Ways Old and New Clash in Burma’s Money Transfer Market

By Simon Roughneen 28 September 2013

RANGOON — Eight months after the global money transfer giant started operations in Burma, Western Union says people in 107 countries have sent money to the previously sanctioned Southeast Asian country.

With eight local banks onboard as in-country partners, the company has 280 agents across Burma, covering all of the country’s states and regions, bar the hard-to-access Chin State in the northwest. There is even an online money transfer option, emblazoned with a smiling, thanaka-adorned young woman atop the web page.

MoneyGram is a more recent arrival to Burma, announcing in late August that its services would be provided through partnerships with three Burmese banks: Asia Green Development Bank run—by Tay Za, a long black-listed businessman—Myanmar Citizens Bank and Tun Foundation Bank.

And though Western Union and its main global rival MoneyGram are hoping that the influx of visitors to Burma for the upcoming tourism high season will see greater uptake of their services, their success in Burma depends, for now, on tapping into the millions of Burmese emigrants living and working in Australia, Malaysia, Singapore, Thailand, the United Kingdom and the United States, and remitting unknown millions of kyats home every year.

In Malaysia and Thailand, where around one million and three million Burmese live, Burmese workers send money home to hard-pressed relatives living in poverty in Burma’s towns and in the countryside, where job opportunities remain scarce and manual-labor farming is how most people make a living.

Trust in Burma’s formal banking system dried up after a 2003 bank run and a variety of oddball financial and monetary policy decisions taken by the previous military government, such as reissuing the country’s currency in notes divisible by nine, a move apparently prompted by former junta leader Gen Ne Win’s numerology-infused superstitions.

Western Union and MoneyGram’s entrance to the Burma market was facilitated by the Naypyidaw government’s reforms, such as the floating of the kyat, allowing Burma’s currency to trade officially at close to its real market value. In October 2011, Burma allowed private banks to open foreign counters and conduct foreign exchange, another precursor to Western Union and MoneyGram entering the country. The entrance of the financial services firms was ultimately made legally possible when Washington in mid-2012 eased long-held restrictions on US companies doing business with Burma.

But now, even as Burma tries to modernize its financial system, the banks are a work in progress, with banks having little or no reach beyond the country’s larger towns. In the past, banks did not work too well in cities either, though Burma’s economic reforms mean that in urban areas at least, there are more branches and people are using banks more than they once did.

But for Burmese abroad, sending money home has in the past meant using an informal transfer system known as hundi—a mix of agents and middlemen along a cash and trust-based word-of-mouth chain from sender abroad to recipient in Burma.

Than Lwin, vice chairman of KBZ Bank, which provides Western Union services, says KBZ has 120 banks across Burma and plans to double that number within the next year. “We are trying to coax Myanmar migrants into using the formal, legal way,” he told The Irrawaddy.

Western Union says its services are faster and safer than informal channels. “Informal systems including hundi do not provide the type of service that an international money transfer service provider like Western Union does,” Western Union spokeswoman Connie Yip told The Irrawaddy. At time of writing, MoneyGram had not replied to emailed questions from The Irrawaddy.

Still, it may take time for a majority of Burmese living overseas to make the switch.

Thiri Myat, an official working at the Western Union counter at a branch of First Private Bank in Rangoon, says charges for sending money via Western Union remain “a little bit high” compared with the hundi system, though rates for both hundi and Western Union vary, depending on the amount sent and location of sender.

“We get around 60 to 70 Western Union transactions a day, total numbers from all branches across the country,” she told The Irrawaddy.

In Malaysia, Burmese migrants are slowly moving to using formal outlets to send money home. Lairam Vapual, a Burmese national from Chin State and now living in Malaysia, told The Irrawaddy that he believes in time “people will use Western Union and MoneyGram as they safer and less expensive.” He says that the current charges for remitting from Malaysia are 10 ringgit (US$3.10) per 100,000 kyats ($103) via the informal hundi channel, and 14 ringgit per 4,000 ringgit ($1,240) remitted via Western Union.

Western Union is offering a flat 160 baht (US$5) fee for sending any amount of money from Thailand to Burma, beating the usual 5 percent cut that hundi agents take, while MoneyGram charges 480 baht for a 4,000 baht or less transfer. But even if Western Union and MoneyGram can offer better rates than informal rivals, for now many Burmese in Malaysia and Thailand will stick to the hundi system, which does not require time-consuming forms or presenting ID. Many Burmese in Malaysia and Thailand—perhaps several hundred thousand people in Malaysia and upwards of a million in Thailand—are not registered as migrant workers. Some don’t have passports or ID—a hurdle when it comes to using the formal money transfer outlets.

A hundi agent in Kuala Lumpur, going by the name Thu Ya, told The Irrawaddy that he doesn’t think his trade will drop much any time soon, despite the appearance of Western Union and MoneyGram in his homeland.

Familiarity with compatriots is one factor favoring the hundi agents, he believes. Language is another. “Many Burmese people cannot speak English, or read and write it. That means it is difficult for them to do formal transfer,” he told The Irrawaddy.

The informal networks have other advantages over Western Union and MoneyGram, which are an attraction to the recipient in Burma as well as the sender abroad. An advisor to the Burmese government working on financial issues says that hundi networks have a longer reach than the formal banking networks. Many Burmese hundi recipients live in rural areas, far from any bank branch, so hundi remains the only option. “Formal channels cannot deliver to the door where most receive it,” the advisor, asking that his name be withheld, told The Irrawaddy.

Those formal channels seem to realize that they still face a formidable informal competitor, and KBZ’s Than Lwin says his bank, the biggest private lender in Burma, is trying to fit in with the hundi system, for now. “We are working with some of the more respectable hundi traders in Malaysia and Thailand,” he says.

Neil Lawrence contributed reporting.