The Myanmar Minefield: Navigating Obstacles in the New Burma 2
temples in Bagan, Myanmar

It might be the land of opportunity but Myanmar’s opaquely structured companies – many with links to army generals still under US sanctions – make this an investment destination littered with potential landmines.

For this week’s Expert Q&A, Frontera’s Managing Editor Gavin Serkin interviews RONOC founder Michael Madden, an investor with deep experience in Mongolia, who is now taking on Myanmar’s banks – and looking beyond, to Iran.  

Screenshot Madden 

Gavin: The difficult thing about working or investing in Myanmar is the lack of transparency in a lot of companies. It’s very hard to know who’s actually behind the company, or what the ownership structure actually looks like. How do you deal with that?

Michael: The way that we dealt with it – and this is very unusual for RONOC because we like to identify businesses we can partner with – is we actually went out and just created our own platform. We did that because we couldn’t find the right investment opportunity – but we also avoid the issues you just referenced in terms of, ultimately, who you’re really doing business with. And in today’s world of transparency, you need to know.

What we have put together is quite a unique play. We are building a greenfield digital payments platform for the Myanmar market. I firmly believe that this could become like M-Pesa is in Kenya. I just need a license – the last hurdle.

Gavin: OK, so you mentioned M-Pesa – and also the decision pending on your license. What helped M-Pesa hugely was that you had a very constructive central banker at the time in Kenya and a regulator that was willing not to pander to the banks with all of their concerns about competition from M-Pesa. Do you have the feeling that you’ve got that kind of constructive regulator in Myanmar?

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Michael: Banks in any country, whether it be in the US or the UK, have a powerful voice and clearly they want to defend their patch – so, we do have that to a certain degree in Myanmar. But since 2013, we’ve had excellent engagement with the Deputy Governor of the central bank.

In terms of how we go forward – how we get our license – we probably will operate with another bank’s license. In fact, we may work with all of the banks to establish a digital payment platform for the country.

The unique thing about what we’re doing in Myanmar is the payment services we’re providing. Our go-to market is wholesalers and distribution companies. We’re going to provide a payment solution to receive money from their retail customers. Today, 80-90% of that is in cash – literally bales of cash.


Gavin: And those bales, they are in fact piles of cash that are taller than the clerks in the banks. But they speak to the fact that Myanmar is a very paper-based society. Plus there’s the challenge that mobile phone use is among the lowest in the world. You haven’t got the mobile usage that you have in, say, Kenya. Also, you’ve got more of a banking infrastructure than you have in Kenya – people are used to using their banks. So, how do you deal with these challenges?

Michael: If we waited until they had 90% penetration of mobile phones, that would be ironic for the sort of investing I do – small amounts of smart capital and a world-class team can create huge value; that’s what we’re doing. That penetration will grow over the next 4 to 5 years to 90%. They will need to use their mobile phone to live their daily lives – to trade, buy services, buy goods, communicate. They’ll be doing a lot more on their phone than we’ve ever seen in any other emerging economy.

The other thing they don’t have in Kenya is Myanmar’s high penetration of smart phones. And because they’re mostly Android, we’ve got a lot of flexibility in terms of what we can develop.

Gavin: How are you finding dealing with the new government? Aung San Suu Kyi has been criticized a lot in the last few weeks for not dealing with issues like the ethnic tensions in the border regions. At the same time, it’s a fine balancing act that she’s got to steer between the army and democracy. What’s your perspective from being on the ground?

Michael: They only took over power at the end of March, so give them time. She has made the right political moves with her appointments. She needs good guidance.

She’s moved quickly in many respects. She’s getting things in place. But there’s going to be a huge learning experience, it’s going to be a challenge.

The support of some of the foreign governments, particularly the US, Singapore and the UK, in terms of building the capacity that she needs in government to run that country in a different way, this will be very important.

Like any emerging economy, there’s going to be a lot of ups and downs. But overall, looking to medium to long-term, she will succeed.

Gavin: The other “M” in Asia that you’re in is Mongolia.

Mongolia Myanmar

Michael: We invested in what was a micro-finance business back in 2008 and were one of the shareholders that worked to transform it into a bank, at that stage with very few assets – it had about $78 million. This was about scaling a small institution into a fully-fledged commercial bank. Today, it’s got $1.2 billion in assets.

They’re great people to deal with, fantastic entrepreneurs. The one thing I’ve been very critical of in Mongolia – there is too much money in politics. So, in fact, you get elected to parliament to defend your business. That’s my read of the situation. And then, there’s retribution – retribution if you actually get voted into power. And it’s quite expensive to get elected in Mongolia. We need to see more doctors, lawyers, school teachers in politics in Mongolia.

Gavin: And there’s the election coming up…

Michael: And I’m fearful of the disruption it could cause. But I think Mongolia has learned a lesson. It’s intake on tax revenues are down because it can’t export as much as it was. It’s been humbled in terms of what’s happened – China’s slowdown and the commodity slowdown. Coal has disappeared completely. Even the price of coking coal, which Mongolia is famous for in terms of exports to China – that has slowed dramatically and collapsed in price.

Gavin:  So where’s next?

Michael: We want to look across wider Southeast Asia at Vietnam and the Philippines. We will do that through acquisition and taking what we’ve developed in Myanmar in terms of the technology, branding, distribution and partnerships.

A lot of companies we’re dealing with in Myanmar operate across the region. They’ve asked us, “Would you do this for us in Vietnam?”   Actually, Vietnam pops up a lot. We’re probably starting with the most difficult market with Myanmar. 

Gavin: And beyond South East Asia, is there anywhere else that is on your checklist?

Michael: Iran is a market that everyone definitely needs to understand more about. This is where sanctions have had a positive impact on that economy in a unique way because they’re not dependent upon oil. And yet, in terms of producing oil, they can do it at one of the lowest prices. They have a very diversified economy but they need a significant amount of foreign and direct investment.

And “hurray for Cuba!” – which will be more about tourism and real estate. In terms of economic development and value creation, Iran has much more to offer – Iran is definitely the place. 

Gavin: And, put a timescale on that, when do you think it might be possible to actually do something in Iran?

anti american mural in tehran iran with veiled women

Michael: You’re going to see more of the market opening up over the next 4-5 years. They have a big diaspora as well, so that diaspora will start investing first if or when, sanctions are removed to permit investment. In countries where there aren’t restrictions on investing in Iran, they’re there already. So, Iran is going to move at pace. And also, watch some of the other countries around Iran.

Gavin: Such as?

Michael: Look at places like Cyprus. Cyprus had a long history of trading with Russia. And, you know, some of these investments going into Iran, where will they come from? Will they come from the US directly? Unlikely. London directly? Unlikely. I think Cyprus as a small economy is going to play a big role in what goes on in Iran from a financial management standpoint and a legal standpoint, given its proximity to Iran.

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