A closed economy for nearly 50 years, the opportunities that have opened up in Myanmar are endless, especially in telecommunications and banking. Brian Caplen looks at how players from these sectors are collaborating and innovating in order to tap into the country's huge potential, and examines the hurdles still facing foreign entrants to the market.

Myanmar is one of the world’s last greenfields. With a population as large as Italy and a per capita income about the same as Bangladesh, the country’s growth potential is huge. The International Monetary Fund predicts 8%-plus gross domestic product growth over the next few years.

What is more, the scope for investment is equally massive. Since the country was closed off from the global market for some 50 years while under military rule – it only opened its doors in 2011 – Myanmar is short of many things, including basic infrastructure, and adequate power and transport systems. It is also behind the curve in all the regular goods and services that citizens of most other Association of South-east Asian Nations countries take for granted. Myanmar is unbanked, uninsured and unconnected.

Natural progression

An International Finance Corporation (IFC) report, released in January 2013, estimated that only 5% of Myanmar's population had a bank account, and less than 20% had access to financial services. A report by professional services firm KPMG observes: “Most of Myanmar’s population of about 60 million are uninsured, making it one of the least developed insurance markets in the world.” Telephone lines per capita are less than one, putting it on a par with Eritrea and Sudan.

It does not take a genius to see how these shortcomings can be overcome in a way that would allow Myanmar to skip the bank branch and landline stage of development and move straight to mobile banking – and indeed this is happening. A mobile network is currently being rolled out and there are a number of initiatives for mobile banking. Local banks are still expanding their branches, however, as they had so few in the past and they need to be in places where there is no connectivity.

However, foreign investors cannot presume that the lion’s share of this upgrading work is automatically going to fall to them. While Norway’s Telenor and Qatar’s Ooredoo have both been granted licences to build mobile networks and are busy breaking customer acquisition records, the nine foreign banks given the first banking licences are largely restricted to serving foreign clients, and will not be alllowed to enter the domestic market. The local banking lobby has effectively prevented this from happening. 

Home-side advantage

Despite Myanmar’s previous isolation and adherence to socialism, or at least to state ownership, the country does have a thriving private sector. It has a number of conglomerates, each backed by a kingpin entrepreneur, covering everything from airlines and mining to construction and banking. As a result, Myanmar has a number of fairly dynamic private banks, such as Kanbawza Bank (KBZ), Co-operative Bank (CB Bank) and Asia Green Development Bank (AGD Bank), which are busy expanding their breadth of coverage and range of services. They are open to working with foreign banks, legislation permitting, but are not keen to see all the growth advantages of a rapidly developing market go to outsiders.

Myanmar has more than 20 private banks overall, as well as state-owned banks such as Myanmar Economic Bank, Myanmar Foreign Trade Bank and Myanmar Investment and Commercial Bank.

KBZ Group senior managing director, Nyo Myint, expects that domestic banks will be permitted to work more closely with the nine foreign banks that have licences, a departure from what has been permitted in the past. He also thinks that a new banking law, currently progressing through the legislature, will liberalise lending and deposit taking so that greater maturities are possible. This will help in lending to small domestic companies. “According to the current regulations, we cannot lend money without collateral and the problem is that many small and medium-sized enterprises do not have collateral. We anticipate that this rule will be changed," he says. 

Local banks will then have to improve their credit skills, and there is hope that a credit bureau may be set up in a couple of years. Part of the difficulty of lending to local companies is that many of them do not have audited financial statements. This would also be an issue for foreign banks, even if they had access to the market.

The manager of one foreign bank that has gained a licence in Myanmar says: “The retail business here is quite limited due to the regulatory requirements and the lack of audited statements among local companies. Frankly, the decision not to give us a slice of the retail business doesn’t upset us too much.”

Evolve and adapt

Other challenges facing foreign investors of all types include the high cost of land and rent – at $80 to $90 per square metre, per month, in Yangon, they are comparable to rates in New York and Tokyo. There are power and transport bottlenecks, shortages of skills and an uncertain situation concerning sanctions, corruption and bureaucracy. The country ranks a lowly 177th out of 189 in the World Bank’s 2015 Doing Business ranking. Access to financing tops the list of problems investors say they face.

Jean Loi, managing partner of legal firm VDB Loi Myanmar, which assists foreign investors, says: “Investors need to be patient. The Myanmar Investment Commission [MIC] used to receive just a few files per month, now it is receiving thousands. It is taking it time to adapt to the scale and complexity of current foreign direct investment [FDI] flows.”

There has also been a learning curve with such things as the desire of foreign investors to stipulate in contracts that any arbitration would take place in Singapore and the need for project contracts to be watertight and bankable, says Jean Loi.

Thomas Chan, executive director of KPMG Advisory (Myanmar), says that some investors are overloading the MIC with things that are not relevant to an investment agency. “In Myanmar things will not be crystal clear. If you are looking for a purely safe environment, then Myanmar is not for you. You would be better off in Singapore. You cannot expect a concrete answer on every front,” he says.

Foreign investors generally have not been put off. According to statistics from greenfield investment monitor fDi Markets, Myanmar's FDI peaked in 2013, with 105 projects worth $13.5bn. In the five years since 2010, a total of 285 projects worth nearly $21bn have been recorded, with financial services ranking as the top sector, accounting for 19% of projects. Japan and Thailand are the leading source countries in terms of numbers of projects. Domestic market growth potential has been cited as the key motive for investors.

Making a connection

In Myanmar's communications sector, there have been 22 projects worth $473bn in the past five years. Telenor’s CEO in Myanmar, Petter Furberg, says: “The ultimate goal is to cover 90% of the people in Myanmar within five years. We are taking a mass-market approach, with the aim of providing low-priced services to the lower and middle parts of the [population] pyramid.”

The impact has been dramatic. Prices of SIM cards have fallen from hundreds of dollars to just $1.50. Services were launched in Mandalay, the capital Naypyidaw and former capital Yangon in September and October 2014, and 2 million customers were signed up in the space of five weeks. In Yangon, 521,000 customers made a call on launch day – a global record for Telenor.

Petter Furberg says that Telenor has taken a unique approach to rolling out services in Myanmar by outsourcing almost everything, including the building of towers, the leasing of fibre networks, the operation of call centres, the distribution of cards and airtime, and even the packing of SIM cards.

“We are building a relatively lean machine,” he says. “In the end, we will be left with only sales and marketing and some back-office functions.” This low-cost approach means Telenor expects its Myanmar operation to be profitable in just three to four years rather than a more typical seven years for a new country start-up.  

Given the restricted status of foreign banks, Telenor needed to find a local bank to tie up with to offer mobile payment services. It will provide this through the same small-store distribution channel as it is using to distribute its telecoms service, but instead of receiving airtime customers will receive cash. Telenor will do this in partnership with Yoma Bank, which has received a $5m convertible loan from the IFC to improve its risk management and corporate governance. Yoma’s depositor licence was suspended in 2003 during Myanmar’s banking crisis and the bank only regained it in 2012.

Telenor and Yoma plan to launch mobile financial services in the third quarter of 2015, and are already hiring people and developing IT solutions even in advance of the final regulations. “We don’t yet have a clear licensing regime for mobile financial services in Myanmar. Yoma and Telenor will set the structure in a way that meets the requirements once they become clear from the central bank. We believe they will come out with the final regulations shortly,” says Petter Furberg.

Leading the pack

Myanmar’s banks are restricted in what they can achieve until the country has improved its telecommunications capabilities. KPMG’s Thomas Chan says: “Banks are hampered by a lack of connectivity in Myanmar, so a branch network is still important. It all depends on how fast they can roll out this basic [telecoms] infrastructure.”

KBZ, for example, which was founded in 1994, had only 50 branches and fewer than 6000 employees as recently as three years ago. Today, it has 300 branches and 13,000 employees.

In a catching-up process, KBZ has installed 300 ATMs (they have only been available in the country for a few years) and started to gain traction in the payment cards business. A new core banking system, Flexcube Core Banking, from US computer technology corporation Oracle, was installed in 2013. KBZ wants to position itself as a full-service financial player. It already has an insurance company, and will apply for a brokerage and underwriting licence when the new stock exchange is established later this year. “We want to be a key player in the financial sector, and our intention is to move into investment banking,” says Nyo Myint.

KBZ has also received permission to be the first Myanmar private bank to open a branch overseas – Singapore and Bangkok are the likely destinations. It has the largest share of the domestic market, and is proud of being the country’s largest tax payer and charitable giver.

Other Myanmar banks are also modernising. Established in 1992, CB Bank, with its distinctive rainbow logo, has also taken advantage of the country's liberalisation since 2010 to become a domestic leader in ATMs and payment cards. It has 120 branches, but has plans to increase this figure to 360 by the end of 2016. It installed a new core banking system, Temenos T24, a product by Switzerland-based banking software company Temenos, in 2012. It is now waiting for the country's telecommunications infrastructure to improve so that it can put the final 20 of its branches onto the system

CB Bank’s head of business development and strategic initiatives, Thein Zaw Tun, says: “We went live with mobile banking a year ago. We were the first bank to launch mobile banking. We have 35,000 mobile banking customers, about 5% of our customer base. We have also gone live with retail internet banking and more recently with corporate internet banking.” With the bad traffic congestion in Yangon, mobile banking makes sense for customers, says Thein Zaw Tun, and will drive the retail business.

CB Bank’s senior deputy managing director, Liew Chee Seng, says: “We would like to collaborate with the new foreign banks because they bring in new products and technology and, because they are restricted to one branch location in Yangon, this creates partnership opportunities. We could do local cheque clearing and account services for them, local cash management and payroll services, for example.”

Sanctions remain

But, in some cases, domestic banks face the same challenges in expanding their business as foreign banks. They are affected by the sanctions, by state monopolies, the difficulties of advancing credit and a critical lack of banking skills. In some cases, the skills gap is being plugged by attracting Myanmar citizens, who had previously left, back to the country.  

Aung Thin Win, vice-chairman of AGD Bank, says that the sanctions are still an issue in trade finance. “Not all the sanctions are lifted and some still apply. If all the sanctions were lifted, and the government relaxed its monopolies, we could increase our trade finance volumes.” Currently, large volumes of trade finance are channelled through state-owned banks MFTB and MICB. The hope is that this will change under a new and widely anticipated banking law.

While the US and EU have eased most sanctions on Myanmar in response to the 2010 elections, the US embassy in Myanmar’s website makes it clear that: “The armed forces and Ministry of Defence-owned entities are not covered by the recent easing of restrictions.” Political uncertainty remains over the outcome of the country's general elections later this year, and whether the result could affect the sanctions situation.

Concerns over sanctions may have been a consideration in Standard Chartered’s decision not to go ahead with a bid for a banking licence in the country, given the difficulties the bank has already experienced on this front, having had to pay a fine of $667m to US authorities in 2012, and remaining under scrutiny. Standard Chartered, which opened a representative office in the country in 2013, has said the decision was made for commercial reasons, and given the restrictions, and the demand for $75m in initial capital for a sole branch, this is also a valid reason.

Interestingly, of the nine banks that received licences in October 2014, all are regional and eight are Asian, the exception being Australia and New Zealand Banking Group. The others are Singapore’s United Overseas Bank and Overseas Chinese Banking Corp, Japan’s Bank of Tokyo-Mitsubishi UFJ, Sumitomo Mitsui and Mizuho Bank, Thailand’s Bangkok Bank, Malaysia’s Maybank and China’s Industrial and Commercial Bank of China. On this evidence, Myanmar seems set to be a regional play with international banks still focused on internal restructuring and generally more cautious about the unpredictable aspects of emerging markets.

Making progress

Myanmar has its quirks for sure. Cars drive on the right, for example, but the majority of cars are right-hand rather than left-hand drive – apparently this is what Japan had available. Under pressure from non-governmental organisations and multilaterals to go green, Myanmar’s environmental criteria for investors have been described as “first-world governance in a third-world country”. But this green philosophy does not apply to smoking.

In Yangon’s colonial heritage and very upmarket Strand Hotel the following notice appears outside the bar: “Please be informed that smoking is allowed in the Strand bar for traditional reasons. Thank you for your kind understanding.”

With tourists now flocking to Myanmar, one challenge will be to preserve the colonial heritage architecture in Yangon and resist the temptation to pull it all down and build high rises as has happened elsewhere in the region.

Currently, the country is long on ambition and moving forward fast – some say unrealistically so. This is particularly true in the area of legislation and institutional arrangements. In April 2012, the country’s multiple exchange rates were abolished and replaced with a managed float and daily auctions of foreign exchange between the central bank and the commercial banks. A new Central Bank Act was passed in July 2013, making the central bank autonomous from the Ministry of Finance. The new Foreign Investment Law came into effect in 2012, giving those companies that gain permits an automatic five-year tax holiday and other concessions.

Already, protests from local companies over an unlevel playing field mean that the new Foreign Investment Law may be combined with the 2013 Myanmar Citizens Investment Law, to put everyone on a more equal footing.

Banking legislation is being updated to move things on from an era when the state-owned banks did everything, and the company law is still incomplete, according to observers. Currently, if a company has only one foreign share it is counted as a foreign company.

“It’s an impressive reform agenda and articles in the press about Myanmar backsliding are just not true,” says Peter Brimble, country manager for the Asian Development Bank. “In fact, they may be doing too much in terms of absorptive capacity.” He does believe, however, that a lot needs to be done to bring small local businesses into the mainstream so that they pay taxes and can get credit. He says that the continuing legacy of US sanctions makes it difficult for a lot of foreign companies to invest.

Last greenfield

On the institutional front, the Myanmar government held its first treasury bond auction in January – although local newspaper Myanmar Business Today reports that only half the Kt50bn ($50m) on offer was sold. The Yangon Stock Exchange is expected to be established later in 2015 – a joint venture between Japan Exchange Group, Daiwa Institute of Research and Myanmar Economic Bank. The first companies to offer initial public offerings (IPOs) are likely to be AGD Bank, Myanmar Agribusiness Public Corp and First Myanmar Investment, which is a sister company of Yoma Strategic Holdings, already listed in Singapore. KBZ’s Nyo Myint says that the bank will most likely list in 2016.

AGD’s Aung Thin Win says: “We want to issue our prospectus and do an IPO as soon as possible.” AGD was established in 2010 and has 51 branches.

While observers worry that the new stock market will lack depth and breadth, the existence of an over-the-counter market, the Myanmar Securities Exchange Centre, suggests the inclination among market players to list and trade is already present.

As the last greenfield, Myanmar has the opportunity to learn from others and pick its development model. Local business and political interests will clearly have a strong influence on what emerges and the parliament has 25% of seats guaranteed for army nominees. Aung San Suu Kyi’s National League for Democracy (NLD) will likely win the next election, but how much that will change things is unclear, as are the NLD’s policies on the economy and investment. Aung San Suu Kyi herself is barred from the presidency as her late husband was foreign (British).

So, there is definitely political risk but at the same time there is a more entrepreneurial culture than in some other parts of Indo-China and there are good opportunities for foreign investors to work together with local businesses. Myanmar, like any new market, is not for the faint hearted but offers good upside for investors who are patient and prepared to take the long view. 


All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker

For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Top 1000 2023

Request a demonstration to The Banker Database

Join our community

The Banker on Twitter