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Myanmar opens up the non-banking financial sector to 100% foreign participation

Up until now Myanmar regulators have allowed foreign involvement in banks, mobile money and microfinance. While the laws did not exclude foreign investment in other parts of the financial system, the CBM had not directly approved foreign ownership in other kinds of non-bank financial institutions (NBFIs).

This has now changed with the Central Bank of Myanmar (CBM) issuing directive 8/2022 on 13 of July allowing foreign ownership of NBFIs. This applies to both NBFIs operating in a JV with a Myanmar partner or 100% foreign owned NBFIs.

An NBFI is a broad term under the Financial Institutions Law 20/2016 which essentially means any kind of financial institution which is not a bank. While ostensibly this means that any kind of non-banking financial business is now open to foreign investment it appears that the intention is to allow foreign investors to operate finance and leasing companies. This would be consistent with the current practice that apart from mobile money businesses all NBFIs appear to be finance and leasing businesses.

Key conditions which must be satisfied to be able to operate NBFI is that the investor must be a financial institution that has been operating for at least 3 years. Also if the foreign investor wants to set up its own wholly owned NBFI it must have a minimum capital of at least USD10 million, which is substantially higher than the approximately USD1.5 million minimum capital of a locally owned NBFI.

There has been no reason provided for the recent policy change. Myanmar’s financial system is under continuing stress caused by a combination of factors. Historically local banks have not had healthy capital reserves, which were further put under strain from the economy’s disarray following the military’s assumption of power on 1 February 2021. This has now been compounded by global factors of increasing commodity prices and commodity shortages. Further opening of the financial sector may be an attempt to attract some capital into the sector.

The availability of lease financing in a financial sector plays an important role in a countries financial system. Especially in Myanmar it will make access to capital easier for businesses that are underserved by the existing financial sector. With the opportunity of being able to finance capital assets more easily, it should especially benefit small and medium size businesses. The challenge will be to attract new foreign entrants into the financial sector given the current pressures it is under.

© SCM Legal Limited

Note: This publication has been prepared for general information purposes and should not be considered as legal advice. SCM Legal accepts no liability for actions taken based on this publication. Please contact us if you require advice based on your specific circumstances.

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