Myan­mar mi­cro­fi­nance could see fin­tech first

The Myanmar Times - - Front Page - STEVE GIL­MORE s.gil­more@mm­times.com

Blockchain tech­nol­ogy could be com­ing to Myan­mar, as a lo­cal com­pany hopes to be­come one of the first mi­cro­fi­nance firms in the world to use a blockchain-based core bank­ing sys­tem.

BLOCKCHAIN tech­nol­ogy – long touted for its rev­o­lu­tion­ary po­ten­tial in the world of fi­nance – could be com­ing to Myan­mar, where a lo­cal com­pany is hop­ing to be­come one of the first mi­cro­fi­nance firms in the world to use a blockchain-based core bank­ing sys­tem.

BC Fi­nance and Ja­panese soft­ware com­pany In­fo­te­ria are in the process of test­ing the use of blockchain tech­nol­ogy in BC Fi­nance’s mi­cro­fi­nance busi­ness.

An ini­tial test was con­ducted in June – where mi­cro­fi­nance trans­ac­tions were suc­cess­fully recorded in a blockchain. A sec­ond test record­ing over a month’s worth of mi­cro­fi­nance trans­ac­tions should fin­ish around Septem­ber.

Blockchain tech­nol­ogy was in­vented in 2008 to cre­ate the dig­i­tal cur­rency Bit­coin – known for its diehard ad­her­ents, wild swings in value and the shad­owy iden­tity of its cre­ator Satoshi Nakamoto. But away from the in­trigue, the un­der­ly­ing blockchain data struc­ture has broad ap­pli­ca­tion across the fi­nan­cial sys­tem.

A blockchain acts as a ledger – a data struc­ture that records a se­ries of trans­ac­tions in a chain that gets longer with each trans­ac­tion. The use of cryp­tog­ra­phy makes the blockchain ex­cep­tion­ally hard to tam­per with and copies of the ledger can be dis­trib­uted across sev­eral dif­fer­ent sev­ers and up­dated in­stantly.

One of the key ad­van­tages is safety – the blockchain is very hard to in­ter­fere with, and be­cause it is up­dated in­stantly on dif­fer­ent servers there are mul­ti­ple copies.

The ini­tial BC Fi­nance test used servers based in sev­eral coun­tries in­clud­ing Ja­pan and China. Banks typ­i­cally spend a great deal of money on backup sys­tems, which blockchain tech­nol­ogy could ren­der un­nec­es­sary.

Another ad­van­tage is cost, ac­cord­ing to Jeremy Kloiser-Jones, chief ex­ec­u­tive of Ba­gan Cap­i­tal, of which BC Fi­nance is the mi­cro­fi­nance arm. BC Fi­nance is happy with its ex­ist­ing soft­ware sys­tem, which is pro­vided by a Bangladesh firm, but “we’re al­ways look­ing for the next de­vel­op­ment”, he said.

There is as yet no ex­ist­ing blockchain-based soft­ware sys­tem that Ba­gan Cap­i­tal could use for its mi­cro­fi­nance busi­ness. Al­though In­fo­te­ria has suc­cess­fully recorded mi­cro­fi­nance trans­ac­tions us­ing a blockchain, a core bank­ing sys­tem would re­quire a user in­ter­face al­low­ing the loan data that BC Fi­nance em­ploy­ees in­put to be recorded au­to­mat­i­cally.

But the ini­tial tests have gone well so far and Mr Kloiser-Jones ex­pects a fin­ished sys­tem to be cheaper to de­velop and run, and of­fer more flex­i­bil­ity than a tra­di­tional core bank­ing sys­tem.

“I think blockchain tech­nol­ogy is go­ing to be quite rev­o­lu­tion­ary,” he said. “As soon as it gets to a for­mat where it’s us­able by an av­er­age com­pany we’ll be adopt­ing it.”

Mr Kloiser-Jones is also hop­ing to use blockchain tech­nol­ogy to of­fer a Myan­mar peer-to-peer lend­ing ser­vice – match­ing bor­row­ers with lenders on­line. Ba­gan Cap­i­tal has not yet se­lected its tech part­ners for this ven­ture, he added.

Myan­mar is not known for be­ing at the fore­front of tech­no­log­i­cal de­vel­op­ment. But BC Fi­nance and In­fo­te­ria are likely the first to test blockchain tech­nol­ogy in the world of mi­cro­fi­nance, said Shigeto Miyamoto, a man­ager at KPMG Con­sult­ing, which is pro­vid­ing ad­vi­sory ser­vices for the test.

Mr Miyamoto has also met with sev­eral lo­cal com­mer­cial banks to ex­plain the ad­van­tages of blockchain tech­nol­ogy, and found an in­ter­ested au­di­ence, he told The Myan­mar Times.

The coun­try’s lack of tech­no­log­i­cal de­vel­op­ment is some­thing of a ben­e­fit when it comes to adopt­ing blockchain. Al­though the soft­ware may be safer and po­ten­tially cheaper than the core bank­ing sys­tems run by many fi­nan­cial in­sti­tu­tions world­wide, most lenders have sunk a great deal of time and money into their ex­ist­ing sys­tems and are reluctant to change.

Core bank­ing sys­tems in more de­vel­oped mar­kets like Ja­pan are also more com­pli­cated, built around highly com­plex ac­count­ing struc­tures and reg­u­la­tions, Mr Miyamoto said. In Myan­mar much of this ar­chi­tec­ture has yet to be put in place, which should make the adop­tion of blockchain tech­nol­ogy sim­pler.

Mi­cro­fi­nance has the added ad­van­tage that, un­like many banks, the busi­ness does not han­dle hun­dreds of trans­ac­tions ev­ery day. This means the fre­quency with which data is added to the blockchain is rel­a­tively low – a key point in a coun­try strug­gling with low in­ter­net speeds.

In­fo­te­ria en­coun­tered lit­tle dif­fi­culty in record­ing mi­cro­fi­nance trans­ac­tions in a blockchain, but hit mi­nor is­sues with in­ter­net ca­pa­bil­ity when it con­verted a back­log of older trans­ac­tions into a blockchain in bulk, an In­fo­te­ria engi­neer said.

‘As soon as it gets to a for­mat where it’s us­able by an av­er­age com­pany we’ll be adopt­ing it.’

Jeremy Kloiser-Jones Ba­gan Cap­i­tal

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