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Mobile banking in Myanmar

Leapfrog spotting

Mobile phones may regenerate the country s withered banking system

Sep 28th 2013 | Yangon |From the print edition

FOR a foreigner at least, it is still a bit of a thrill to use an ATM machine

in downtown Yangon. After years of carting around wads of dog-eared dollars to

exchange for even larger wads of ancient, crumbling kyat, the local currency,

immaculate new machines now disgorge crisp new banknotes. It is a minor

miracle. Linked to the international payment system only late last year,

hundreds of ATMs around the country can now be used on Visa s payments system.

The cash machines are a mark of real progress. During decades of brutal and

isolating military rule, financial services suffered as much as any other

sector. All foreign banks were kicked out of the country in the mid-1960s; from

the mid-1990s onwards, American sanctions in particular cut the country off

from most forms of international financial transactions. The domestic financial

system withered away, too. Less than 10% of Burmese are thought to have a bank

account.

Building financial services virtually from scratch takes time. Microfinance

institutions have recently started operating in Myanmar. About 30 foreign banks

have opened representative offices to establish a presence and research the

market. But until a new finance law defines their roles and the extent to which

they must partner with local firms, they cannot do much more.

What could really transform things is a nationwide mobile-phone service. Mobile

banking should be ideally suited to Myanmar. Even if banks were prepared to

invest heavily in building physical branches, the country s large (about 60m)

and mainly rural population is spread out. Done right , says the Consultative

Group to Assist the Poor, a pressure-group for financial inclusion based at the

World Bank, mobile banking has the potential to help Myanmar provide basic

formal accounts and payment services to most of its citizens, thus

leapfrogging conventional banking altogether.

To achieve that Myanmar will need an excellent new mobile-phone system. Another

legacy of the country s years of isolation is that relatively few people have

ever used mobile phones. Most could not afford artificially inflated prices for

SIM cards; in any case a poor infrastructure means that coverage is patchy. The

responsibility for changing that rests largely with the two foreign firms that

won an auction for mobile licences in June: Norway s Telenor and Qatar s

Ooredoo (formerly Qtel). They will compete against each other and a local

state-owned outfit as well. New SIM cards will cost just $1.50, compared with

$200 or more in the past.

Telenor and Ooredoo are lesser-known names in the telecoms firmament, but both

have wide experience in poor countries and in Asia. They have ambitious targets

to build thousands of masts to cover about 85% of the country within five

years. Ooredoo promises to pump $15 billion into Myanmar. Both have also

committed themselves to delivering financial (and other) services through their

networks. Telenor already does this in a limited way in Pakistan and

Bangladesh.

Another prerequisite for a viable, accessible mobile-phone banking system is

the establishment of a good agent network to process client transactions such

as depositing or withdrawing money. Telenor promises to have 70,000 sales

locations for its phone cards as well as 95,000 refill points. The number of

financial sales points, where customers can put credit on their phones for

cash, would be lower, says Petter Furberg, the head of Telenor in Myanmar, but

still enough to provide mobile banking in most of the country.

A final factor is whether the government in Yangon will rein in its deep-rooted

instincts to control banking and the wider economy. Rather than specifying

individual banks to lead the build-up of mobile banking, Mr Furberg says the

ideal approach would be for the government to stick to drawing up robust

regulations and then to open the market to as many players as possible .

Either way, the secret to changing Myanmar s financial sector may well lie with

the phone.