer services to people on low income. New economic models and different types of public-private partnerships, such as the one between Visa and the government of Rwanda, will be essential – and can serve as catalysts – to providing the right long-term solutions that meet people’s needs, enhance competitiveness and create jobs.
- Regulation – The most efficient and effective financial infrastructure exists where regulators are open to new technologies and models for distributing funds, such as mobile branchless banking, and encourage interoperability between networks for it to work seamlessly.
While careful oversight is necessary, especially during the formative period, a level playing field approach enabling all types of licensed financial service providers to offer mobile financial services has been shown effective in Indonesia, Bangladesh and parts of Africa. This does not include only mobile network operators who are licensed to offer “e-money” accounts, but also full-service commercial banks, microfinance institutions and others.
As Myanmar transitions its economy from one that is cash-based to one with a robust and inclusive financial system, there will undoubtedly be challenges. But great strides have already been made to that end and the future looks bright. For progress to continue there will have to be cooperation and coordination between public and private entities and across different industries.
Author: Peter Maher is Group Country Manager for South-East Asia at Visa
Image: a man uses an ATM machine in Yangon, Myanmar REUTERS/Soe Zeya Tun