Cash in Context : uncovering financial services in myanmar T

of able Contents 46. 42. 36. 26. 24. 14. 52. 50. 48. 41. 40. 39. 38. 32. 28. 6. 5. Online Payments Mobile Banking Prepaid Cards IN THEELEC SERVICES CIAL FINAN THE INFORM P UNDERSTANDING THEFIEL METHODOLOGY INTRODUC EXECUTIVE SUMM FOREWORD COMP Payment Providers Insurance Providers Microfinance Sector Banking Landscape SERVICES A CIAL FINAN Financial InclusionStatistics Demographic Statistics AR TICIP SERVICE CIAL ARING FINAN ANTS INTERVIEWED TION TRONIC WOLD AL ANDFORM ARY C TORS AL SEC IN TOR 66. 62. 54. 76. 74. 72. 68. 65. 65. 64. 60. 58. 56. intensive, andcomplex Formal borrowing isrisky, time in tangiblegoods People predominantly save by investing provision significant role infinancial services The informaleconomyplays a has driven heavy reliance oncash developmentformal financialservices Distrust ofbankingsectorandlack KEY FINDINGS Non-Integrated –ThanZawOo Semi Integrated-Zarni Financially Integrated–Dr. KhinKyi INTECIAL GRATIONLEVELS OFFINAN ? HOW ISMONEYUSEDITHIN THE3 ShopOwner Pottery Un-integrated: ThanZawOo, Owner Gallery Art Sem domestic major medical supplycompany of Officer Executive Financially Integrated - Dr. Khin Kyi, Chief CASE STUDIES REPRESENTATI VE INTERVIE WEE i-integrated: Zarni,

90. 89. 86. 82. 78. 76. END NOTES about theresearchteam CONL INTECIAL GRATIONFINAN LEVELS COMP theformal sector supporting and adoption of financial services Trust factor in increasing is animportant attitude towards financialservices Religion significantlyimpactsthe ARATIVE ANAL USION Y SIS A CROSS

FOREWORD 5

FOREWORD

This research theme runs central to many of MDRI-CESD’s other initiatives, namely studies and policy guidance on Myanmar’s agriculture sector, rural development, farmers’ access to credit, small and medium enterprises, micro-finance and broader economic reform issues. The following report created by MasterCard with the support of MDRI-CESD, explores the financial needs of Myanmar’s rural and urban communities. Most uniquely, it explores these issues through people’s own perspectives and words. This qualitative After half a century of military rule, study profiles financial consumers, many Myanmar’s reform process shows of whom are typically excluded from strong signs of heartening progress as the formal financial sector. It explores well as significant challenges still yet their interactions with the financial to be overcome. As the country opens sector and the issues they encounter its doors to the outside world, the within these processes. The findings government, along with domestic and of this inquiry provide key insights into international actors, is collaborating on service provision gaps, priorities for unprecedented political, economic and financial inclusion and strategic growth social reforms. opportunities for Myanmar’s financial services sector. The report’s insights As a research institute supporting have helped to build a greater knowledge Myanmar’s reform process, the base that can better inform financial Myanmar Development Resource policy design and implementation. Institute’s Centre for Economic and Social Development (MDRI-CESD) MasterCard, as one of the world’s believes that understanding the financial foremost financial service providers and needs of Myanmar citizens is crucial technology innovators, can be a valuable to ensuring evidence-based policy partner for Myanmar’s reform to develop recommendations and reforms that will insightful and world-class financial be effective in supporting economic solutions necessary for people-centered development and financial inclusion. development.

Zaw Oo Executive Director MDRI-CESD 6 EXECUTIVE SUMMARY EXECUTIVE SUMMARY 7

“Now we can dream about our future, EXECUTIVE now we can dream.” SUMMARY Maung Maung, Yangon taxi driver 8 EXECUTIVE SUMMARY EXECUTIVE SUMMARY 9

• Online services for buying goods and perceptions of financial services, in turn booking reservations have launched, generating the following key insights. hoping to take advantage of the growing access to Internet. 1. Distrust in the banking system • Payment operators are trying to tackle and lack of formal financial services the excessive dependency on cash development has driven a heavy with payment cards to cover cash reliance on cash transactions such as bus fares. • Cash is considered more secure This report, supported by MasterCard since it is in-hand and anonymous, and the Myanmar Development as opposed to in bank accounts where Resource Institute’s Center for inflation, demonetizations, and corrupt Myanmar is currently undergoing a • Strong labor force potential Economic and Social Development staff have historically taken a toll. period of historically unprecedented (MDRI-CESD), takes a broad qualitative • Cash is preferred because of high time reform. After years of military rule, a new In contrast, some roadblocks remain : approach to understanding Myanmar’s costs and inconvenience of visiting government has ushered in political, financial services market, and the bank locations. social, and economic changes that • The presence of military involvement use of financial services in different • Cash is highly liquid, easily accessible have begun to lay a foundation for in most government functions population segments. Building from for immediate use or investment in greater countrywide prosperity in the • Political uncertainty dependent on academic research and a series of tangible goods. coming years. 2015 elections 72 informational and field interviews, • Cash is cheaper to transact in as • Major infrastructure gaps that limit the report aims to paint a picture of one avoids paying withdrawal fees, Key to the government’s reform is the mobile technology and Internet Myanmar’s unique relationship to remittance fees or transportation to role of economic development. Laws penetration financial services. the bank branch. and policies aimed at strengthening the • Limited capacity of labor force country’s economy and financial sector • Lack of quantitative data to inform Respondents have been categorized 2. The informal economic plays a have increased investors’ confidence decision making based on their level of integration in significant role in financial services and led to high levels of FDI flowing into the financial services sector into three provision the country. Significant opportunities Amidst the change, new services are groupings : for investors abound, including : also taking root, from private insurance • A vast informal sector and a historical to online and digital payment services : • Financially integrated gap in formal banking service provision • Geographic and natural resource • Semi-integrated contribute to the growth of informal endowments • The insurance sector, previously • Un-integrated financial services • Expected financial services industry dominated by state-owned, Myanmar These groupings have been used • Because of mistrust of banks and growth Insurance, is now opening its doors to analyze respondents’ usage and complex lending requirements, • Improved regulatory environment to private companies. 10 EXECUTIVE SUMMARY EXECUTIVE SUMMARY 11

savings and borrowing sits in the when friends/family are unable to informal sector for all levels of provide loans. financial integration • For remittance payments, the 5. Religion significantly impacts the semi integrated and un-integrated attitude towards financial services population use both the bank and the Hundi system to transfer money. • Because of the significant role • While cash remains king and banks religion plays in Myanmar, making are often mistrusted, formal services, donations is a key and frequent like bank transfers, are used without practice. a bank account to transfer cash. • Religious leaders are trusted figures and are relied on for guidance in 3. People predominantly save by financial and business transactions. investing in tangible goods • Religion can shape which businesses or financial services a person • Savings are used to invest in gems, will use, particularly in the current gold and property to retain value. environment of religious tension. Gems and gold are stored at home. • Belief in fate and superstition can • Many businesses reinvest all profits impact a person’s attitude about back into their business in lieu of financial services, as well as how depositing money at a bank account. and when business activities are • Bank accounts can be used as a conducted. form of an electronic wallet, temporarily storing money until 6. Trust plays a key role in increasing invested elsewhere. adoption of financial services and supporting the formal sector 4. Formal borrowing is risky, time intensive, and complex • Mistrust of the formal financial sector is a key factor contributing • Obtaining formal loans is complex to low bank penetration levels. and time consuming even for • Government action in guaranteeing financially integrated users. private banks’ deposits leads to • Banks have stringent collateral building trust. In contrast, global requirements and time-consuming financial service brands are seen as loan application processes. As such, reliable and trustworthy. borrowing from friends and family is • Location and ease of access asterCard faces a significant the first choice for someone in need increases trust in banks. opportunity to demonstrate of extra cash. • Trust in the recommendations of its understanding of the • Pawnshops, where customers family, friends and community leaders M Myanmar market by leveraging these exchange gold for cash, are used drive financial service adoption. insights to develop products and services tailored to Myanmar’s unique context. By partnering with Myanmar’s government and businesses, MasterCard can assist in rebuilding the financial sector and bringing greater financial access to the population. 12 INTRODUCTION INTRODUCTION 13

INTRODUCTION

“We need to take time, we cannot run so fast because we are not recovered yet. If you are sick and getting just recovered you are not ready to run. If you try to run you will probably get injured again.”

Win Thida Lin, Civil Society Leader, Yangon 14 INTRODUCTION INTRODUCTION 15

Opportunities

Geographic and Resource Endowments Alongside Untapped Markets

• Myanmar is the largest mainland Southeast Asian country, with a population between 55–60 million people.

• Key trading hub for Asia, bordering India, China, Bangladesh, Lao and Thailand • Considerable fertile land and coveted natural resources, including gems, oil and natural gas, timber and various metals. • Resource endowments position Myanmar to be an export driven economy, fulfilling large demand for its products in neighboring countries

Expected Financial Services Industry Growth

• Financial sector is a relatively undeveloped market with significant opportunity for investment.

Formal banking penetration falls fter 50 years of oppressive and financial sectors have begun to at around military rule, Myanmar is transform the country’s mismanaged A in the mist of a historically economic and financial system. The 10% unprecedented reform. In March 2011, result has been greater confidence in the then ruling government (State Peace Myanmar’s economic future, with nearly and Development Council (SPDC)) thirty times the growth of Foreign Direct in urban settings transferred power to a Union government Investment (FDI) into the country in the and considerably less in rural areas headed by President Thein Sein. Thein past six months than the entire year Sein has since led the charge to open prior. Such growth has been spurred by Myanmar‘s doors to the international the significant opportunities Myanmar community by beginning an economic presents to investors in the areas of • Financial services add $200 million to GDP and employ only 7,000 people, currently, and political reform process to increase natural resource endowments, expected however this contribution is expected to substantially increase with new financial transparency, promote democracy, and financial services industry growth, regulations aimed at promoting foreign investment. encourage foreign investment. Key improved regulatory environment and • Current regulation prohibits foreign banks from operating independently, however policy changes in the trade, banking, the strong labor force potential. upcoming Financial Institutions of Myanmar Law is expected to reverse this. 16 INTRODUCTION INTRODUCTION 17

Improved Regulatory Environment • Thein Sein has launched a series of reforms to improve the business environment Challenges to encourage the entry of foreign financial and human capital. • Recently implemented reforms include : - Moving to a floating exchange rate to reduce high volatility in the Myanmar currency, Kyat Continued Military Presence - Raising the deposit to capital ratio from 10 to 25 times - Establishing an independent Central Bank with the authority to manage inflation, issue • Military presence can still be seen in State Owned Enterprises (SOEs) that dominate new currency, establish a credit bureau and manage foreign exchange reserves. key industries, such as the Myanmar Oil and Gas Enterprise (MOGE), Myanmar Post • A number of reforms are underway to improve competitiveness. and Telecommunications (MPT), and Myanmar Electric Power Enterprise (MEPE). - A foreign investment law will provide favorable terms for international countries to conduct business in Myanmar. - An inter-bank exchange trading market will be established by the Central Bank and will ultimately enable a free-floating Myanmar kyat. - An official stock exchange is expected to be launched in December 2013 providing increased transparency and capital to Myanmar’s businesses. % • Telecommunications technology and infrastructure is expected to rapidly improve 12 with the awarding of telecommunications licenses to Telenor ASA and Qatar Telecom’s Ooredoo. of the national budget One third of the parliamentary seats Strong Labor Force Potential is allocated towards the military reserved for the military

Eventual reallocation of the labor force, • Majority of seats are held by the USDP, the pro-regime party. away from the agriculture sector towards the services sector • The 2015 election will be key indicator of military’s role in the future of the government.

Future Political Uncertainty 70% of the labor force is employed in agriculture • Myanmar experts look to the 2015 elections as a true test of a shift to democracy. • In 2015, the first nationwide election since 2010 will be held, and will demonstrate the military’s willingness to relinquish control over the government and the state. • A free democratic election in 2015 would see a greater strengthening of opposition parties, and a likely increase in seats held by the National League for Democracy, The working age population, headed by Aung San Suu Kyi. at over

shows great potential to fill The NLD the expected surge in demand for skills. 75% won 43 of 44 seats • Youth are the most likely segment to embrace change, adopt new technologies it contested in a bi-election in 2012. and eagerly develop the skills needed to bring about innovation in the country. • The anticipated return home of a portion of the three to five million migrant laborers based abroad will fill the gap in need for skills and will bring skills • Concerns remain about the opposition’s leadership capacity given significant acquired abroad to Myanmar. time spent in prison, poor leadership skills and lack of knowledge about modern • Myanmar’s expected entry into the ASEAN Economic Community in 2015 will governance needs. connect the country to additional sources of labor, trade opportunities and infrastructure development. 18 INTRODUCTION INTRODUCTION 19

Limited capacity of working population

• Weak educational infrastructure has led to limited capacity in the working population and low levels of labor productivity.

Myanmar worker adds an average of $1,500 of economic value per year, whereas workers throughout Asia add Weak infrastructure poses a challenge to conducting business more.2 • The lack of investment in electricity severely undermines businesses, financial 70% services, and communications • 75 - 87% of people are without electricity in Myanmar. If electricity output doubled every five years, it would take five years to reach today’s existing demand.1

• Of 150 firms in Myanmar, • Existing labor force is facing major financial literacy gaps, as it has operated without formal financial services for many years. • Influx of foreign companies and development organizations is stripping the government and Myanmar institutions of skilled employees, lowering capacity of % listed electricity as a severe Myanmar government to meet reform needs. 47 obstacle to doing business. Quantitative data to drive decisions is still absent

• Significant gap in the availability of quantitative data, from demographic numbers Lost over 13 days a year due to electricity issues. to economic performance measures. • Most numbers are estimates and provided in ranges, such as population totals • Alternative sources of energy, such as solar energy, offer potential solutions for or number of migrant workers abroad or are unavailable, such as government or communities and business energy needs. household consumption expenditure numbers.

1 According to a report conducted by Harvard and Proximity Design, entitled “Electricity in Myanmar : The 2 According to the 2013 McKinsey report on Myanmar Missing Prerequisite for Development” 20 INTRODUCTION INTRODUCTION 21

Myanmar’s Historical Context 1889 Myanmar fully colonized by the British

1889 - 1929 Myanmar is a significant trading port and rice exporter nder British colonization in and played an important role in the the late 19th century and early democratic protests the following year. 1929 Stock market crash, Myanmar rice economy collapses U 20th century, Myanmar, then The 1988 democracy protests ended Burma, thrived economically, becoming the socialist era, as General Ne Win the dominant rice producing country was ultimately forced to step down 1948 Burma gains independence from the British in Asia and a key trading hub with after using violent force to suppress port activity greater than that of New the protests. Such acts eventually led 1952 General Aung San is assassinated York City. However, when the 1930’s the US to implement the first wave of stock market crash hit and the world sanctions against Myanmar.3 During Burma holds first parliamentary elections entered into the Great Depression, the this time period, fiscal irresponsibility 1953 ensuing fall in rice prices dramatically led to an increase in money supply hurt Myanmar’s farmers and caused a by 70 times, and a 300% devaluation 1962 Military coup collapse in the country’s economic and of the currency. These conditions set trade sectors. The impact left Myanmar the backdrop for the banking crisis in 1964, 1985 & 1987 Currency demonetizations citizens wary of external influences on 2003 when many private non-banxking the country’s economy, leading to the finance companies collapsed causing creation of the nationalist movement, a run on the banks. The Central Bank 1988 Democracy protests and formation of National League for seen in Myanmar throughout its history. responded by freezing bank withdrawals Democracy (NLD) party and demanding immediate payment Widespread political turmoil created to banks on borrowers’ outstanding by these nationalistic policies and the loans. The result was a halt in financial 1988 First round of sanctions implemented against Burma prospect of ethnic minority autonomy markets, including a ban on local credit led to the justification for the military’s cards and ATMs, which ultimately 1990 Introduction of market oriented economic policies coup in 1962, headed by General Ne increased dependence on physical cash Win. Under the General, all industries, rather than in bank accounts. Domestic banking crash banks and schools were nationalized, 2003 as well as price controls established. In contrast to the early 2000s, the As a result, a massive black market breadth and steadiness of reforms thus 2007 Saffron Revolution embodying up to 80% of the economy far have exceeded expectations and developed, trade fell by more than 50% are the source of much hope that after 2008 Constitutional referendum and national debt grew to over $4 billion 50 years of rough economic waters, USD. Three demonetizations of specific Myanmar’s economy may be stabilizing notes in 1964, 1985 and 1987, the third and GDP rising. All eyes are set on 2008 Cyclone Nargis hit killing over 130,000 people of which provided no compensation, the country as the government works greatly undermined the population’s towards building a solid political and 2010 General election occurred trust in the formal financial sector economic framework.

2011 Start of release of political prisoners

2012 Unification of currency, election of Aung San Suu Kyi to Parliament, introduction of legislative reforms, international

3 Further sanctions were imposed in 1997, 2003 and 2008 as a response to a violent attack against the NLD community lifts/eases sanctions and the Saffron Revolution (protests led by Buddhist monks against the removal of fuel subsidies) 2013 Hosting of World Economic Forum in Naypyidaw 22 METHODOLOGY METHODOLOGY 23

his report has been created for conducted within this context. MasterCard with the support A multiple snowball sample research T of the Myanmar Development method was used, whereby networks, Resource Institute’s Center for Economic such as MDRI, the team’s research and Social Development (MDRI-CESD) assistant, and chance encounters were to better understand what individual leveraged to connect with interviewees. habits and needs are in relationship to These interviews were conducted across formal and informal financial services. a range of such clusters, in different The goal of the research is to provide geographic locations, aiming to create insights about Myanmar’s unique a certain level of randomization to limit context that can inform potential the level of bias in the results. areas of market entry for MasterCard in providing beneficial services to both The field interviews were primarily rural and urban communities. To that targeted at Small and Medium sized end, the following report has identified Enterprises (SMEs), as there is a three representative segments within notable gap in the understanding of these communities that can be broken the sector’s financial needs. Moreover, down by their relationship to formal because of their recognized importance financial services : fully integrated, to economic growth, the Myanmar semi-integrated, and un-integrated in government is currently drafting a the formal financial services sector. The reformed SME bill aimed at improving analysis of financial practices will be the business environment. METHODOLOGY 24 UNDERSTANDING THE FIELD PARTICIPANTS INTERVIEWED UNDERSTANDING THE FIELD PARTICIPANTS INTERVIEWED 25

UNDERSTANDING THE FIELD PARTICIPANTS INTERVIEWED

total of 72 interviews were conducted, of which A 41 were field interviews and 31 informational interviews. Field interviews were performed across a range of demographic segments, 4 Due to the small sample size and self-selection bias, the usage statistics gathered does not necessarily allow for a greater extrapolation of these statistics to society as a whole. However, these statistics can be industry sectors, and financial used to understand directional trends in Myanmar today. Moreover, the answers provided by interviewees activity levels.4,5 are limited to the extent of truthfulness of the respondents and the comprehension of the questions posed.

5 Field interviews are defined as interviews in which questions related to financial savings, lending, remittance, and insurance habits and perceptions were asked. Informational interviews are defined as discussions with experts in the field or companies involved in innovative financial payment initiatives in Myanmar. Within the field interviews, 4 were focus group sessions of approx. 10 participants each. 26 UNDERSTANDING THE FIELD PARTICIPANTS INTERVIEWED UNDERSTANDING THE FIELD PARTICIPANTS INTERVIEWED 27

Demographic Statistics Small and Medium Sized Enterprise Representation

Geography

Field interviews were conducted % of interviewees in the three largest population 71 were Small and Medium sized Enterprises (SMEs) hubs of Yangon, Mandalay and Mawlamyine.6 Mawlamyine and surrounding areas can be considered the most rural out of the three regions interviewed.

% Of these, 72 28% Mandalay 10 interviews

Yangon 19 interviews

Mawlamyine 12 interviews

6 Focus group sessions have been counted as one interview, where the average of the responses was used as the collective response. 28 UNDERSTANDING THE FIELD PARTICIPANTS INTERVIEWED UNDERSTANDING THE FIELD PARTICIPANTS INTERVIEWED 29

Age Industry Breakout Interviewees predominantly fell into the 30–40 age range To develop a comprehensive view on insights, interviews were conducted across 10 different industries. Women operated 40% of retail businesses interviewed, 33% of services sector, 20% of manufacturing, and 100% of the medical sector Under 30 : 5% 30 - 40 : 61% 0% 5% 10% 15% 20% 25%

Agriculture 10%

Manufacturing 12%

Media 5% 41 - 59 : 17% 61 and over : 17% Medical 2%

Non profit 7%

Real estate 5% Gender Retail 24%

While women are seen to have be more reluctant to speak of financial Service 15% significant amounts of power in affairs, as 4 females declined interviews, Myanmar, managing most family while only 1 male declined. 12% matters and charged with selling goods Tourism at markets, the team’s core sample resulted in 27% of our interviewees Transportation 7% being female. This inequality can mostly be explained by the unequal % representation of women as business 27 owners in Myanmar. In a private enterprise survey of 153 firms in 73% Myanmar, women were found to occupy top management positions in only 27% of the companies. Women appeared to 30 UNDERSTANDING THE FIELD PARTICIPANTS INTERVIEWED UNDERSTANDING THE FIELD PARTICIPANTS INTERVIEWED 31

Financial Inclusion Statistics Bank Account Ownership

Cell phone use Although financial inclusion is only estimated at under 10% of the population, 68% of interviewees were found to own a bank account. This Cell phone ownership is widespread third largest city Mawlamyine. This may number is assumed to be higher than amongst the population of respondents be indicative of the recently growing the national average due to the study’s interviewed in Myanmar, with 85% of mobile phone access in Myanmar, as it focus on population centers. Banked : 68% Unbanked : 32% interviewees owning one or more cell is contrary to the commonly cited low phones. Those without cell phones cellphone penetration rate of 3-5%. predominantly resided in Myanmar’s

Among those that own a bank account, there is a wide range of user types. An Active User interacts with the bank Yes : 85% NO : 15% at least three times a month. An Occasional User only uses bank services about once a month and an Infrequent User approaches the bank every few months. Non-users have opened a bank account, but never used it.

Active Users : Occasional 24% Users : 45%

Within the active users category, 28.5% of people still do not trust banks and do not opt to save their money in them.

Infrequent Users : Non Users : 14% 15% 32 UNDERSTANDING THE FIELD PARTICIPANTS INTERVIEWED UNDERSTANDING THE FIELD PARTICIPANTS INTERVIEWED 33

Transferring Habits Borrowing Habits Some interviewees that do not own a bank account interact with a bank to transfer money. Only are able to obtain a loan from the bank. use the bank occasionally of interviewees use the 12% % to transfer money % bank infrequently to 17 8 transfer money are able to borrow informally 59% from family and friends, pawn shops, and moneylenders.

people do not borrow at all. Savings Habits 32%

Of those who borrow informally (24 people) : Of the interviewees who own a bank respondents stated they were unable account, slightly more than half, to save at all. (57%) keep their savings in the bank. 71% save informally through investing Those that do not own a bank account (borrow from family and friends, in a tangible good or a savings group. predominantly save informally 71% Many (69%) save both in the bank and (83%), while 15% are unable to save through informal investment. 11% of extra money. 25% borrow from savings groups,

Of the 31 respondents that save informally, 21% borrow from money lenders. 52% invest in gold

29% in savings groups Insurance

22.5% in gems Out of all respondents, comprised predominantly

13% in foreign currency 14.6% 66.6% have some type of business insurance. 13% in land of formal insurance } 34 FINANCIAL SERVICES ACTORS FINANCIAL SERVICES ACTORS 35

FINANCIAL “Public dissatisfaction with economic hardships has been seen as the chief cause of SERVICES the movement for democracy in Burma.” ACTORS Aung San Suu Kyi 36 FINANCIAL SERVICES ACTORS FINANCIAL SERVICES ACTORS 37

Banking Landscape Microfinance Sector

yanmar is comprised of a network. Despite the rapid increase he microfinance sector is rate ceilings, limited differentiation total of 23 banks, four state in ATM machines, uptake has been high on the priority list for between deposit and non-deposit MFIs M owned banks and 19 private slow. CB Bank estimates that only .2% T the government, listed as one and a lack of supervisory expertise and banks, with oversight by the Central of its 20 billion kyat ($20.2 million) of the eight priorities in the National a credit bureau. Bank. A recently passed banking law daily withdrawals come from the ATM. Development Strategy. In Myanmar, allows 32 foreign owned banks to Also in 2012, the Central Bank launched microfinance is defined as collateral- There are a variety of actors engaged open local representative offices in the the Myanmar Payment Union (MPU) free micro lending. Microfinance in microfinance lending throughout country via a partnership with domestic card in conjunction with 17 banks institutions are currently servicing Myanmar. State owned banks, such as banks. Thus far, 18 foreign banks have to provide a domestic debit card approximately 2.8 million clients, Myanmar Economic Bank (MEB) and opened such offices. The next step that works interchangeably across however, UN Capital Development Fund Myanmar Agriculture Development Bank will be to allow foreign banks to open all member banks. 180,000 cards estimates an unfulfilled demand of (MADB), are the largest deposit taking locally incorporated branches, which have been issued as of early 2013, $1 billion. servicers in Myanmar. Cooperatives is estimated to occur after the Central and they can be used at 198 ATMs constitute half of the current registered Bank becomes fully independent and 465 Point of Sale machines. To In November 2011, the government microfinance institutions, with a total in 2014. date, the Central Bank has not passed a new microfinance law of 10,000 cooperative organizations. permitted local banks to issue credit permitting local and foreign investors to International NGOs also occupy a In July 2013, new regulations were cards as it worries that unsecured open private microfinance institutions. significant share of the sector, with passed allowing the Central Bank lending may destabilize the This created an influx of new MFIs, with a loan portfolio of over $69 million. to operate autonomously from the economy, as happened during the 2003 118 new licenses distributed in the Of these actors, the PACT-UNDP Ministry of Finance. The Bank’s outlined bank run. following year. partnership is the largest provider with responsibilities are to implement a $51 million loan portfolio. Additionally, monetary and exchange rate policies, The financial sector currently lacks Currently the barriers to entry for the there are 60 agriculture development manage inflation, and create a stable an integrated payment system, which microfinance sector are low, due to the companies that provide microcredit to fiscal and monetary environment. It makes it difficult for the Central Bank to minimal capital requirements ($16,000 200,000 farmers with a loan portfolio is the sole body permitted to issue monitor and evaluate the performance for lending only and $32,000 for deposit of $45 – 65 million. There are also new currency. of member banks. As such, the Bank taking institutions), extensive use of many political and governmental plans to establish a national payments subsidies to encourage the sector, organizations that provide microfinance ATM and Point of Sale machines were system that includes an Automated and more licenses distributed than services, such as the Microfinance reinstated in the country in the fall of Clearing House and a Real Time Gross existing capable organizations (as of Supervisory Enterprise and The Union 2012, in partnership with MasterCard Settlement system. Thus far, there has May 2013, 142 microfinance licenses Solidarity Development Party (USDP), and Visa, bringing the current totals been progress made in establishing an were issued.) However, challenges the current ruling party in Myanmar. to approximately 450 ATMs and 2,500 interbank payments system, however persist in the sector with low interest POS devices. Of the 2,500 devices, check clearing between banks are 1,665 of those belong to the MPU performed manually. 38 FINANCIAL SERVICES ACTORS FINANCIAL SERVICES ACTORS 39

Insurance Providers Payment Providers

ue to low credit card he insurance sector is nascent policies that cover snake bites are penetration and limited in Myanmar and the concept a practical and unique coverage for Internet access, there are foreign to most citizens. people in more rural areas. D T only a few companies in Myanmar According to the Ministry of Finance To cater to the lower income segment, currently working in the online payment and Revenue only 300,000 people are many MFIs and cooperatives provide space. Three innovative companies are insured out of Myanmar’s close to 60 micro insurance products that are not currently leading the pack in this sector: billion population. The state insurance supervised. It is estimated that 1.1 iPay, Myan-Pay and Oway. Successful company, Myanmar Insurance, has million clients of cooperatives and Bangkok based payment provider, 2C2P, operated since 1952, however, many MFIs are covered under this type of has forthcoming plans of expansion cite the company to be inefficient informal insurance. International NGOs into Myanmar. Further details on these and highly bureaucratic. For the first cover approximately 600,000 clients companies can be found in the Financial time in over 50 years, the Myanmar with a variety of insurance products Services in the Electronic World section. Insurance Enterprise will allow 12 such as life, household structure and private companies to operate, and has crop insurance. PACT-UNDP has the thus far given licenses to nine for life majority of these clients and offers and general insurance. While services insurance in the form of loan write are still fairly unknown in areas outside offs and loss of life compensation for Yangon, or amongst the country’s poor, up to $125. 40 COMPARING FINANCIAL SERVICES IN THE INFORMAL AND FORMAL SECTOR COMPARING FINANCIAL SERVICES IN THE INFORMAL AND FORMAL SECTOR 41

ne cannot underestimate the significance of the informal sector in Myanmar, COMPARING Oespecially in the financial services arena. Since the formal sector has failed in many instances to provide FINANCIAL SERVICES essential financial services to the Myanmar population, many informal solutions have developed in response. On the next page is a comparison IN THE INFORMAL of informal and formal financial services solutions for a variety of AND FORMAL SECTOR financial services. 42 COMPARING FINANCIAL SERVICES IN THE INFORMAL AND FORMAL SECTOR COMPARING FINANCIAL SERVICES IN THE INFORMAL AND FORMAL SECTOR 43

Informal Formal

Savings • Citizens save by investing in gems, gold, •Savings accounts at banks pay land, foreign currency or businesses. 8% interest. • Some wealthier groups purchase stock in the informal market. • Savings groups are important informal services in rural areas outside of Yangon.

Lending • Unbanked borrow from friends and • Stringent collateral requirements for family, usually interest free. formal bank loans with a 50% loan to • Others pawn their gold in pawnshops at value ratio. an interest rate of 60 – 96% per annum. • Loan duration is up to 1 year from the • Members of village savings funds bank at 13% interest rate per annum borrow from this group. Interest rates : with an average loan size of approx. 48% per annum. $100,000 USD. • The poorest segment of the population • Loans are typically only given to those uses informal moneylenders with fairly with existing businesses. high interest rates (60-120% per annum). • Microfinance lending available for those that do not meet collateral requirements, however loan amounts are smaller (PACT-UNDP offers microenterprise loans up to $1,875, and individual loans from $65 - $250) with higher interest rates (30% per annum).

Remittances • Cross border and domestic money • Those with and without bank accounts transfer is done through sending can transfer money at a bank with a money with friends, or through the cost of 1% for transfers within the same Hundi system agent network. bank, and 1.25 – 1.5% for transfers to • Hundi system relies heavily on trust as different banks domestically. there is a risk of corruption. 1.25% rate is charged if transfer amounts • Depending on location and amount are over $100,000. transferred, recent interviews and • It is not possible to transfer money articles cite fees of 0.1 to 2% of from Myanmar abroad. transaction amount. Older sources • For transfers from outside of Myanmar quote a higher range of 5 – 10% of into Myanmar, fees can be higher. principal often in the form of exchange Sending money from Singapore to rate differentials. Myanmar via Singapore Post to CB • Door to door cash pick up and delivery Bank costs approx. $9. service is often provided.

Insurance • Savings in gems, gold, land, etc. are • 12 private insurance companies seen to be a type of informal approved to operate in Myanmar, insurance in case of catastrophe with 9 licenses currently awarded. • Some participate in insurance or • 9 of the 12 private companies will offer health savings funds to withdraw general and life insurance. money in an emergency. 44 FINANCIAL SERVICES IN THE ELECTRONIC WORLD FINANCIAL SERVICES IN THE ELECTRONIC WORLD 45

FINANCIAL SERVICES IN THE ELECTRONIC WORLD 46 FINANCIAL SERVICES IN THE ELECTRONIC WORLD FINANCIAL SERVICES IN THE ELECTRONIC WORLD 47

Prepaid Cards

yanmar is slowly forging ahead on the electronic M payments agenda. Electronic salary payment is an innovation that has been seen in an eclectic iPay range of industries, such as banking, supermarkets and NGOs. Myanmar Orient Bank and Innwa Bank are two In conjunction with MasterCard, iPay is one of the few prepaid complaint. Despite these difficulties, banks that pay staff via a salary card CB Bank recently launched a US technologies that exist in Myanmar. The iPay relies on the bus conductors as so that all staff will own bank accounts dollar denominated prepaid card for company has leveraged its founder’s one channel to educate users on how and debit cards. The Paung Daw Oo accountholders to use abroad. A second additional businesses in the consumer the card works. orphanage, operated by a monastery in phase launch is expected to include goods markets to create promotional Mandalay, hoped to increase financial prepaid card use within Myanmar, campaigns to increase user adoption The prepaid cards are advantageous literacy and inclusion among its staff however the Central Bank currently is and customer base. In supermarkets, in Myanmar as they are not limited to by issuing salary payment cards. The reviewing regulations of such usage. bosses give employees iPay cards the banked population. Low recharge large upscale grocery chain, CityMart, According to a CB Bank source, the as a bonus, or companies may give amounts allow for the unbanked and is also known to pay employees via Central Bank is hesitant to permit transportation allowances in the form those at the bottom of the pyramid to a salary card. Other companies have the expansive development of a USD of an iPay card. These campaigns benefit from this service. simply opened bank accounts and debit prepaid card as they are worried there have been fairly successful so far, with cards for all employees and directly will be an initial outflow of funds outside 50,000 users currently signed up for the With iPay, users are beginning to see the deposit paychecks into the employees’ of Myanmar, which will negatively service. The majority of the users are security benefits of storing money on bank accounts. Among stated reasons impact the Myanmar currency, the Kyat. in the 16 – 25 age range, as the service a card instead of cash. If a card is lost for going electronic is to increase is particularly beneficial for students. or stolen, iPay replaces in within two transparency, streamline and quicken Domestically based, iPay, has recently days. When a user loses their wallet, payment processes, as well as avoid implemented a prepaid card system for The most difficult challenge quoted, with the iPay card inside, the person employees seeing how much their peers transportation, parking, retail shops, however, is not persuading users to that finds the wallet can contact iPay’s are paid. and park entrance fees. To date, the pay ahead of time for a service, but lost and found department to track the focus of the technology has been convincing bus conductors to use the wallet’s owner. predominantly to prepay bus fare. Users Point of Sale machine. There have been can purchase an iPay card in the retail many complaints that conductors claim In the initial phases, iPay is providing shop or in retail stations scattered the machines don’t work in order to POS terminals free of charge, however throughout Yangon and add money to protect their jobs or skim money off once adoption increases, they plan to the card by visiting the retail store, bus the top of the bus fares. iPay attempts begin charging a fee. iPay is currently stations and selected bus terminals. to mitigate this issue as best possible only operating in Yangon, with plans for See the below case study for a deeper by contacting the bus companies with expansion in the near future. look into iPay’s operations. the offender bus number to file a formal 48 FINANCIAL SERVICES IN THE ELECTRONIC WORLD FINANCIAL SERVICES IN THE ELECTRONIC WORLD 49

Mobile Banking Mobile banking has the potential to through easily connecting people via be highly popular in Myanmar as it a national payments network. Along provides advantages that the country’s this same vein, mobile banking ith the recently awarded limited to banked citizens only. Mobile citizens value. This electronic solution provides a cost effective, convenient telecoms licenses to Qatar banking that is being discussed by shares a commonly cited benefit of solution for one of the highest volume Telecom and Telenor, mobile telecoms operators, particularly newly cash in that it is easily accessible. As financial transactions in Myanmar, W will be mentioned in the first key finding money transfer. banking is no longer a distant lofty goal. licensed telecom giants, Qatar Telecom Telecoms infrastructure is slated to be and Telenor, will not require a bank on cash dependency, Myanmar citizens on par with that of developed nations account and will most likely be focused prefer cash because it is time effective, Youth, ages 16 – 25, are expected to within five years, and provide coverage on remittance payments for the first able to be used exactly when one needs be early adopters of mobile banking, for 80% of the country within 3 years. phase. This model may leverage agent it without requiring a trip to the bank. as they demonstrate an increased While mobile demand is growing rapidly, banking or otherwise be routed through Mobile banking provides this same willingness to try new technologies, are with 85% of respondents owning cell the Myanmar Payment Union network. immediate usage capability; deposits comfortable with the formal financial phones, the country 1,800 towers. With In both the bank and telecom model, and withdrawals can be done at a local sector and are heavy users of cellular the majority of the population outside infrastructure will be a challenge as convenient store at the same time as a devices. Those in the financially the city, there is an estimated need for an networks are unreliable and electricity customer is shopping for a basic good. integrated group will also most likely additional 15,000 towers to adequately penetration in the country is low Mobile banking also takes advantage of be in the early user category, as they extend networks. Increasing demand (estimated between 13 - 25%). Myanmar’s close knit, family and friend have typically been previously exposed has resulted in severe shortages ofSIM culture by magnifying the network effect to innovative financial products abroad. cards, and rationing by the Myanmar Myanmar citizens seem to have mixed Post and Telecommunications (MPT) feelings on whether the country is ready Ministry. However, it is expected for mobile banking and whether they such restrictions will diminish as would trust such a system. As a general new telecommunications entrants trend, it appears that those who are begin operations. financially integrated would trust the system more and are more eager for CB Bank has developed its mobile mobile banking to be implemented. As banking system, and is waiting for will be noted of Myanmar’s culture, risk the go ahead from the Central Bank aversion is high, so trust of such new to proceed with implementation. The services is harder to build. Particularly, first phase of CB’s mobile banking due to the large emphasis placed on plan will allow CB Bank customers to recommendations of friends and family, transfer funds to each other within the many respondents voiced the belief that bank’s network on a mobile phone. The once their friends and family adopt such second phase is envisioned to include a system, they would develop increased bill payments and interoperability trust for mobile banking. across multiple banks. Both phases are 50 FINANCIAL SERVICES IN THE ELECTRONIC WORLD FINANCIAL SERVICES IN THE ELECTRONIC WORLD 51

Online Payments Myan-Pay Oway Myan-Pay is the first Myanmar third Oway officially launched in late 2012 party online payment system that and is the first online based travel site Progress is advancing in the arena of users to order an item online and then allows businesses and individuals to in Myanmar. Using the Oway website, online payments for bills, shopping pay for the item at a local convenient shop, make reservations and payments users can book hotels and flights online and reservations. Currently, agents store. The founder plans to launch a online. Prior to making a purchase, with an international debit or credit are typically contracted to pay bills on similar solution in Myanmar at a future users must call or visit their bank to card. Domestic Myanmar Payment behalf of a business or individual for a undetermined date. authorize a payment to Myan-Pay. This Union (MPU) debit cards do not have small fee. However, many interviewees could be for the amount of the purchase online capabilities yet, so at this point expressed interest in an electronic Brick and mortar stores, such as Yangon or for a greater amount, however the in time they cannot be used to make system that would allow them to Online Store, are opening in wealthier maximum amount Myan-Pay allows reservations on the site. Because card control the amount and frequency of neighborhoods in Yangon to allow the to be transferred is $100 USD. Those usage is limited in Myanmar, Oway bill payments in real time. As mentioned Myanmar population to partake in the who do not have a bank account can is targeting local businesses with above, electronic bill payments are on online shopping experience. The store transfer money to Myan-Pay, also international corporate credit cards in the agenda for the second phase of a is furnished with multiple computers via a bank, which will take 2 – 3 days urban cities as well as foreign travelers. mobile banking launch. Additionally, where a customer can search for to reach Myan-Pay’s bank account. Currently, 60% of Oway’s clients are CB Bank plans to develop a method of an online product, order it online, Currently, 30% of users do not have a from overseas. Oway is in the midst of paying bills via ATMs within the year. and then pay for it at the store. The bank account. To deposit money and developing a strategy to make the site purchase will then be shipped to the shop online, Myan-Pay does not charge accessible to cash based businesses 2C2P, a payments provider based customer’s house. a fee, however if a user would like to and cardless individuals as well. in Bangkok, has plans to enter the withdraw money, transfer money or Myanmar market, first by providing Two notable companies are paving the accept an online payment, a nominal One of the major hurdles Oway is facing credit card capabilities to foreigners, way for online payments for shopping fee is charged. is getting real time information. Hotels in partnership with MasterCard and and travel reservations, Myan-Pay and have been able to streamline data Myanmar Citizen’s Bank. In Thailand, Oway. See the following case studies Myan-Pay has experienced firsthand fairly easily, however, airlines have had 2C2P offers a payments solution on both companies. the challenge of Myanmar’s cash difficulty automating their processes for unbanked customers that allows based society, and thus general and integrating their systems with distrust of online payment systems. Oway, so that once an order is received The company believes that merchants from Oway, it is directly updated in must encourage online payment usage the airline’s system. Thus far, three in order to shift consumer perceptions. airlines are integrated in this way. It Myan-Pay is advertising through is anticipated that by December 2013, Google and Facebook, bringing in all airlines will be integrated into the approximately 20 new users per day. Oway system. A larger, more complex Myan-Pay currently works with 200 issue is that there are no such merchants and over 3,000 individuals. automated systems in second tier cities, such as Kalaw. Future plans include increase payment services such as bill payments for rent Oway has recently signed a and utilities. Memorandum of Understanding with the Government to develop a platform for online payments and reservations. The company sees a great deal of potential in the online travel and payment industry, thus Oway plans to expand further into mobile and internet commerce in the future. 52 REPRESENTATIVE INTERVIEWEE CASE STUDIES REPRESENTATIVE INTERVIEWEE CASE STUDIES 53

rom the 41 field interviews conducted, interviewees can be interviewed were categorized into three primary % F semi integrated, groupings based on their interaction 39 with the formal financial sector in Myanmar and abroad, as well as their 37.5% in comfort with using financial services. Yangon It is important to note that these integration categories are defined 25% in relative to the Myanmar context, and not relative to global standards. Mawlamyine

Those who are Financially Integrated 37.5% in Mandalay often own multiple bank accounts, use formal insurance, have used debit/ credit cards in the past or currently own Myanmar citizens that do not own a international cards. Someone who is bank account in Myanmar or abroad financially integrated can be an active are considered to be Un-Integrated in participant in the financial system in the formal financial system. Myanmar or outside of the country. % interviewed were % interviewed were 36 un-integrated, 24 financially integrated, 33% in Yangon 80% based in REPRESENTATIVE Yangon 27% in Mandalay 20% based in 40% in Mawlamyine INTERVIEWEE Mandalay The following selected case studies Semi Integrated includes those who introduce one member from each group, have a bank account in Myanmar, telling their story in order to illustrate however they use it infrequently their daily interaction with formal and CASE STUDIES (less than 1x/month) or occasionally informal financial services. To keep the (1x/month). This group has never used identities of respondents confidential, a debit or credit card, and does not all names in this document have own insurance. been changed. 54 REPRESENTATIVE INTERVIEWEE CASE STUDIES REPRESENTATIVE INTERVIEWEE CASE STUDIES 55

Financially Integrated - Dr. Khin Kyi, Chief rom the age of 5 years old, Dr. her in obtaining a loan. The bank loan Khin Kyi knew she wanted to be application process took 6 months and Executive Officer of major domestic medical a doctor. She worked throughout consisted of a series of interviews in supply company Fher adolescence towards this goal, and which the bank studied detailed aspects at the age of 16, she received first place of her business. Now that the banks in the medical school entrance exams in are familiar with Dr. Khin Kyi business, Myanmar. Upon graduation, Dr. Khin Kyi next year she believes the process will worked for a local clinic and introduced be quick and easy. the concept of on-call duty 24 hours per day. However, her true dream was to Dr. Khin Kyi has owned a Myanmar work for a Yangon public hospital. She bank account since the 1980’s and worked for ten years as a specialist in opened bank accounts in Singapore pathology at Yangon General Hospital. and Australia in 1998. She uses both However, in 1990, Dr. Khin Kyi left her for personal and business reasons. position in the general hospital due She fully enjoys the benefits and to a difference in political views. After convenience of ATM cards, and is working for UNICEF for three years, Dr. eager for credit cards to arrive to Khin Kyi joined the medical equipment Myanmar. Dr. Khin Kyi has complete field with a French company that she trust in the bank, and would not keep was ultimately able to take over. more than $500 USD at home, as it is not safe. She invests in jewels, which Dr. Khin Kyi’s medical device company she does store in her home. While she provides medical, laboratory and believes the time has not yet arrived for research and development equipment insurance in Myanmar, she would like “In Myanmar, we have to have to hospitals and laboratories in three to purchase plans for her employees cities in Myanmar. The company has a once private companies are more our own cash, our own money, total of 100 employees; 80 based out established. Dr Khin Kyi is also awaiting of Yangon and 20 scattered throughout an automated solution for bill payments it is the only we can start a business.” the rest of Myanmar. The company has as currently her staff spends over an seen a dramatic increase in business hour every month waiting in line to Dr. Khin Kyi, CEO of major medical supply company since 2012 as the government’s budget pay company utility bills. On the topic for the medical field has risen from $6 to of mobile banking, she firmly believes 60 million USD. Following this budget that Myanmar is not yet ready for such increase, Dr. Khin Kyi’s equipment a technology. turnover immediately became $30 million USD. In order to support the Dr. Khin Kyi has opened bank accounts purchase of such equipment, Dr. Khin for her senior employees and directly Kyi needed a loan from the bank. This deposits their salaries into the bank proved to be fairly difficult, as many of account. After 5 years with the firm, she the banks could not provide her with buys her employees a car, after 10 years, the amount she needed to pre-purchase she buys them a house. Moreover, she equipment. Finally, Dr. Khin Kyi called on has purchased stock in an industrial the help of her friend, the Vice Chairman park in order to provide dividends as a of a Myanmar Apex Bank, to assist year-end bonus. 56 REPRESENTATIVE INTERVIEWEE CASE STUDIES REPRESENTATIVE INTERVIEWEE CASE STUDIES 57

Semi-integrated: Zarni, Art Gallery Owner ike every Buddhist male in banking, particularly as he often must Myanmar, Zarni has served receive payment for art purchases from L in the Buddhist monastic customers abroad. Despite worries system. However, Zarni remained in that a fire may occur and destroy his the monkhood longer than most – over paintings, Zarni doesn’t have insurance 20 years – living on donations and as the concept of insurance is fairly providing practical, emotional, and unfamiliar and the sector nascent. spiritual support to grateful patrons. At the age of 29, he decided to make While Zarni does not trust the banking a significant change to his life by system, he owns multiple bank accounts leaving the monastic system to live for increased accessibility in receiving as a layperson. As Zarni retained the clients’ payments and for ease of favor of many of his former patrons, purchasing real estate. According they were happy to support him as he to Zarni, if he were abroad he may started a new life. use a bank account more often, but in Myanmar it is inconvenient since With no former credit, bank account, one can only withdraw money from a or experience using financial services, non-interest bearing account so a user Zarni entered life outside the monastery. must first transfer money between There he found his way to a local accounts before he/she can withdraw. art gallery that housed him, and in As such, Zarni stores his money in his exchange he helped out around the home, not fearing its security, as the gallery. After a few years of involvement majority of his income is re-invested in the art sector, the owner of the into the gallery. art gallery, Aung Kyaw, encouraged Zarni to open his own gallery. However, Zarni’s business has expanded as the the gallery business was dependent reform has brought in a greater number on buying art from artists directly, and of tourists and openness to appreciate re-selling them later, or supporting art amongst Myanmar’s citizens. His artists financially while they created business is heavily dependent on new works for the gallery. This required personal connections from friends Zarni to access more money than he and word of mouth recommendations. had ever needed before. Fortunately, Zarni retains many of the Buddhist Zarni was able to turn to donors and trainings he embodied for so many friends to support the initial investment years, so that he is constantly reminded in his gallery. he needs to be honest and support the community’s artists, making profit Like most young people in Yangon, not a primary motive, but instead Zarni owns a cell phone, a laptop, prioritizing building the art community and is an active Facebook user. If it in Yangon and supporting those in his “I always remind myself that I have to be honest. were available, he would use mobile realm of influence. I have to help others. Out of 60 artists only 35 artists’ works are sold, But if I don’t buy their painting, I don’t know how they will survive, for that I should buy.”

Zarni, Art Gallery Owner 58 REPRESENTATIVE INTERVIEWEE CASE STUDIES REPRESENTATIVE INTERVIEWEE CASE STUDIES 59

Un-integrated : Than Zaw Oo, Pottery Shop Owner han Zaw Oo has continued working in Thailand. Though willing to the tradition of his family’s travel to the bank to collect remittances, T pottery producing business his trust of the bank ends there - rather into a fourth generation, however, than saving the remitted amount in a unfortunately, after 150 years, the bank account, Than Zaw Oo uses any pottery industry is lagging and his five extra cash to buy gold, which he stores person workshop may not last for a fifth. in his house. Pottery has decreased in popularity and Than Zaw Oo is now dependent Than Zaw Oo also owns five houses on incomes from his three children and land nearby that his family has based abroad to send money home accrued over generations. However, to support him and his wife. Further he does not rent his properties due to impacting Than Zaw Oo’s business is the tenuous status of land ownership the fact that all of his previously high and little legal security – renters skilled employees have left Myanmar could easily become squatters if they to find work in Thailand. While Than stopped paying rent and would be Zaw Oo has contemplated about the difficult to prosecute given the limited next steps for his livelihood, he admits access to legal services. Instead, Than he cannot access the capital he would Zaw Oo saves the properties for his need to expand his business, and more children, which thus far have been importantly, doesn’t have the necessary a lucrative investment, as property skills to expand or start a new business. prices have jumped from 70,000 kyat ($70 USD) per sq ft to 200,000 kyat Than Zaw Oo operates solidly in ($200 USD). Neither the properties the informal financial system, not nor his business are insured, as the owning even a cell phone, but he concept of insurance is unknown in does make periodic use of formal rural areas, and still emerging as a services. He cites the 2003 banking service in urban Myanmar. crash as having shattered his trust in the banking system, so has no bank Despite the dire straits of Than Zaw Oo account. However, increasing tension business, he has never had to take out of interfaith Muslim-Buddhist violence a loan, even for larger expenses, and has made him distrustful of Muslim instead relies on the sales of saved members of his local community, who gold to cover his costs. He admits, like have traditionally run the informal Hundi much of his rural community, that he money transfer service. As a result, he views accruing debt as something to be has switched to using formal banks avoided unless absolutely necessary. to collect money from his daughter

“We save at home because its tradition – we don’t go to the bank because at home is like a bank.”

Than Zaw Oo, Pottery Shop Owner 60 HOW IS MONEY USED WITHIN THE 3 LEVELS OF FINANCIAL INTEGRATION ? HOW IS MONEY USED WITHIN THE 3 LEVELS OF FINANCIAL INTEGRATION ? 61

HOW IS MONEY he three segments of financial integration have varying degrees of interaction with Telectronic money and the formal financial USED WITHIN sector. Some segments use cash and electronic money interchangeably in the formal and informal sectors. Others are restricted to only physical cash in the THE 3 LEVELS informal sector due to a lack of a bank account. The following descriptions highlight how money is moved and used for each of the illustrative case studies OF FINANCIAL in the three segments. INTEGRATION ? 62 HOW IS MONEY USED WITHIN THE 3 LEVELS OF FINANCIAL INTEGRATION ? HOW IS MONEY USED WITHIN THE 3 LEVELS OF FINANCIAL INTEGRATION ? 63

Financially Integrated – Dr. Khin Kyi Semi Integrated - Zarni

Zarni receives payment in cash from the Zarni as cash. Zarni uses this money In Dr. Khin Kyi’s case, she first receives employees, Dr. Khin Kyi withdraws vast majority of domestic clients for his to pay for his expenses in cash. Any loan money from the bank deposited money from the company bank artwork. A portion of his foreign clients remaining cash he has leftover, he will directly into the company bank account. account and pays them in cash. are able to transfer money to Zarni’s use to purchase new paintings from She then uses this money to pre-pay for Paying electricity and water bills friends with foreign bank accounts, artists and keep a small amount at the medical supplies and equipment both must also be done in cash, therefore who then give the payment directly to house to pay for daily expenses. in cash and through bank transfers. Dr. Khin Kyi withdraws cash from Her clients compensate her via a the company bank account and gives bank transfer into her Myanmar bank it to her driver who then visits the utility Non-Integrated – Than Zaw Oo account, which she then uses to pay office to pay the bills. Any remaining back the bank loan and pay salaries and cash she has will be kept as savings Than Zaw Oo purchases raw materials proceeds. In order to pay for daily living expenses. Dr. Khin Kyi has opened bank in her Myanmar bank account with for pottery production in cash. He expenses, Than Zaw Oo uses the money accounts for her senior employees, a portion put into her bank account receives only cash for selling his pottery sent from his children abroad via a bank thus she deposits the salary directly in Singapore. products. Than Zaw Oo then pays his transfer, which he collects at the bank, into their bank account. For lower level 5 employees in cash using the sales in cash. 64 KEY FINDINGS KEY FINDINGS 65

KEY FINDINGS

he field and informational interviews conducted brought T forth a number of interesting trends on the topics of financial services usage and perceptions that will be pertinent to understanding how MasterCard can best develop services tailored to the Myanmar population. 66 KEY FINDINGS KEY FINDINGS 67

The strong usage and preference for after the 1990s, including the printing cash payments seen in Myanmar of money, corruption and theft at private Distrust of banking sector and lack of formal is surprising to foreigners who are banks, as well as a domestic bank financial services development has driven accustomed to carrying around few crash in 2003 further entrenched the bills in their wallet and making frequent mistrust of banks across all population heavy reliance on cash purchases with a credit card. It is segments of financial integration not so surprising, however, when one (financially integrated, semi integrated, understands the deep seeded mistrust un-integrated). Today, bank account of the banking sector that dates back penetration numbers have been to the 1960s. While Myanmar’s formal quoted to be anywhere from 3 – 10% financial system was established in the of the population. In 2009, the UNDP colonial era, it was placed under state Household Survey found that bank control during the socialist era and account ownership in urban areas was has seen little evolution since. Multiple 3.1%, twice that of rural areas, at 1.5%. demonetizations starting in 1964 (also Interviewees cited their attachment to later in 1985 and 1987) eliminated cash stems from three primary benefits: many people’s savings overnight. increased security, time effective, and Continued financial mismanagement cheaper than non-cash alternatives.

Selected ASEAN Countries’ Ratio of Cash to M1 (in Percent)

Particulars 2005 2006 2007 2008 2009 2010 2011 2012

Thailand 40.04 39.84 35.91 35.56 35.30 35.93 32.73 32.36

Philippines 70.02 70.16 69.58 70.02 72.25 70.09 70.17 70.90

Singapore 20.86 20.54 19.05 17.17 15.92 14.41 13.41 13.20

Malaysia 24.27 23.71 21.45 22.08 21.62 21.25 20.72 20.72

Myanmar 91.68 91.54 91.06 91.54 88.63 85.78 82.54 82.75

Source : IFS and CSO publications, Bank of Thailand

The usage of cash in Myanmar is significantly higher compared to its ASEAN “In the future we’ll need to learn about neighbors, with the ratio of cash to M1 as almost 6.5 times greater in Myanmar than in Singapore and 2.5 times greater than Thailand in 2012. new systems, insurance, banking, but now it’s more comfortable for me to use cash.” Operating in physical cash provides of financial affairs. Interviewees cited Hla Maung, taxi driver people with a feeling of security a fear that they will be cheated if they derived from a perceived control over receive money electronically. Real ensuring honest dealings and privacy estate company owner, Kyaw Min Aung, 68 KEY FINDINGS KEY FINDINGS 69

prefers to pay and receive money in 15 minutes to 1 hour. In addition, ATMs cash for buying and selling land, as are often cited to malfunction, either by she claims there is a greater likelihood failing to return the card or delivering the that a landowner will cheat her when requested cash. Those in the financially transferring money electronically to integrated population segment have her account. Seeing physical cash complained that ATM withdrawal limits counted in person serves to increase are too low to accommodate their cash comfort levels at stores, banks, and with needs, at $310 dollars per transaction apartment purchases as customers and $1,010 dollars per day. feel they have control over being cheated by witnessing the counting Operating fully in cash is seen as more process. Cash also offers security in time effective in the sense that one does terms of anonymity. Some worry that not need to engage in any of the timely the government will be able to obtain bank processes to withdraw money, but insight into their finances through a also in the sense that cash is highly bank account. As the gem dealer and liquid. Thus, one is able to immediately trader, Zaw Zaw Hlaing, stated, “I want use cash as needed, or convert the cash to keep a low profile. If I put my money into more valuable assets as soon as in the bank, the government will be able one receives it. Those in all levels of to see how much money I make.” financial integration state they store cash in Kyat and USD at their house or The processes involved with using non- in their stores for easy access. Because cash payment methods in Myanmar people do not fully trust the Kyat given are time consuming and inconvenient. its turbulent history, Myanmar citizens As the country operated solely using want to minimize the amount of Kyat cash since the domestic banking crisis they hold and the time they hold it in 2003, electronic payment methods for. Landlord, Soe Soe Lin, states that are just emerging. A domestic debit housing owners always want to be paid card with the Myanmar Payment Union in cash to avoid extra fees and time was recently issued in 2012, however, lags. Upon receipt of cash, the housing few places have a Point of Sale (POS) owner immediately uses it to invest device to accept the card. ATMs were in tangible assets, such as land, gold also installed in the past year to reduce or gems. dependency on the bank branch for withdrawing cash, however this process Cash is also considered cheaper to has proven to require multiple trips to transact in, as one does not need to the bank, as the user must first visit pay fees for withdrawing cash at out- the branch to apply for the card, then of-network ATMs (fee of approximately on a separate occasion, travel to the $5), bank transfer fees for remittances bank branch to transfer money from (approx. .5%) or pay for multiple trips to an interest bearing account to a non the bank branch. Citizens simply store interest bearing account before the the cash at home or at their business ATM card can be used. Wait times at and quickly access it free of charge the bank branch can be anywhere from as needed. 70 KEY FINDINGS KEY FINDINGS 71

The informal economy plays a significant role account. Since borrowing money from the semi-integrated segment have in financial services provision a bank is unrealistic for the majority reluctantly installed point of sale of the population due to complex and machines to cater to foreign customers stringent lending requirements, most even though they do not trust the bank people borrow from friends and family or use their bank account. Aung Aung or pawn shops. As such, saving and Kyaw, an art gallery owner, is a clear borrowing most often sit predominantly example of a Myanmar citizen operating in the informal sector, even with the between the informal and formal sector financially sophisticated. seamlessly. After years of interacting “Normally, I never use my account. only with cash, he recently installed The interchangeable use of the formal a credit card machine in his gallery to After I make some amount, I take it out of the and informal financial sector can make payments easier for foreign credit be most clearly seen in the realm of card holders. However, he still prefers bank account. What do I do with the money I payments. Within these services, the cash payments, and avoids keeping formal financial sector is not limited money in his Myanmar bank account. make ? I share it with others !” only to those that have a bank account, He also uses both the formal bank as those without a bank account are and informal Hundi transfer services able to send and receive money at a to receive payments from customers Aung Aung Kyaw, Art Gallery Owner bank. Members of all levels of financial and send payments to rurally based integration choose between the bank painters. Aung Aung Kyaw takes and informal Hundi systems to transfer advantage of both informal and formal money based on which service is financial services available to him – more convenient, cost effective and banks, Hundi services, and physical trustworthy. Based on interviews, it cash – to run his business. appears that the financially integrated As Myanmar’s formal financial financial institutions continue to thrive, tend to use the bank transfer services Refer to the Comparison of Informal institutions frequently failed to support alongside and embedded within the instead of Hundi, whereas the semi and Formal Services section for deeper the population over the past 50 years, improving formal financial structure. integrated and un-integrated use both insight into the informal and formal people came to depend on informal the bank and Hundi services to transfer financial services that currently exist practices to serve their own financial For the financially integrated and money. Some small businesses in in Myanmar. needs. The growth and strength of semi integrated populations, who these informal financial practices can own a bank account and can be be partly attributed to the vast informal considered financially savvy, the economy that exists in the country. seamless operation between the An estimated 620,000 businesses formal and informal financial sectors is operate in the informal sector, while notable. These segments are familiar only 127,000 registered businesses with the formal banking sector, often are accounted for, with 99.6% recorded own an ATM card and visit the bank as SMEs. As such, the percentage of on a regular basis. However, because large, registered businesses that would they do not fully trust the domestic typically use formal financial services banks, these groups use the formal is quite small. Now, with increased sector as a backstop to informal investment flowing into the country solutions for saving and borrowing. The and improving economic conditions, mistrust of banks causes many to opt Myanmar’s formal financial institutions to use alternative means of saving and are needed to play a crucial role in storing money rather than depositing boosting growth. However, the informal large amounts of money into a bank 72 KEY FINDINGS KEY FINDINGS 73

People predominantly save by investing in In the last five years land and real estate company to continue to expand without have rapidly appreciated in value to incurring debt. Business operator, Win tangible goods prices beyond those in the US or other Thida Lin, owner of a for-profit and developed nations. Currently, office non-profit training institute, uses her space in Yangon rents at $78 per square savings from the for-profit institute to meter a month, while rent in Manhattan sustain her non-profit operations. averages $49.95. Yet despite this, respondents in every category spoke Unlike western conceptions of savings of using savings to buy land and real accounts as a long-term means of estate. Both are considered stable accruing wealth, formal financial assets that, though not converted savings accounts are often viewed “I invest all of my money in land, and quickly, retain its value compared to as a form of an electronic wallet, the Kyat, which has historically been temporarily holding money until have made a very high return so far.” prone to inflation and demonetization. it is invested elsewhere. Multiple Similarly, land and real estate can bring bank accounts can serve as multiple Naing Win Tun, owner of jade cutting shop in much needed alternative income sections of a wallet, each with a distinct through either its lease for farming or purpose. Tea leaf factory owner, Ye as collateral for formal and informal Min Naing, uses his KBZ bank account loans. Despite being un-integrated, to accept international payments, for example, farmers at a focus group as it is linked with Singaporean UOB discussion outside Mandalay pool cash bank, and Myanmar Apex Bank to in their homes until they have a lump pay his distributors and employees. sum that can be used to buy small plots Clothing retailer, Chan Thiri Soe, use a In Myanmar, poverty is a daily fact of wide use of assets that more reliably of land. This allows them to save money savings account to amass a sum large life, and even basic necessities can store value than the Kyat. These include outside of the house, and eventually enough to purchase new inventory or quickly consume a meager salary. land, USD/EURO currency, and gems, have the opportunity to sell the land buy gold and gems. Even though she In fact, the Bertelsmann Stiftung’s which are purchased with any remaining for a profit. doesn’t trust banks, the account gives Transformation Index (BTI) estimates income and stored in the home. Despite her the ability to temporarily gather that for the majority of the country’s no return on such savings, storing Due to the cash heavy nature of many funds in a single place, which she can rural citizens, 70% of incomes alone are money at home creates both a sense of small and medium businesses in subsequently withdraw and use. Bank spent on food and basic necessities. security and lowers transaction costs Myanmar, many companies have a large accounts, with its often time consuming Nonetheless, in all three categories of for time and money. Further highlighting volume of cash on hand at the end of process of withdrawing money, can also financial integration of interviewees, the infrequent use of savings accounts every business day. Rather than placing decrease the temptation to spend. One people were able to save some money is the percent of GDP that formal the money in formal banks for savings, interviewee, a moneychanger employee, primarily through investing in tangible savings comprise, estimated at 17.6%. many interviewees who own businesses Kyae Zin stated that she doesn’t trust goods or re-investing in their business Financially integrated respondents such reported putting the profits back into the bank, but she continues to save rather than in a bank savings account. as Dr. Khin Kyi, complements her use of the business in order to make service in the bank because if the money is Moreover, formal savings accounts in bank savings and lending services with enhancements, buy additional inventory, in her hands, she will spend it. As can banks seemed to be used as a strategy investing in gold, gems, and property. or open a new business offshoot. Given be expected, the amount that a person to temporarily store money until one The semi-integrated landlord, Soe Soe the inconvenience of making deposits saves in the bank is substantially could invest money in a tangible good Win, stores her savings in gold, which and withdrawals from banks, as will be lower in rural areas of the population. or the business. she can then use as collateral at a pawn noted later, cash is kept in the home or According to the 2009 UNDP Household shop if she happens to need extra cash. office until it is re-invested back into survey, the average cash savings in Given the historical lack of trust in The un-integrated gem dealer, Zaw Zaw the business. This appears to be a key urban areas is $129, whereas in rural Myanmar’s currency, as well as formal Hlaing, saves all of his money in gems source of business growth, allowing a areas it is $31. financial services, 71% of interviewees at his apartment. in the three integration groupings made 74 KEY FINDINGS KEY FINDINGS 75

Formal borrowing is risky, time intensive, a set amount for the gold in cash, who own a bank account have obtained and then pay approximately 2.5% per a bank loan. The process to obtaining a and complex month to the pawn shop in order for the bank loan is complex, particularly from jewelry to be returned to him/her after a private bank, with stringent collateral a certain period of time. Pawn shops requirements of 50% of the value of can be seen as similar to moneylenders, the loan. Previously, a house and land only with a lower interest rate. 15% of was required for collateral, excluding households in the UNDP survey use most from applying for a bank loan. either pawn shops or moneylenders, The Central Bank recently expanded and a slightly higher rate of 24% use acceptable forms of collateral to land, these services from the field interviews gold, buildings, exportable crops and “The process to obtaining a loan is very the team conducted. The un-integrated bank deposits. In practice, however, it segment of the population typically seems that it remains difficult to obtain lengthy and time consuming for me. uses informal moneylenders, whereas a loan from a private bank without the semi-integrated segment stated land and property. Even for successful I would prefer to use a credit card.” using pawn shops for extra cash. Also business owners, such as Dr. Khin seen in more rural areas of Myanmar, Kyi, the loan process is opaque and Ye Min Naing, Tea leaf factory owner predominantly with women, are village laborious, often lasting six months savings and loan groups. A group of and requiring extensive paperwork and trusted individuals meet on a regular due diligence of the business. Due to basis to set aside a pre-defined amount the risk adverse nature of the banking of money into the common pot. This sector, new entrepreneurs cannot be aggregated savings pool can be used by considered for a loan. Loans can only members to borrow money as needed. be obtained for existing businesses or new second businesses. The difficulty Myanmar culture is reluctant to take on underscored in Myanmar’s domestic In contrast to informal borrowing in navigating the bank loan process, debt. It is seen as unwise to spend more credit to GDP ratio. At 8.2%, it is one of from relatives or pawn shops, formal as well as the strict requirements than one earns and to owe money to an the lowest in the world. bank borrowing is rare. .28% of UNDP further creates a gap between the unknown entity. Emphasis is placed on households have borrowed from the formal banking sector and the people careful planning for expenses so that In Myanmar, the family unit is incredibly bank, and out of the 41 interviews of Myanmar. the probability of needing unforeseen strong and is used as a safety net. conducted, 18% (5 of 28 respondents) additional money is reduced. As the As such, borrowing money from driver, Thurein Soe states, “I am always friends and family is the ideal choice calculating, planning what my expenses if one needs extra cash. In the 2009 will be, so I know how much I have.” UNDP household survey, 62% of 2,850 Further increasing the aversion to households surveyed stated that they debt, one respondent cited the former obtained their last loan from relatives practice of publishing names in the local or friends. On a much smaller scale, newspaper of those who were unable to however further illustrating the point, pay off credit cards in the late nineties. from the 41 interviews the research This naming and shaming process team conducted in Myanmar, 71% widened the chasm between the formal borrow from family and friends. financial services sector and the people of Myanmar and increased the usage If friends and family resources are of borrowing via informal means, from unavailable, another common source family, pawn shops and village lending of funds is pawn shops. Borrowers will groups. The aversion to formal debt is give gold or jewelry to the shop, receive 76 KEY FINDINGS KEY FINDINGS 77

Religion significantly impacts the attitude amounts beyond what she currently that a person is at the mercy of God’s has in her account on merit making determination of his/her fate, and towards financial services donations. an individual is unable to control many circumstances, such as natural Religious beliefs also dictate who disasters or theft. This perspective respected leaders are in the community explains the lack of measures taken area. Senior religious leaders – monks, to secure the safety of one’s cash and abbots, and imams – were quoted to the disinterest in insurance services. be key community members looked For Naing Win Tun, a Muslim gem upon for social or moral guidance and trader and cutter who owns a jade approached for financial and business polishing shop, the potential loss of advice. Given the number of religious his shop and business success are institutions, and their centrality to a at the mercy of Allah. For Aung Aung community, such figures are easily Kyaw, a gallery owner, the risk of fire “A credit card would help me maker larger accessible. Even if the leader has no could be devastating. However, he does previous experience with financial not insure his gallery or its paintings donations to the temple. For example, in my bank services, given their perceived divine because he sees such acts as out of importance, the lack of expertise will his control. account right now I have 2 lakh ($200 USD), be disregarded. This deference and respect for religion but I would like to donate 3 lakh ($300 USD).” Religious orientation not only dictates and the impact of ‘fate’ can go to the where to spend one’s money or who to extreme, with a widespread response Kyae Zin, moneychanger employee approach for guidance, but it recently has to superstitious or astrological factors begun to play a role in which businesses being taken as justifications for action. citizens frequent. Because of Buddhist- In business, this can mean choosing Muslim religious tensions, the religion dates based on the potential for of business owners has begun to effect auspicious results or making major patronage. For Than Zaw Oo who organizational decisions with the help operates his family’s pottery business, of an astrologer. Most famously key Though 89% of the population is The importance of religion in a informal money transfer services are figures in the military senior leadership Buddhist, Myanmar does not have an Myanmar household is apparent when key to his survival. However, he has were reported to be deeply superstitious, official religion, but is multi-religious, respondents cite religious donations as since shifted his business sustaining resulting in a range of notorious policy also housing Muslims, Christians, Jews, a common and, sometimes, substantial remittance payments from his daughter choices, such as moving the capital Animists and local religious customs. expense. Even individuals with small to Kanbawza bank, away from the local from Yangon to Naypyidaw. However, For many, specifically those in the semi- incomes reported providing cash or in Hundi service run by a Muslim family like generational changes worldwide, integrated and un-integrated segments, kind donations as a means of obtaining due to the heightened religious tension such beliefs are less ardently held by religion is integral to personal identity merit. According to participants of in the country. younger generations in Myanmar. As a and has a significant influence on a focus group discussion outside caveat, it is important to highlight that the use of financial services, shaping Mawlamyine, costs for religious In multiple instances, both Buddhist such beliefs are not universal and do not decisions such as how to allocate donations could be as high as 20% of and Muslim respondents cited an temper a person’s rationality. These are income, who to seek guidance from, income. To facilitate the convenience acknowledgement of fate larger then simply beliefs that factor into a person’s where to do business, and which of making monetary donations, ATMs themselves in financial and social decision calculus. financial services to subscribe to. are strategically places onsite at large transactions. This mentality states Additionally, astrology and superstition temples. Kyae Zin, a moneychanger play a role for some in how business is employee, is a frequent user of the conducted in the country. More recently, temple ATMs to withdraw cash for sadly, religious views have also been the donations. She notes that she would be source of Buddhist-Muslim violence in interested in applying for a credit card western and central Myanmar. because it would allow her to spend 78 KEY FINDINGS KEY FINDINGS 79

Trust is an important factor in increasing the government and its role in financial with members of the integrated and service provision. The sentiment runs semi-integrated segments, their adoption of financial services and supporting deep, particularly for older citizens, or misgivings about Myanmar’s financial the formal sector those of a lower socioeconomic class, structures would be dramatically but is hard to assess the impact of, diminished with the formation of links given their residual sensitivity of openly to foreign banks and markets. For Si voicing mistrust of the government, is Thu Soe, an entrepreneur that operates hard to assess the impact of. Foremost a technology training company, a of the respondents concerns was the medical booking service, and an government’s ability to observe their automobile import-export business, financial transactions, and the high level trust in foreign financial institutions is of documentation and formal scrutiny a key stumbling block. While he owns “We don’t believe in Myanmar Kyat.” bank services required. As entrepreneur multiple bank accounts, he doesn’t Thet Aung Lynn noted, his agricultural use them to save money, after he lost support business that provides input significant savings in the 2003 banking Kyaw Min, Manufacturing and Export business owner loans to farmers, is dependent on formal crisis. Although Si Thu Soe recognizes banking services to transfer and receive that he had two to three times more money from abroad. He is required by capital for his business when he was law to have a Myanmar Foreign Trade using credit cards prior to 2003, he Bank account to receive payments has stated he will only return to these from exports. However, he is wary of services once they are legitimized by government influence over the bank, links to international financial markets. and as such, is reluctant to keep money Exposure to global financial institutions in his accounts for more then a month abroad also serves to increase comfort or two at a time. Nevertheless, some with using advanced financial products respondents have also recognized the in Myanmar. Predominantly those from government’s recent actions towards the financially integrated segment have reform and indicated a willingness to expressed enthusiasm for electronic engage in services that involve the banking solutions, purchasing insurance government. Landlord, Soe Soe Win and using credit and debit cards now has greater trust in government because they have firsthand experience banks than private banks, when the using such services in other countries. Central Bank guaranteed all deposits Trust is the fundamental mortar that in uncertain times and moves along the after a 2012 run on the private bank Trust in financial services is also reaches across all three integration pathway towards reform. Outside of Kanbawza (KBZ). bolstered, in a more local and immediate groups identified in this report, binding the government, respondents cited that sense, by the frequency and proximity those interviewed to both formal and trust could be built through legitimacy In contrast to domestic government by which a user encounters the service. informal systems, increasing adoption provided by global financial institutions, owned banks, global financial In Myanmar, without strong concepts and allowing the participant to retain widespread reach in the community institutions are widely regarded as of advertising, proximity and frequency as much faith as possible in the and via recommendations of family trustworthy, stable organizations are the primary means by which a security of their financial transactions. and friends or respected community that the citizens of Myanmar feel service appears foreign or familiar. Unfortunately, Myanmar’s dismal leaders. comfortable investing their money In multiple instances, interviewees political history has shaken trust in in. For many in Myanmar, particularly from financially integrated and semi- the government and its involvement Five decades of political unrest those who are financially integrated integrated communities trusted, and in the financial sector. However, and, in particular, the government’s and semi-integrated, the legitimacy that thus interacted with, Myanmar banks trust is beginning to be rebuilt as the mismanagement of the financial sector global banks provide is an essential based on the size of the bank and ease government steps in to guarantee funds has resulted in a significant mistrust of trust building factor. In interviews of access of its branches. With a country 80 KEY FINDINGS KEY FINDINGS 81

the size of Texas, and transportation afloat. Similarly, as subscriptions are still a limiting factor due to time and paid throughout the region, Nai Aue Mon cost, the inconvenience of shopping relies on friend and family networks around at different institutions is to transfer physical cash as it is done unwelcome. Moreover, the presence of for free, thus more cheaply then the a bank in multiple villages means that a informal Hundi networks. Nai Wana, an larger number of areas can be accessed editor at another news journal, spends for remittance payments or money his free time operating an informal transfers, from which frequent usage money lending service. However, he also leads to an increase in trust. Kyae only is willing to support trusted friends Zin is just such an example – in her and family. Without trust within the early twenties she works at one of the network he would not be able to confirm legal money changers that has sprung the trustworthiness of a potential client, up under new governance licenses and and thus face potential losses on a loan. so is familiar with the basics of the financial system. Aware of the many Community leaders were also cited, by different options of banks available, the semi integrated and un-integrated she chooses to use KBZ because of the segments, as trusted figures that could numerous offices and ATM machines be consulted upon for key issues. In it offers. Myanmar, communities are made up of villages as the smallest unit, which roll Also crucial to the decision-making into townships, divisions and ultimately, calculus of many Myanmar citizens is states or regions. Each township and the role of family and friends. Families village has their own Local Peace and and close friends are the primary unit Development Committee, comprised through which members of all levels of three locally elected unpaid of financial integration interact with members and a salaried clerk. It is the outside world. This is because kith these leaders, whom are respected and and kin networks are a default social sought after for guidance. Community network for the exchange of information, structure and its importance was news, advice, and moral judgment. As a mentioned more frequently in rural areas result, the word and action of family and interviewed, such as towns surrounding friends becomes a foremost guarantee Mawlamyine, and not expressed to of past performance and quality, thus the same extent in Yangon based making a recommendation by family or interviews. It is also important to friend often the final deciding factor in note that the community dynamic can the use of a service. In one example, Nai change based on region, particularly Aue Mon, editor of an ethnic language in ethnic minority areas where tension journal in Mawlamyine, continues to turn around the role of the government and to friends and family for connections to its representatives remain. potential investment to keep the paper 82 COMPARATIVE ANALYSIS ACROSS FINANCIAL INTEGRATION LEVELS COMPARATIVE ANALYSIS ACROSS FINANCIAL INTEGRATION LEVELS 83

any perspectives towards COMPARATIVE financial matters were found M to be common across all three levels of financial integration. These insights can mostly be attributed to contextual factors of living in Myanmar. Other beliefs are specific to individual segments of the population. ANALYSIS The following table summarizes the key findings themes across financial ACROSS FINANCIAL integration levels. INTEGRATION LEVELS 84 COMPARATIVE ANALYSIS ACROSS FINANCIAL INTEGRATION LEVELS COMPARATIVE ANALYSIS ACROSS FINANCIAL INTEGRATION LEVELS 85

Financially Integrated Semi-Integrated Un-Integrated Financially Integrated Semi-Integrated Un-Integrated

Distrust of banking sector and lack of formal financial services development has driven Religion significantly impacts the attitude towards financial services heavy reliance on cash Strong influence Mistrust of of religion x x x x x banking sector Religious Cash is more secure, donations are a x easier to access x x x large expense and cheaper Look to community ATM with drawal and religious x x x x limits are too low leaders for guidance

The informal economy plays a significant role in financial services provision Belief in fate x x

Operate in the Trust plays a key role in increasing adoption of financial services and supporting the formal sector formal and informal x x x financial sector Mistrust of government x x x Use informal x x transfer services Global financial institutions People predominantly save by investing in tangible goods provide legitimacy x x to financial Invest in gems, gold, transactions foreign currencies, x x x land, business Comfortable using electronic x Stores cash at methods to pay x x x home or at business Eager to adopt new x financial products Formal Borrowing is Risky, Time Intensive, and Complex Eager to purchase Borrow from x x x x insurance friends and family Trust increased Borrow from with larger bank x x pawn shops size and branch x x proximity Borrow from informal x money lenders Heavily rely on family and friend x x x recommendations Borrow from village x x lending groups Respect and seek advice from x x Borrow from banks x community leaders 86 CONCLUSION CONCLUSION 87

CONCLUSION 88 CONCLUSION ABOUT THE AUTHORS 89

he reforms that are transforming market entry to provide new services about the research team Myanmar have helped lay and expand payment structures. T the policy foundations that have, and will continue to, shift the The five key findings gathered in this The research team is comprised of two Fletcher Masters’ direction of the country towards a more report provide the insight required to students who specialize in emerging market research and a internationally integrated, democratic, understand the context of the existing and economically strong nation. The financial market. Recognizing that Myanmar native research assistant with expertise in market development of Myanmar’s financial savings behavior typically does not research in Myanmar. sector will be key to this process. involve bank accounts, but, instead, Already draft legislation aims at further tangible goods, or that formal borrowing supporting the SME sector, increasing is avoided because it is risky, time incentives for foreign investment and intensive and complex, reveal the strengthening microfinance legislation population’s resistance to current formal Alessandra Valenti has over 6 years of finance consulting that will further improve the country’s services. Similarly, the interconnected experience at Accenture for private sector, nonprofit, business environment. nature of informal financial solutions government, and multilateral organizations in New York City, and the use of formal financial tools Africa, and Southeast Asia. Prior to Accenture, she worked However, for the economic transformation have become entwined through daily at Citigroup in the Debt Capital Markets division serving to translate into raising countrywide use. More broadly, understanding the financial institutions. Alessandra also works part-time as income levels, the country’s historical pervasive importance of trust and the the business process specialist on the MasterCard Cost of dependence on cash and lack of role of religious beliefs illustrate the Cash research project for Mexico and Egypt. familiarity with financial services will values and motivations that are party need to be overcome. There is great of daily life in Myanmar. opportunity for companies, such as MasterCard, to become partners in this By understanding Myanmar’s unique endeavor. MasterCard, as an expert context, MasterCard will gain a more Tommy Galloway has worked for 3 years with research in its field, can contribute to building nuanced knowledge of the financial organizations in Thailand and Myanmar, on economic policy capacity of domestic banks and share services environment and opportunities design, resource extraction impacts, and the role of business expertise with the new government. for market penetration. MasterCard will in agriculture. Tommy Galloway is currently a graduate student More specifically, by building on insights be uniquely placed to become a driver at Tufts’ Fletcher School, studying Development Economics of the needs of Myanmar citizens of innovation and growth in this rising and the role of businesses in emerging market contexts. detailed in this report, MasterCard has jewel Asia. There, he combines his research skills with an interest in the opportunity to access key points of how community based solutions can be leveraged to build better products and policies amongst businesses, NGOs, and governments.

Moe Pwint is a native Myanmar citizen and speaks fluent Myanmar and English. She is an independent consultant specializing in market research for international organizations. 90 END NOTES END NOTES 91

END NOTES 92 END NOTES END NOTES 93

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