Shadow of Decade-old Crisis Looms over Credit Card Plans

By Kyaw Hsu Mon 16 October 2013

In a world where modern banking services are almost universal, few things shout “economic backwater” quite like the absence of ATMs and credit cards.

These days, even Myanmar—which was for decades one of the world’s most economically isolated countries—has a handful of ATMs in major urban centers, providing the sort of convenience that most of the rest of the world takes for granted.

Credit cards, however, are still virtually unheard of here. Only a few major hotels and shops catering to foreign tourists will even consider accepting your Visa or MasterCard, much less cards issued by the Japan Credit Bureau (JCB) or China Union Pay—all of which got a green light to do business in Myanmar last October.

So why has plastic been so slow to make inroads as the payment method of choice in Myanmar? The main reason is that domestic financial institutions have yet to be authorized to issue cards to local consumers; and that, in turn, goes back to events that rattled the country’s Central Bank a decade ago, and continue to cause jitters even now.

In early 2003, Myanmar experienced its worst financial crisis in recent memory. When several so-called “micro-finance groups” offering high rates of interest to depositors abruptly collapsed, it set off a panic that hit not only the informal banking sector but also government-registered private banks.

Among the most prominent victims were Myanmar Mayflower Bank and Asia Wealth Bank. Although perhaps best known to foreign observers as the target of US sanctions for money laundering and ties to Myanmar’s former military junta, at the time they were regarded by customers inside the country as cutting-edge innovators, with services like ATMS, credit cards and online banking.

What they didn’t have, however, was the backing of the Central Bank. “Unlike Kanbawza Bank, which had a deal with the Central Bank to protect deposits, [Mayflower and Asia Wealth] were on their own,” recalled U Ye Min Oo, the managing director of Asia Green Development Bank (AGD).

According to U Ye Min Oo, whose bank was founded in 2010 by U Tay Za, another US-sanctioned crony of the former regime, the crash of 2003 has had a chilling effect on efforts to modernize Myanmar’s banks.

“The former government thought that it was credit cards that caused the crisis, when in fact it all happened because of the illegally operating micro-finance groups,” he told The Irrawaddy in a recent interview.

But even if credit cards were not the undoing of two of Myanmar’s best-known banks, the crisis exposed weaknesses in the way the new service was introduced to the local market, according to U Myat Thin Aung, the vice chairman of Yoma Bank, one of the survivors of the 2003 debacle.

“The failure of the credit-card system was all the fault of the banks. They trusted their customers too much and didn’t get enough detailed information from them. Spending got out of hand, and they weren’t able to keep track of it,” he explained.

Whatever the setbacks of the past, U Myat Thin Aung said he is keen to see credit cards become as much as part of life here as they are in neighboring countries.

“The Central Bank should allow local people to have credit cards, but it must be done in a way that minimizes risk,” he said, suggesting that making debit cards more widely available might be a good place to start until ordinary consumers prove themselves more creditworthy.

In any case, he said, there is an urgent need for Myanmar to move beyond its current cash-based transaction system.

“Nobody likes to carry around a lot of dirty banknotes, but until 10,000 kyat notes were introduced last year, that’s what I had to do when I wanted to treat business colleagues to dinner in restaurants,” he said.

Making it easier for consumers to make purchases would also help to stimulate demand, he added.

“As long as the banks can rein in their customers, more spending would encourage people to work harder to buy modern products,” said the Yoma Bank vice chairman, who is also the chairman of the Hlaing Tharyar Industrial Zone in Yangon.

Despite the Central Bank’s reluctance to give Myanmar consumers the convenience of credit cards, the Myanmar Payment Union (MPU)—which includes 14 of Myanmar’s 19 privately owned banks—is moving forward with plans (approved by the Central Bank) to work together with Japan’s JCB to expand its network of domestic debit-card users, who currently number around 200,000 nationwide, according to MPU figures.

According to AGD Bank’s U Ye Min Oo, cooperation with JCB to date has focused on enabling foreign JCB cardholders to use their cards in Myanmar; but the next step (due to be implemented in September) is to issue joint debit cards to Myanmar customers.

“For example, we may issue an AGD-JCB card,” he said, adding that China UnionPay has also started working toward a similar arrangement.

The move could dramatically increase the number of businesses that accept MPU debit cards, which are now recognized at just 700 locations around the country. (In contrast, JCB cards are accepted by merchants and at cash advance locations in 190 countries and territories.)

Taking the next step—issuing full-fledged credit cards—could have an even greater impact.

“I believe that if the Central Bank allows us to issue credit cards, the small and medium enterprises will definitely develop and business will also progress,” said U Ye Min Oo.

But with even savings accounts still restricted to just one withdrawal per week since 2003, it appears that the Central Bank prefers to err on the side of caution. Until this changes, the chances of Myanmar becoming a cashless society—even as other credit-card giants such as US-based American Express and Diners Club International are knocking on the door—appear dim.

This story first appeared in the October 2013 print issue of The Irrawaddy magazine.