Limit Set as First Pseudo-Credit Cards Are Issued

By Kyaw Hsu Mon 25 May 2015

RANGOON — After giving its approval for local lenders to issue quasi-credit cards, the Central Bank of Myanmar has set a maximum withdrawal limit of 5 million kyats (US$4,500), according to Win Thaw, the bank’s deputy director general.

The Central Bank on May 8 allowed domestic banks to issue so-called “secure credit cards,” a financial product that in fact acts more like a debit card, as a bridge to eventually permitting full-fledged credit cards in Burma.

“We won’t fix the minimum amount, but the maximum amount is 5 million kyats, because this is an amount that the Central Bank can manage if something happens in the market,” Win Thaw told The Irrawaddy on Monday.

“This is the beginning, and local banks can decide who should be allowed to use credit cards and who shouldn’t, that is their decision, but the [withdrawal] amount can’t be over the fixed amount,” he said.

Unlike a true credit card, users of the “secure credit card” must have the funds they charge or withdraw from an ATM in their bank account, as is the case for debit card use. The secure credit card distinguishes itself in that users continue to benefit from interest payments on the money—in the case of savings accounts, 8 percent—as long as they repay the amount deducted within 45 days. Late repayment will be penalized with a 13 percent interest charge on the outstanding amount.

Since early May, local banks have been preparing to issue the pseudo-credit cards. Among them, Kanbawza (KBZ) Bank introduced its secure credit card to users on Monday, the lender’s spokesperson said.

“It’s a so-called secure credit card; users will have to have money first,” said Thet Ko Ko Myo, general manager of KBZ Bank’s sales and service department.

“We will allow credit card users to withdraw money from 500,000 kyats to 5 million kyats,” he said, adding that KBZ Bank would wait for the establishment of a credit bureau before considering issuance of full-fledged credit cards.

A credit bureau, which Burma currently lacks, collects information to provide consumer credit information on individuals, which is used for a variety of purposes including determining loan eligibility. Credit information, such as a person’s previous loan performance and bill-paying habits, is used to predict future behavior and gauge credit worthiness.

“We dare not issue real, unsecure credit cards without a credit bureau here,” Thet Ko Ko Myo said.

In the absence of a credit bureau in 2003, credit cards were invalidated by Burma’s former military regime, which pinned a portion of the blame on credit card users for a financial crisis that saw the collapse of the country’s largest lender at the time, Asia Wealth Bank.

“The Central Bank said this is the beginning stage, that we don’t have the experience to use real credit cards. After this stage, I hope that we can issue real credit cards to users,” the KBZ Bank spokesman said.

Similar to KBZ Bank, Cooperative Bank plans to issue its own “secure credit cards.”

“Since three months ago, we’ve proposed issuing a new product called secure credit cards. It is not like credit cards that are used in other countries, it is safe and good for users too,” said Pe Myint, managing director of Cooperative Bank.

“We’ve been planning, but we will issue in the next one or two months, not now,” he said.

According to banking industry sources, other large domestic banks are also preparing to issue credit cards within two or three months.

The former military regime stopped the local issuance of credit cards in response to a surge in bad debts after the 1997 Asian Financial Crisis. Burma’s banking system still lacks a credit bureau to gauge the suitability of loan applicants, leading bank managers and the Central Bank to take a cautious approach to financial reforms, including making credit available to consumers and businesses.

Efforts to set up a credit bureau are reportedly ongoing.