The Central Bank of Myanmar (“CBM”) has issued a directive, Directive No. 8/2022 (“NBFI Directive 8”), allowing the establishment of 100% foreign owned non-bank financial institutions (“NBFI”). The directive also provides instructions on equity investment, which means offshore share contributions into the NBFI. NBFI Directive came into force on 13 July 2022.
Previously, in 2021 CBM had issued Notification 1/2021 (“NBFI Directive 1”) regarding NBFI and set outs regulations on the establishment, operations and business conduct of NBFI. Further information can be found in our previous article here. If any provisions of NBFI Directive 8 is inconsistent with NBFI Directive 1, NBFI Directive 8 will prevail.
Requirements for foreign owned NBFI
Foreign finance companies that are registered in Myanmar as well as foreign financial institutions can apply to CBM for registration certificate at to operate 100% foreign owned NBFI in Myanmar. The NBFI Directives sets out the specific requirements for a NBFI registration certificate which includes:
- corporate documents of the registered overseas corporation issued under the Myanmar Companies law 2017;
- minimum capital of USD 10 million along with the descriptions of the source of fund;
- types of services;
- feasibility study;
- business plan (budget forecast for three financial years); and
- details of shareholders, directors, and the organisational structure.
Requirements for equity investment
The NBFI Directive 8 sets out the specific requirements for approval which includes, draft agreement along with the descriptions of investment ratio, specification of proposal (e.g. cash, share, other entitlement), statement including terms and conditions along with the percentage of equity ownership, commercial rationale, investment period, timeline for business implementation, shareholding structure, budget forecast for three financial years if shareholding is more than 35%, tax clearance, descriptions of the source of fund, details of shareholders, directors, and organisational structure.
CBM shall either issue or refuse to issue registration certificate within six months from receiving the application. If CBM refuses to issue a registration certificate, a written reason for the refusal must be provided. The NBFI Directive 8 also sets out circumstances where the registration certification/approval will be revoked, including failure to commence activities within 12 months from the date of receipt of the registration certificate/approval, conducting activities other than NBFI business and using misleading information to apply for a registration certificate/approval. Furthermore, CBM may vary terms and conditions of the registration certificate/approval that has been issued.
Permissible and Prohibited Activities
Permissible and Prohibited Activities are the same that has been previously mentioned under NBFI Directive 1 which include to engage only in NBFI activity specified in the registration certificate issued by the CBM, such as finance company business and leasing business and CBM may permit expansion of activities later. Moreover NBFI shall not accept deposits in accordance with the Financial Institutional Law of Myanmar 2016 (“FIL 2016”). Further, Directive 1 had set out matters that requires either notifications to CBM or prior approval from CBM. Under Directive 8, prior approval of CBM is needed for all these matters, such as change in address of head office/branch, change in directors, transfer of shares, sale or disposal of shares to name a few.
Similar to NBFI Directive 1, the NBFI is required to submit periodic reports on its lending rates to CBM as well as to conduct their accounting and financial reporting in accordance with International Accounting Standard and International Financial Reporting Standards. A copy of the financial statements that has been audited by an external auditor must be submitted to the CBM within three months from the end of the financial year. CBM may request for additional documents or information if they deem necessary.
Failure to comply with NBFI Directive 8, administrative penalties will be imposed. In accordance with section 154 of the FIL 2016, there includes warnings, fines, orders including those restricting the operations of financial institutions, and suspension or permanent termination from duties in the financial institutions.
In short, under FIL 2016, although there is no express prohibition that a foreign company is not allowed to carry out NBFI business, in practice, only locally owned entities are issued registration certificate by CBM, We can assume that the issuance of NBFI Directive 1 may signal the gradual opening of the sector to foreign players. Accordingly, the issuance of NBFI Directive 8 may be new steps of the financial sector with foreign investors for NBFI operations in Myanmar.
If you have any questions or require any additional information, please contact Thuzar Tin or the ZICO Law Myanmar partner you usually deal with.
This alert is for general information only and is not a substitute for legal advice