IFC: Why Corporate Governance Is Crucial to Myanmar’s Growing Private Sector

Emerging from decades of isolation, Myanmar is undergoing major reforms to become a more market-driven economy. Many are hoping for a meteoric rise of the country’s economy over the long term. The numbers certainly point to such potential, as Myanmar’s gross domestic product per person stands at about $1,200 compared with neighbouring Thailand’s $5,778 and an overall average of about $3,800 (World Bank) amongst the members of the Association of Southeast Asian Nations (ASEAN).

Developing a strong private sector is critical to unlocking Myanmar’s economic potential and attracting much-needed foreign direct investment, which stands at less than one-third of Thailand’s by comparison. The country’s capital market is at a nascent stage of development and its main listing board, the Yangon Stock Exchange, was only established last year; securities trading began on March 25 with a single firm debuting on the exchange. Raising market awareness on the importance of good corporate governance is therefore of particular importance.

Numerous studies show that investors have greater confidence in companies with good governance and in markets that are backed by sound legal and regulatory regimes. For example, one regional study showed that both firm-level governance improvements and country-level investor protections in Asia could reduce the cost of capital (University of Hong Kong, 2003). Thus, Myanmar companies need to raise their corporate governance levels to become more competitive and attractive to investors.

In February, the International Finance Corporation (IFC) launched its Corporate Governance Programme in Myanmar at a forum that attracted more than 400 participants including senior government officials, regulators, and business executives. Since then, demand for corporate governance improvement has grown substantially.

IFC has been partnering with the Republic of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI), a national-level nongovernmental organisation representing the interests of Myanmar’s private sector, to provide corporate governance training to Myanmar companies. In addition, IFC is exploring cooperation opportunities with other partners including the Securities and Exchange Commission of Myanmar to further promote corporate governance.

Improving Governance

IFC’s experience in Myanmar has revealed that many local companies struggle with underdeveloped boards of directors, ill-defined director duties, poor transparency, rudimentary control frameworks, and inadequate shareholder practices. This is partly due to the absence of a robust legal and regulatory framework that includes basic governance provisions and investor protections. Poor governance not only undermines a company’s overall performance and market competitiveness, but also fuels trepidation amongst investors, creditors, business partners, and other stakeholders.

That said, there has been much progress on strengthening Myanmar’s regulatory framework and governance-related provisions. For example, the new Banks and Financial Institutions Law, which introduces additional governance measures to improve board functioning and risk governance in banks, just took effect on January 25. Efforts are also underway to update the antiquated 1914 Companies Act, which will impose additional requirements on director duties and shareholder rights, amongst other things.

Companies, however, need not wait for new regulations and can start strengthening their governance practices right away. As an investor in Myanmar, IFC believes companies should focus on improving levels of transparency, particularly the disclosure of financial, non-financial, and beneficial ownership information. They need to enhance the functioning of boards, such as by increasing their level of independence, strengthening their stewardship and oversight roles, reinforcing director duties, and adopting more effective procedures.

To improve their risk management, internal control, and audit functions, formal structures should be put in place with appropriate levels of independence. Companies need to manage conflicts of interest and related-party transactions better through fair and transparent processes. In addition, shareholder rights and practices should be strengthened by including more formal shareholder meeting procedures and stronger protections for minority shareholders.

Corporate Governance Forum: Organized by IFC and the UMFCCI in Yangon, Myanmar in February. Chris Razook is pictured second from the left.
Corporate Governance Forum: Organized by IFC and the UMFCCI in Yangon, Myanmar in February. Chris Razook is pictured second from the left.

Banking Sector Critical

Good governance is perhaps most critical in Myanmar’s banking sector. Banks possess a significant degree of public trust since they manage a large portion of the country’s wealth in the form of savings and facilitate a large percentage of the financing to Myanmar companies. At the same time, banks have unique governance challenges since they are essentially in the business of risk, necessitating sound and sophisticated risk management and control frameworks.

The collapse of a single bank will not only affect that particular institution, but can have immediate effect across the entire Myanmar banking sector. A particular challenge for Myanmar banks is to implement strong risk governance practices to safeguard against under-reported nonperforming loans, manage concentrated exposures, and ensure sound credit and collateral procedures are being used.

Similarly, while Myanmar’s new stock market is a landmark development that will tap new sources of capital to help fuel the expansion of the country’s private sector, there is a similar public trust element that needs to be safeguarded with sound governance and transparency. Based on IFC and the World Bank Group’s experience in working with capital market authorities in emerging markets globally, creating efficient yet prudent governance rules for listed companies is a continuous process. In Asia alone, there are ongoing or planned efforts to update listed company rules in China, Indonesia, the Philippines, and Vietnam, amongst others. Myanmar should glean much learning from these efforts.

Governance will also play a crucial role in the corporatisation of Myanmar’s state-owned entities. State ownership remains high in the country, particularly in the infrastructure sector; without commercially oriented reforms including corporate governance, this can hinder overall market efficiency and drag economic growth.


At the other end of the spectrum, small and medium-sized enterprises (SMEs) are the backbone of the Myanmar economy and comprise more than 95% of all firms. Continued market reforms in Myanmar will bring opportunities to many SMEs, including expansion possibilities requiring capital to fuel their growth. Thus, efforts should be made to help SMEs adopt basic standards of governance, which will facilitate their access to finance and improve their chances of survival in the long run.

Fortunately, Myanmar can learn a lot from its ASEAN neighbours who have made significant progress on harmonising corporate governance practices in preparation for the launch of the ASEAN Economic Community last year. One notable example is the ASEAN Corporate Governance Scorecard Initiative – first introduced with support from the Asian Development Bank and now also backed by IFC – which provides benchmarks for individual companies to rate and improve specific governance practices. In addition, Myanmar can leverage a strong network of governance practitioners, including representatives from ASEAN capital market authorities and institutes of directors, to its advantage as the country continues to reform.

With such big challenges ahead, IFC and the World Bank Group, with support from the UK and Australian governments, are committed to working with various market actors in Myanmar to continue strengthening corporate governance practices and help it build a vibrant and sustainable private sector. i

About the Author

Chris Razook is IFC’s corporate governance lead for the East Asia Pacific Region. Mr Razook has more than fifteen years of experience in the area of corporate governance and supports IFC investments by working with companies to strengthen their governance frameworks. He has also supported central banks, capital market authorities, and other regulatory bodies in drafting corporate governance laws, codes, and listing rules to help develop stronger investment climates. Mr Razook has an undergraduate degree in Engineering, an MBA in International Finance, and an LLM in Corporate Law.