Sourcing from Myanmar: Banking, payments & export documentation

This article is an excerpt from Sourcing From: Myanmar, a series of reports that provides buyers sourcing information from alternative manufacturing hubs in Asia. To read the entire articles, click on the following links: Banking & finance, Paying for your purchase and Export documentation. The Sourcing From series is produced by the Hinrich Foundation, a development organization that aims to promote sustainable global trade by, among others, helping create jobs in emerging Asia. It also produces industry-specific sourcing reports through Online Developing Country Sourcing.

BANKING & FINANCE

Myanmar's banking system was isolated from international networks until the government transitioned from a military government to a nominally civilian government in 2011. Since then, the Myanmar banking system has shown exponential growth in the number of bank deposits and branch networks. Total bank deposits grew by nearly 40 percent from $7.6 billion to $10.6 billion from end-2011 to end-2012.

Despite reforms, the banking sector in Myanmar is still considered underdeveloped and unregulated. The nation also had a severe banking crisis in 2002-03 that it is still struggling to recover from. Even today, 90 percent of the Myanmar population keeps cash at home instead of using the formal banking system.

Banks also tend to operate on a cash basis due to the lack of technology, hampering the ability to conduct electronic transactions. Although ATMs are increasing in number, they often fall victim to rolling blackouts and insufficient funds.

Central Bank of Myanmar

The Central Bank of Myanmar (CBM) is in charge of regulating the banking system and managing the money supply in Myanmar. The CBM is currently undergoing reforms to gain the ability to conduct monetary policy as an independent autonomous authority from the government, with the help of the Central Bank Act signed into law in 2013. Previously, the CBM was used only to finance government debt. By working with IMF, Myanmar is overhauling its banking system in order to develop a financial market to help local and foreign investors raise capital. Said reforms are supposed to be in place by 2015.

The Central Bank of Myanmar and the Ministry of Finance are currently in charge of regulating the banking system. Although banking regulations are considered very restrictive compared to other countries the banks remain poorly regulated and supervised.

State-owned banks

There are four state-owned banks still in operation that handled all transactions before recent reforms. They are Myanmar Agriculture and Development Bank, Myanmar Economic Bank, Myanmar Foreign Trade Bank and Myanmar Investment and Commercial Bank.

Before 2012, only MFTB and MICB were allowed to conduct international banking operations. Today, more banks are allowed to offer international banking services.

Local & foreign banks

The largest local private bank based on market share is Kanbawza Bank, followed by Myawaddy Bank and Co-operative Bank.

Foreign banks are allowed to establish representative offices in Myanmar. In order to do so, foreign banks are required to raise a minimum capital requirement of $50,000 and a registration fee of $1,000. Under the Financial Institutions of Myanmar Law, foreign banks are required to set up representative offices before they can begin offering liaison services.

Foreign banks are currently prohibited from opening branches or providing direct banking services to the Myanmar public. They are only allowed to provide information to headquarters and assist existing clients in Myanmar.

There are no US banks represented in Myanmar. In 2013, the US announced its nationals are now allowed to do business with four banks in Myanmar that were previously blocked. These are Asia Green Development Bank, Ayeyarwaddy Bank, Myanmar Economic Bank and Myanmar Investment and Commercial Bank.

PAYING FOR YOUR PURCHASE

International buyers conducting business in Myanmar can use a number of methods for payment, including letters of credit (L/Cs) and telegraphic transfer.

Letter of credit

In 2012, private and state-owned banks in Myanmar started offering L/Cs to facilitate international trade. An L/C is an advice issued by a bank on the buyer's behalf, authorizing payment to the supplier after he presents documents that show evidence of shipment. With an L/C, the buyer does not pay until the supplier has met his obligations. The buyer also gains the convenience of having an intervening third party, the banks, participate in the transfer of funds for payment. Currently, the majority of banks in Myanmar are allowed to issue L/Cs and operate foreign currency accounts.

State-owned banks typically require the importer to make the full payment deposit before issuing the L/C. Private banks typically require a smaller percentage deposit for the L/C and are known to process the L/C faster than state-owned banks, making them more preferable by Myanmar importers. They also tend to require less detailed information about the transaction. However, in an attempt to avoid costly state-banks and private banks, many traders continue to settle transactions through the informal and unregulated money transfer system called the "hundi" system for domestic and international remittances.

Private banks are now beginning to establish links with foreign banks in countries such as Thailand, Singapore, Australia, Malaysia, and South Korea. Under the Foreign Investment Law (FIL) passed in 2012, foreign entities may establish bank accounts in Myanmar if they complete the required registration process. The FIL also guarantees repatriation of profits overseas.

Telegraphic transfer

Many exporters use telegraphic transfer (TT) as a more convenient way of transferring money. Through TT, exporters manage the payment through a bank in Singapore and then they connect with banks in Myanmar to transfer the money back. Compared to some developed countries where the banks are connected directly with each country, this process for Myanmar's exporters requires additional money to be spent on transfer fees to transfer money from Singapore to Myanmar.

Nonetheless, TT is commonly used. It normally takes two or three days and the transfer fees are around about $50. Most Myanmar suppliers have companies in Singapore or Thailand, explaining why they would ask the buyers to transfer money to their Singapore or Thailand companies' bank account. Most suppliers ask for 30 percent transfer of cash to their account by TT as an initial payment before they start production. The balance can then be paid after loading the products on the ship. Some ask for 50 percent of cash as initial payment and can pay other costs after sending bill of lading to buyers.

EXPORT DOCUMENTATION

To ship export commodities from Myanmar, an Export Declaration Form (CUSDEC-2) must be submitted to the Customs Department along with the following documents:

• Export license and/or permit
• Forest pass for the shipment of forestry produce
• Invoice
• Letter of Credit or General Remittance Exemption Certificate
• Packing list
• Payment advice including Inward Telegraphic Transfer Private No. and/or Inward Telegraphic Transfer Government No.
• Sales contract
• Shipping instructions
• Sample of goods
• Other certificates and permits as required by the government agencies concerned

A customs duty is levied on exported goods according to the tariff schedule and an export duty is levied on the tax based on the FOB value.

Applying for an export license

The following documents are required when applying for an export license:

• Application form with the company's letterhead
• Online export application form (with six MMK revenue stamps)
• Necessary documents to be submitted for the exported commodity
• Pro forma invoice/sales contract
• Recommendations from related ministries concerned (if necessary)

An export license is valid for three months from the issue date. During these three months, suppliers and exporters must ship their goods. If they cannot finish during this allowed period, they can extend two months for first time and one month for second time.

Preshipment inspection

In order to avoid unnecessary disputes between buyers and sellers over the quality of exported products, the products must pass a preshipment inspection by an inspection organization designated by the buyer. Forestry and agricultural exports must also pass laboratory testing and fumigation requirements before export.

For inspection, buyers typically send their staff to the factory to check the orders before shipment are sent out. If the buyer cannot send his agent or he does not have representatives in Myanmar, he may appoint third-party inspection agencies stationed in Yangon as his surveyor. The buyer's surveyor will then have the right to weigh and inspect the goods at the port(s) of loading at the time of shipment.