What happens when a country doesn’t use banks - A look at how the world’s second last frontier economy functions on just cash.
When I first got off the plane at Yangon airport, jetlagged and exhausted from the 42 hour journey, what shocked me most was being handed a stack of 1,000 kyat ($1CAD) bills at the currency exchange - around 500 bills to be exact. Unable to stuff this into my wallet or fanny pack, I asked the currency exchange clerk if they had larger bills, to which she replied “We ran out.”
This was my first glimpse into the nearly non-existent banking services of Myanmar. They say that frontier economies develop in the following order; telecommunications, banking, power & hydro, and finally, consumer goods. While the internet connection is slowly starting to improve here and power cuts have dropped from an average of three times a day to just three times a week, the banking sector is still lagging behind. Decades of hyperinflation and mismanagement have made everyday citizens weary of using existing banks and financial institutions.
To the middle and upper class, the low utilization of banks presents certain problems. For example, large payments must be made in cash since checks cannot be processed without a checking account. An expatriate once recounted to me the story of the first time he prepaid rent – he loaded an entire taxi with cash, went to the landlord’s house, and waited for her to hand count all of it three times in the span of four hours. Getting all this cash isn’t easy, either. Another expatriate had to visit a local illegitimate businessman with a basement stuffed with cash and jewels in order to obtain enough cash to pay the lease on her newly purchased hotel.
Those less economically well off are affected even more negatively, particularly farmers. Most farmers have very limited access to financial services and institutions for a variety of reasons. Thus, they rarely develop saving behaviors and are also fearful of losing their savings to theft should it be stored in their homes. As a result, they are forced to “farm on credit”. This means planting seeds provided for free by traders, who, when the harvest season is over, compensate the farmers with far less than the value of the products - significantly lowering the amount the farmers are able to make had they been able to purchase their own seeds. Not having any savings also makes farmers more vulnerable to natural disasters, illnesses and poor harvest seasons – all events dramatic enough to force a family to sell their land and become hourly laborers.
As a result of the very volatile conditions that farmers face, learning about the benefits of saving and understanding where and how to do this safely and securely is critical. MEDA’s project in Myanmar, Improving Market Opportunities for Women (IMOW), recently conducted one of its first village workshops with women and men on how to form savings groups. A savings group is a revolutionary concept originally developed in Pakistan to provide a safe space for poorer villagers to save. There are many different savings group models, but the basic idea is that a group of villagers from the same community each contribute the same amount of money to the group on a monthly basis. The cash is kept in a locked box with at least two key holders. The cash saved acts as a fund from which an individual can draw on to take out loans to purchase seeds or fertilizers for their farm, invest in their business, pay for their child’s education or simply begin to create a social security net for their future.
For the IMOW project, female savings groups are platforms from which MEDA and our partners are providing other capacity building opportunities, trainings and activities.
“We believe this is a very effective entry point to communicate with women,” explained Ant Gyi, MEDA’s Financial Inclusion Coordinator for IMOW. “The women decide where they’re going to meet, the women decide when they’re going to meet. Time, duration, place, it’s all decided by women and we are just facilitating the process.”
Over the course of roughly three weeks, Ant Gyi, along with local NGO program facilitators, traveled to southern Shan and Kayin states to give female village leaders training on how to start savings groups so that they may be able to create them in their own communities. These “Training of Trainer” sessions also focused on developing a savings behaviour both of the training participants but also to encourage others within the community to save as well. The hope is that once savings groups are established and villagers begin to see the benefits of saving, they’ll start using more formal financial institutions like Microfinance Institutions or banks to take advantage of Myanmar’s high savings account interest rates – one of the highest in the world, which currently sits, idly, at 10%.
Myanmar can have first-class financial institutions and still have a third-rated banking system. What needs to change are people’s attitudes, and teaching them to save is the first step.