Myanmar, Republic of the Union of: Company Profile of KBZ BANK


Sector: Financial Services

Fuelling Myanmar's engine of growth

With its young, digitally-enabled population and Asia's market at its doorstep, Myanmar and its SMEs continue to hold much potential for the domestic and global investment communities

by Nang Lang Kham, Deputy CEO, KBZ Bank

When Ko Ngwe Tun started his coffee business in 2012, Ywar Ngan township in Myanmar's southern Shan State presented fertile ground for his dreams. Its year-round cool climate, sloping hills and rich soil were perfect for producing the high-quality Arabica beans the world would want to buy.

The lack of access to capital, however, kept his plans for Genius Coffee modest. It was a 2014 loan and business advice from KBZ Bank that allowed him to realise his dream of achieving international standards of agroforestry intercropping and wider distribution.

With the loan, he tripled his number of employees and quadrupled the size of his land, increasing roasting capacity by five times. He also added a second outlet where consumers could sit down to a cup of his coffee. Access to funds fuelled his success, allowing him to drive employment, income, and growth.

The man behind Myanmar's first international-standard speciality coffee brand now has a presence across the country and exports his products to at least 12 international markets. He has plans to grow coffee in East Myanmar's Kayah State by 2025, providing even more contract farming opportunities for locals, and hopes to branch into coffee wine and flavoured coffees.

In November, just six years after starting Genius Coffee, he received the ASEAN Business Advisory Council's Asean Business Award in the Sustainable Social Enterprise category. He was also named KBZ's Entrepreneur of the Year in 2015.

It is on Ngwe Tun, and others like him, that Myanmar's economic future rests. Micro SMEs and SMEs account for over 90% of the country's private sector and 70% of its workforce. History has shown us that it is by developing the private sector - facilitating its growth and internationalisation, and its ability to build both capacity and capabilities - that countries can chart a path to sustainable, socially inclusive, long-term growth. For Myanmar, too, this will be the case.

As the country's largest bank, KBZ provides capital injections to SMEs both directly - by broadening access to short-term working capital and longer-term capital investments - and indirectly, by addressing poverty and financial literacy. We also bring experience and know-how to fledgling organisations.

Alongside the efforts of local investors, Foreign Direct Investment (FDI) is critical to providing the country's private sector with the capital injections - as well as the technologies and management skills - needed to drive sustainable growth and development. These direct and long term connections provide the economy with a boost where it is needed most - businesses that have the potential to be more productive and competitive, and that positively impact the communities around them.

By engaging effectively now, as the country continues its transition into a market economy, investors will have the opportunity to etch themselves into the development story of Asia's last frontier economy.

Subhead: Myanmar's promise

Much has been said about the challenges Myanmar is grappling with.

Recovering from 50 years of military could take a decade - or longer. It is not something that can be achieved in a few months or years. Despite that, Myanmar has managed to draw significant levels of Foreign Direct Investment - US$5.7 billion in the financial year ended March 31, and US$6.6 billion a year earlier.

Without discounting the many complex issues that Myanmar must solve, it still represents enormous potential, especially for those with a longer-term view.

From one of the world's most isolated countries, Myanmar is on a trajectory to becoming one of the world's mobile-first economies. It has achieved mobile phone penetration rates of close to 90% in a population of 53 million in under a decade, allowing for the large-scale adoption of digitally-driven services at relatively low costs of reach. According to one report, average monthly data usage stands at 5.6 GB per person at an affordable cost of US$1 per GB. Unhindered by legacy systems, the country is able to make a quantum leap to the latest digital technologies. It has a large and young population, representing a digitally-plugged, low-cost labour force.

Myanmar is also rich in agricultural resources, minerals and gas, and has ready access to large and growing markets. It shares a border with five countries, including India and China, and located at the crossroads of South and Southeast Asia, it has 40 percent of the world's population in its immediate neighbourhood. Despite recent World Bank projections that economic growth will slow from 6.8% in 2017-2018 to 6.2% in 2018-2019, Myanmar remains among Asia's fastest growing economies.

Some investors have charged ahead - Dutch animal feed company De Heus and the UK government recently invested US$3.2 million in developing Myanmar's pig farming industry. The project, which includes establishing the country's first ever pig stud farm, aims to increase farmers' productivity, and help them tap into the rising market demand for pork, improving their incomes.

They are among investors from 28 countries including China, Japan, the Netherlands, Singapore, South Korea, the US, and the UK, who recognise that the next chapter of Myanmar's story is still being written - and it can be one of both hope and growth.

Subhead: Small businesses, big gains

In the developing world, the private sector has been a major employer and stimulant for both sustainable economic growth and social development - when they are able to secure the capital to push forward.

There is a compelling example just across the border: For more than 40 years, China's private sector has been the driving force behind its economic miracle.

With the private sector accounting for 84% of GDP and over 90% of jobs in developing countries, its development has a major knock-on effect in reducing poverty and inequality, and enhancing productivity, competitiveness and economic security.

In the case of Ngwe Tun from Coffee Genius, a desire to ensure the quality of his beans prompted him to appoint 'change agents' - farmers who he educated on modern technologies and best practices. Those farmers, in turn, shared the techniques learnt, bettering prospects for the entire region. Ngwe Tun's success has sparked a new project in Kayah State, where he will support farmers in terms of expertise and reaching wider markets. From early on, he also put part of his proceeds into supporting surrounding villages and schools.

Training is a strong focus for Rangoon Tea House, which 28-year-old Htet Myet Oo opened in 2014 to reinterpret traditional Burmese and Asian cuisine for an international audience. Close to a third of its now 300-strong staff are between 18 and 22, have no tertiary education, and come from Myanmar's rural areas. A loan and sound advice from KBZ Bank in late 2017 meant it could hire more aggressively, and put into place the financial and human resources structures that would allow it to be run "like a business, and not just a restaurant".

Htet is part of a generation that is recreating Yangon into a new and bustling city. Today, he runs nine outlets across several concepts, and a flagship store that serves up to 1,000 people a day.

The self-confessed foodie, who left Myanmar for the United Kingdom at the age at 4 and returned in 2012 with dreams of beginning his own restaurant business, was named KBZ's Entrepreneur of the Year last year. He now dreams of internationalising his brand.

Employed well, new capital helps existing enterprises expand and new ones to spawn. It leads to the creation of new products, expansion into new markets, opens up new employment opportunities, and triggers economic growth. It supports both short term needs - providing working capital, and trade and supply credit, for example - and allows for long-term capital investments.

Subhead: Banking on the future

With an average annual per capita income of US$1,190 in 2017, based on World Bank figures, Myanmar is among the world's poorest countries. Recognising that banks can play a leading role in development and transformation, KBZ Bank has stepped up its own efforts to make the sector fit for purpose and growth.

Our own transformation since 2017 began from the inside out - reorganising our business to make banking both accessible and affordable, and equipping our employees for the banking model of the future.

An important part of this has been financial inclusion - providing access to financial products and services to all sectors of society, including the weak and vulnerable, at an affordable cost, and in a fair and transparent manner. Given poor financial literacy and a largely cash-based society, this has been a challenge. The surge in access to mobile technology and smartphones provided us with the opportunity to relook the traditional banking model and to leapfrog its legacies. In 2018, the launch of KBZPay, our mobile banking app and mobile wallet, brought on board some 1 million fully verified customers within six months of launch, a significant proportion of which had previously had limited access to financial services.

Last year, we also consolidated our SME-support initiatives with the launch of the One-Stop SME Banking Centre (OSBC), with services provided throughout KBZ's 500-branch network. Our teams provide SMEs with advice on their growth plans, cash flow projections, financing issues and challenges, and business matching, and also offer entrepreneurship and financial literacy training. Meanwhile, our SME loans provide them with a much needed capital boost so they can realise their dreams.

Whether they are new businesses or existing ones that desire to expand, we aim to make a difference both in the short term, with advice and working capital, and in the longer term, with capital investment. Through the multiplier effect, we help alleviate issues like poverty, and empower groups that may be marginalised, including women and the unbanked.

Our non-profit organisation Brighter Future Myanmar Foundation's microfinance initiative has provided USD$35.5 million in credit to some 70,000 women in 20 townships across the country since 2014. This has allowed them to start small businesses, including in agriculture and livestock, trading, and small-scale production.

Extending credit to this group has not only bettered their prospects, but keeps them out of predatory lending traps with local money lenders, who charge anything from 60% to 100% interest for cash.

We have also extended education loans to the children of these women, and conducted numerous workshops on computing, financial literacy, and healthcare.

SMEs, to us, are the seeds of Myanmar's business powerhouses of the future. But they need nurturing.

Subhead: More than a monetary boost

For many SMEs, the support of companies like KBZ Bank and inflow of foreign direct investment - just over $30 billion from Singapore, China, Hong Kong, Japan and South Korea since 2014-2015 - have been a life line.

Capital injections via FDI have played a significant role in allowing Myanmar's private sector to grow. But beyond capital, investors also bring with them the knowledge, infrastructure, technology and connectivity that promote inclusive economic growth.

A German Corporation and Dutch consortium of consulting firms, for example, have established a development partnership to help Myanmar farmers increase the productivity of their farms and learn best practices in horticulture at a 3,000m2 demonstration greenhouse in Heho, Shan State. This will help both productivity and the quality of vegetable cultivation through knowledge transfer, making Myanmar more self-sufficient and more competitive. While raising standards of living, it uplifts lives.

Investors venturing into Myanmar will find a country with an increasingly positive investment climate. The Myanmar government has pressed on with several important reforms to make the country more attractive, and to address the concerns of potential investors.

Some recent highlights include the establishment of the Ministry of Investment and Foreign Economic Relations in November, which has been tasked with facilitating the approval process by acting as a single window for investors to complete bureaucratic procedures.

The Myanmar Sustainable Development Plan (MSDP), which outlines the government's development objectives and proposes targeted solutions to achieve them, is another important development. A "project bank" also enables the government to prioritise key projects. The World Bank considers the MSDP a significant step forward.

The government has also passed a more liberal foreign investment law and an amended Companies Law. This makes it easier for foreign entities to invest in Myanmar companies, including in sectors like Oil and Gas. The revised Myanmar Companies Law will allow foreigners to hold up to 35% of a company and still have it treated as a local company, opening up sectors currently restricted to locals. There have also been indications that the insurance industry will be opened up.

In another significant move, the Central Bank of Myanmar has announced reforms that will allow foreign banks to lend to local businesses, authorising the 13 overseas banks that are licensed to operate to offer credit to domestic companies in both local and foreign currencies.

Subhead: Charting a new future, together

Myanmar is at an inflexion point, and a number of players - both local and global - are in a position to help it define a new way forward for the millions who call it home.

Large companies, like KBZ Bank, are in a unique position to set the example - instilling strong corporate governance and transparency, building more sustainable business models, and driving employment, skills development and the creation of wealth.

We hope this sends out a signal of assurance to the global investment community that many are committed to putting the country on a path to progress and modernisation, and that it drives confidence in this fledgling democracy.

While as business owners we understand the sense of caution and need for due diligence as our politicians work towards solutions on several fronts, we are also acutely aware of what isolating Myanmar from economic and constructive engagement could mean for the nation and its most vulnerable groups.

Despite its complexities, Myanmar remains a country that is keen to speed up its economic and social development, and to address the role that issues like inequality and the lack of opportunity play in holding it back.

The international business community has a critical role to play - and at this moment in the country's history, it is in a position to make a genuine difference. By fuelling the engine of growth in key sectors and regions, it will propel both Myanmar and its economy on the path to inclusive, sustainable, long-term development.