Via The Financial Times, a commentary on Myanmar:

After years of international isolation, the government of Myanmar has a golden opportunity to create a fully-inclusive financial system. It should take it.

Market forces are already at work in the country. You can see that if you try to book a hotel room in Yangon. They are in short supply and some that were going for less than $70 a year ago have almost tripled to $200. The country has its first investment bank. Government-led market reforms, promoting liberalization and openness, are taking effect and the outside world is coming in, bringing with it investment, commercial opportunities and know-how. However, with few ATMs and fewer point-of-sale terminals where they can use their cards, corporate executives jetting in for investment meetings, or tourists eager to discover the rich culture of Mandalay, find they must still rummage in their billfolds for crisp, clean US dollars.

Many observers warn that this lack of financial infrastructure, after years of isolation and sanctions, will hamper progress. However, it is precisely the lack of infrastructure that may well be Myanmar’s biggest advantage, because the country is starting from a relatively clean slate. The government can target growth in sectors important to economic progress, like finance, with relatively flexible approaches that reduce friction in commerce, because it is not limited to working within the confines of legacy infrastructure.

Efforts to build infrastructure should not just focus on technological infrastructure. In industries like finance, technology is no doubt critical but an exclusive focus on IT without a supporting framework of rules and regulations for economic growth will be destined for failure. Equally, provision must be made for scalability and mass adoption and this element requires consumer trust. A technologically advanced bank that is well-regulated by authorities will not have a future if consumers don’t have confidence in it. The triumvirate of technology, rules and trust is critical to a well functioning and inclusive financial society.

As an example, let’s look at mobile. In Myanmar, fixed line telecommunications systems aren’t in place and amortizing the cost of incremental infrastructure, such as point-of-sale terminals and ATMs, is very difficult. The obvious answer is mobile payments, which have the potential to reach every citizen. But, according to the World Bank, of the 96 mobile payment schemes live in emerging markets around the world in 2011, just six had 200,000 active users or more. In other words, few were achieving anywhere near the scale needed to be a solution to financial exclusion.

A successful mobile payment ecosystem consists of a secure and reliable account management platform that enables consumer payments to be stored and managed. Further, rules need to be put in place to ensure that all constituents have clear ways to engage. In the card world, if someone uses your card fraudulently there is an expectation that you are protected. Would the same hold true in the mobile world, if you lose your phone?

To answer this and many other questions it is critical that rules exist with a clear delineation of rights and obligations. At a government level, regulations need to contemplate the treatment of new non-banks in the payments chain, such as telecommunications companies. If your mobile phone holds your money and you can buy and borrow from that account, at what point does it become more like a bank account? Policy makers need to grapple with these questions but the good news is that much can be learned from the successes (and failures) of other countries. Finally, even with mobile payments, the scheme has to engender trust. As consumers, we all have expectations that our cards will work at a supermarket or when we travel overseas. That expectation doesn’t change in the mobile world and an interoperable and secure system is critical.

With banking modernisation under way in Myanmar, some local banks are preparing for financial integration with the outside world. Additionally, the Central Bank of Myanmar has already indicated a willingness to have international payment schemes operate in the country. All of these are steps in the right direction and certainly more of such efforts should be encouraged. But policymakers should also swiftly put in place a transparent framework for supervision and regulation. Ultimately, free and open competitive markets will give consumers choices and with these choices comes trust.

There are not many advantages to being isolated for as many years as Myanmar has been. But a clean slate may well be one of them.