Financial institutions the world over have evolved depending on the economic policies of the government of the day as well as other economic imperatives. This has been accompanied by ideological and philosophical differences in banking policy. In this paper, I shall seek to examine the evolution of these financial institutions in Burma in three epochal periods namely- the colonial era, parliamentary democracy era and the era of military rule.
During this period there were hardly any indigenous banks in Burma. Those that were existent were western banks mainly British banks that served the elite class. The exchange banks mainly concerned themselves with trading activities whilst treating banking as a subsidiary object. These concerns usually provided funding to the major export in the country, and were mainly located around Rangoon, a business hub, away from the countryside. It is these trading firms that marked the influx of western banking in Burma and which presented the European economic policies of capitalism. These traders and merchants mutated into bankers who practiced international banking. Towards the twilight of the colonial era, there was a proliferation of these exchange banks which then ruled the commercial world. Despite the concentration of the exchange banks in provision of funding to European companies engaged in government projects and trade, some of the funds managed to get to those in the countryside.
However, such funding to the Burmese agriculturalists had to be charged against the rice harvest as collateral. One of the main features of the exchange banks was its self-liquidating nature by use of bills of exchange as the primary instrument of commercial transactions. They mostly engaged in short-term lending to ensure low risk of losing their funds.
Long term lending was only offered to European firms against high quality security with great circumspect. By virtue of servicing some of the largest businesses and their use of the Sterling, which was one of the most trusted currencies, the British exchange banks gained competitive advantage. Some of the banks that had an impact in Burma at the time include the Imperial Bank which focused on providing funds and services to the colonial government, businesses and the moneylenders. Since the Imperial Bank was excluded from foreign exchange business by its founding charter, other British banks including the Chartered Bank filled the void. The foreign banks included those from America, China, India, and Japan. Following the hardship that the Burmese agriculturalists went through in the hands of exorbitant rates from moneylenders, a Burmese bank known as Dawson’s Bank emerged seeking to mitigate such hardship. Noteworthy is the fact that the bank was located in the countryside and provided both short-term and long-term lending to cultivators. It, however, faced problems getting quality staff and suffered from governmental regulation. Its aim to free the cultivators from the shackles of the moneylenders was nonetheless hampered by complex formalities required to obtain funding. The indigenous Burmese people did not launch into the banking sector owing to a number of factors including the large capital required to start such ventures. This was especially a challenge considering the ostentatious living of the Burmese which reduced their propensity to save. They further lacked experience in banking and their energies were spent in the colonization. Given the absence of the banks in the colonial Burma, traditional institutions existed that included pawnbrokers and hoarders.
After the First World War, the banks suffered greatly owing to disruptions in capital flow and barriers placed throughout the world. The banks reduced their lending in a bid to cushion themselves from the harsh economic climate further exacerbating the dire situation causing monetary contraction. Tenants, cultivators as well as moneylenders were in default causing a rift between them and the banks. Despite the cautious approach employed by the Dawson Bank on land mortgages, its fortunes dwindled due to the recession though it later gained ground. The reign of exchange banks was severely tested with the conquest of Burma by the imperial Japanese in 1942. The Japanese, with the aim of extracting resources from the Burma, failed in their financial system. This later opened way for the return of the exchange banks.
Parliamentary democracy era
The 12 year period was marked by lost opportunities of transforming the economy of Burma after attaining self-rule in 1948. It was a shift from the capitalistic tendencies entrenched in the colonial era to socialism. The Burmese fresh from the colonial rule and fuelled by nationalistic views embarked on a socialist scheme of public ownership by creating state-controlled institutions. The financial system and the agricultural sector experienced this, through creation of State Commercial Bank and State Agricultural bank. The constitution of independent Burma depicted a country focused on the path of socialism in a bid to emancipate themselves from economic slavery. Section 42 mandated the state to provide assistance to non-profit organizations and favor co-operative organizations. Section 44 of the constitution also provided that public amenities as well as the exploitation of natural resources was within the province of the state or of co-operative organizations. Further, section 30 made the point that the state was the ultimate owner of all lands, had power to repossess and redistribute such land, and put a cap on the maximum acreage of private holding. The socialist tendency favoured by the post-independence Burma was informed by their leaders who were students of Marxist-Leninist literature and the desire to do away with the perceived economic order of the colonizers. There was an emphasis on agriculture and the provision of credit with the creation of a state-owned agricultural bank coupled with village banks which were meant to ensure financial independence in each village. The rural financial institutions were unable to meet the need for funding for the Burmese cultivators which led the farmers to seek funding from the moneylenders who charged them high interest rates. This had the consequent effect of increasing the cost of production and use of the poor broadcasting method of planting rice.
The upshot of this development was a dip in agricultural productivity. In the financial sector, the government sought to cut down on the domination of the sector by private foreign banks and as such instituted the State Commercial Bank. This caused a concern for the foreign banks and this situation was further compounded by the government when it issued a decree that all state agencies should deal with the state bank. In this model, just like in the agricultural sector, there was failure owing to lack of credit and the channeling of available resources to the state.
Military rule era
The year 1962 marked the end of parliamentary democracy era after the military took over power in a coup. It was followed by the nationalization of private commercial banks as they were perceived to be inconsistent with the reign’s socialistic tendencies. The apathy of financial matters was evident by the borrowing from the Union Bank by the government which led to increase in money supply causing inflation. In addition, the government transferred military personnel to the banks and revised the salaries downwards. More so, it put a ceiling and a floor on interest rates, a policy which was inimical to the economy. Attendant to this was the prohibition by the private sector to import and the fall in lending to the private sector. The military reign, in a bid to woo favor with the people provided massive credit to the farmers which nonetheless never serviced its desired ends owing to administrative incapacities such as corruption and nepotism.
A law promulgated extending an injunction on seizure of land for defaulters damaged the situation as cultivators never bothered to repay the loans and not even the use of village banks would cure the defect. The monetary policy wrought by the expanded agricultural credit was evidenced by commodity shortages and price inflation. In a bid to stem the sorry state of affairs, the military government passed a demonetization with the aim of making cash unavailable to people. Even this move was characterized by inefficiencies and corruption. The move also proved a challenge to the implementers of the process. In the same vein, it led to the disappearance of the notes demonetized but the appearance of other denominations thus holding the money volume constant.
These developments alongside the directive by government not to use savings and share capital for lending led to shortage of agricultural credit. Two demonetization policies conducted in 1984 and 1987 failed again to make good the mistakes occasioned by the military rule. In this instance notes were declared of no legal tender and no compensation was provided to the note-bearers. This did nothing to stop the runaway inflation and the haphazard monetary growth. The country’s currency was unable to recover and was of no value. This epochal moment has been described as the path to ruin of Burma.
Anon., n.d. Commercial Banking in Colonial Burma. s.l.:Econ 335.
Anon., n.d. The Road to Ruin: Credit and Banking under Military Rule in Burma. s.l.:Econ 335.
Assignment Paper 2, n.d. Banking in Burma’s Parliamentary Democracy Era. s.l.:Econ 335.