When the Myanmar government stopped issuing temporary SIM cards in July this year, at the same time making it illegal for non-Myanmar citizens to purchase them through official channels, foreigners wanting to buy a phone in the country were forced to look towards the black market.
Given the difficulty of this experience, plus the fact that they cost around $150 – up from K1,500 ($1.50) in official ballots – it made me wonder why McKinsey and Deloitte so enthusiastically praised the potential of mobile banking in Myanmar in recent reports. Working in the country’s growing financial sector, I’m conscious that there is hardly any aspect of the industry that could not be improved upon, be it regulation and supervision, financial services or human resources.
Mobile banking is defined as banking services that are delivered via mobile devices, in most cases cell phones. Bankers define mobile banking as a sub-category of branchless banking which encompasses all financial services that are delivered outside bank branches, for instance via so-called point of sale (POS) terminals in shops or via automated teller machines (ATMs). In Myanmar, there are very few POS terminals, and ATMs were only reinstalled in late 2011, after they vanished during the Myanmar banking crisis in 2003.
In 2011, 17 of the 25 banks in Myanmar founded the Myanmar Payment Union (MPU), which seeks to promote the Myanmar payment system, notably by using electronic devices. However, their strategy for the upcoming years does not seem to include any plans for setting up mobile banking.
In Myanmar, mobile phones have only been available to the majority of the general public since the newly elected government, under President Thein Sein, began a rapid reform process in 2011. As of December 2012, mobile phone penetration in the country had reached 9 percent (in Laos, that figure is 90 percent), one of the lowest rates worldwide. But in order to promote socio-economic development, the Myanmar government is now actively pushing the mobile phone sector. In July, after an international call-for-tender, (and around the time that temporary SIM cards swiftly disappeared from Yangon’s streets) the government granted two international operating licenses to Telenor, a Norwegian telecommunications provider, and Ooredoo, from Qatar.
The government has set the two companies ambitious targets: by 2016, they have been set the task of serving 80 percent of the Myanmar population (approximately 48 out of a 60 million population), and is likely the companies have the relevant experience and know-how to achieve this. Meanwhile, McKinsey’s forecast of 150 percent mobile phone coverage in the country by 2030 also seems realistic given the speed of technological development, particularly in Asia.
But the big question remains whether telecom operators can find banks to partner with, and eventually make the “digital leapfrog” jump to the branchless financial services predicted by McKinsey come true. Of course, given their extensive experience garnered in other countries, some reform steps towards a high-tech banking system could be skipped, and pioneering the mobile banking market can entail high reputation and financial gains for telecoms and banks, as with M-PESA in Kenya.
However, banks have many challenges to cope with right now and they, for instance, first need to set up proper risk-management mechanisms before entering the mobile banking market. Using mobile banking devices makes access to finance easier and can lower banks’ operational costs. But technology bears its own risks and without personal, regular contact with their clients (the Know-Your-Customer principle), banks providing mobile banking services might take client risks they actually do not want to take. Additionally, a proper legal framework that delineates the rights and responsibilities of the financial and the telecommunications sector has to be put into place – and this will still take some time in Myanmar.
The potential of mobile banking in a country like Myanmar, where population density is less than 75 per square kilometre according to a World Bank report, and where the outreach of banks remains a key challenge, is without doubt worth considering. But the potential – and particularly the challenges – in the telecommunications and the banking sector should be analysed thoroughly before proposing a gold rush into mobile banking in Myanmar.
Sophie Waldschmidt is currently working as a freelance Finance and Banking Consultant for the German development agency GIZ in Yangon. Before coming to Myanmar, she worked as a Microfinance Junior Consultant for the German development bank KfW in Frankfurt. She can be contacted at firstname.lastname@example.org. This article was initially published on the website futurechallenges.org and has been reprinted with the author’s permission.