The Asian Development Bank (ADB) moved to ease international business money transfers from Myanmar by guaranteeing Letter of Credit transfers from CB Bank, CB managing director U Pe Myint said.
A Letter of Credit from a bank guarantees the seller will receive a payment from the buyer on time, with the bank responsible if the buyer fails to pay.
Using Letters of Credit requires the recipient bank to bear some credit risk, which foreign banks are often reluctant to do when dealing with a transfer from a Myanmar banking counterpart.
The ADB will step in to guarantee CB Bank’s Letter of Credit transfers, taking responsibility if something goes wrong during the transfer, said U Pe Myint.
“The ADB has guaranteed our ability to provide transfers this way,” he said.
Wire transfers are the most common system of international transfers with Myanmar at present, where the buyer transfers the funds before receiving the goods. The Letter of Credit system differs by allowing the buyer to transfer funds after receiving the goods, with a bank guaranteeing the payment will be made even if the buyer fails to pay, in return for a fee.
Ministry of Commerce official U Than Aung Kyaw said the ministry approved the Letter of Credit system for imports last May, but just recently allowed it for exports.
“The ministry did not permit this system for export as the US could seize money transferred into and out of Myanmar whenever it wanted,” he said, adding sanctions on Myanmar funds transfers are not fully removed, delaying the decision to allow the transfers.
CB Bank claims to be the first Myanmar bank guaranteed by an international institution for Letter of Credit transfers.
Myanmar businesspeople say the lack of Letter of Credit facilities made transfers complicating, often requiring a second set of funds in accounts in Singapore.
Although major export markets such as the US and EU have opened to Myanmar businesses in recent years, many say practical considerations such as challenges making transfers limited the advantages to business.
U Soe Tun, joint secretary of the Myanmar Rice Federation, told the The Myanmar Times the move will boost exporting businesses by making fund transfers cheaper and less risky.
However, exporters looking to avoid export taxes may continue using the current setup of transfers through Singapore to avoid official scrutiny, he added.
“There are so many problems that still need to be solved to promote Myanmar’s foreign trade,” he said.
U Nay Lin Zin, joint secretary of the management committee for the Shwe Lin Ban industrial estate in Yangon, said businesses had petitioned the Ministry of Commerce to allow the system, adding there are a number of problems to work out at present.
“We need to show many documents to be able use Letter of Credit payments for export, so it is not very convenient,” he said. “It is going to take time to use Letters of Credit for exports properly.”
Other businesspeople said the move was a step toward simplifying exports in line with international standards.
A top Myanmar rice exporter U Lu Maw Myint Maung said he welcomed the possibility of using Letter of Credit facilities to expand his business.
The current method of making transfers often required double investments of capital, which complicated arrangements, he said.
Source: Myanmar Times