As Burma’s people go to the polls this month in an election which is unlikely to change decades of military rule, Becky Palmstrom looks at how the urban poor survive in a country without working banks.
Yangon, Burma: A small boy with enormous eyes pushes a beat-up bike through the unpaved streets of Hlaing Tharyar, a township outside of Rangoon, Burma. In his hand, he clasps the equivalent of just over $1.70 in grubby local kyat notes. His name is Chit Thaw and he just turned eleven. This morning he is headed to the local pawnshop.
For Chit Thaw, borrowing money is a daily chore. His first loan takes place before breakfast, when he borrows 5000 kyat (around $5) from a neighbour. It must be paid back with ten per cent interest by the end of the day – which works out to a staggering annual percentage rate of 3650. Without a regulated system for borrowing money, the vast majority of Burmese people have no access to formal credit at all. Informal moneylenders and pawnshops are at the heart of half the population’s lives.
The money in Chit Thaw’s sweaty hand this morning is from the $5 loan of earlier that day. Every morning he takes the borrowed money and rides his family’s bike, standing upright to reach the pedals, across a bridge to a nearby market to buy fish paste. Fish paste, one of the staples of Burmese cooking, is a fermented, pungent mush that accompanies everything from breakfast noodles to soup.
It takes Chit Thaw over two hours to fetch the fish paste. In the cool time before sunrise he rides, past wood and tin shacks glowing with candlelight or the quiet of households still asleep. On the journey back, he passes empty fields covered with hand-washed plastic bags flapping in the wind, like injured birds stranded in the sun. In Hlaing Tharyar, plastic bags, just like everything else, have a price and these will be sold to brokers for recycling.
Chit Thaw takes the fish paste to his mother, who sits all day at her spot on the dusty ground of the market near their home. By the end of the day, they hope to have made back the 5000 kyat plus interest. Even if they temporarily escape from the daily grind of debt, all it takes is one visit to the doctor, a particularly strong storm damaging their flimsy roof, a funeral or a wedding and they are once more pushed into the hands of the loan sharks and pawnshops.
‘Every day we borrow, unless we have a good sale of fish paste on a Sunday,’ Chit Thaw explains. ‘We make the money a day at a time. Sometimes, we don’t have enough for rice, but we pay back the money.’ On those days when there is no money for food, Chit Thaw, his mother and his two sisters drink a glass of water to fill their bellies before they go to bed.
Chit Thaw pushes his bike hard to keep the stubborn wheels moving, eventually reaching a smart green building. It is cleaner and sturdier than any of the other buildings on the block. It was, after all, the pawnshop. Back from the wholesale market, it is into this building that Chit Thaw is headed.
Unlike downtown Rangoon, the British didn’t build their grand four-story terraces and colonial buildings in Hlaing Tharyar. It is a sprawling mass of tin, tarpaulin and wood, linked to the garment, battery and soap factories of Rangoon by ferries that pick their way across the grey river to collect the young women workers every morning and night. Open sewage, erratic electricity and dirty water mark the routines of daily life. What it lacks in crumbling charm it makes up for in the industriousness of its inhabitants.
The cottage industries here flourish despite, rather than thanks to the country’s military junta, which took power in 1962 and which with stage-managed elections this month will likely continue to rule the roost. The junta has mismanaged the economy for decades. It failed to put adequate controls on the banking system, which meant, that in 2002-2003, almost every bank was implicated in international money laundering. The result was almost every bank was closed.
Financial institutions fundamentally rely on trust in the government, something that few people have in a country where the government once made an overnight decision to devalue certain bank notes because of an astrologer’s predictions that those denominations were unlucky.
The other reason for the lack of functioning banks is government restrictions on interest rates, says Sean Turnell of Burma Economic Watch, which monitors the economic situation in Burma from Sidney, Australia. Although a few private banks opened this September, they are owned by businessmen with strong ties to the military elite and Turnell sees them more as ‘cash-boxes’ for these businesses rather than working banks. The government sets the interest rates at 12 and 17 per cent per annum, for deposits and loans respectively. ‘These rates are below the inflation rate – making both depositing and lending a losing proposition in real terms, and thus robbing the financial sector of any real financial intermediation role,’ says Turnell.These fixed interest rates minimize the interest the government has to pay against its own debts, he adds.
There are repercussions for Chit Thaw, too. To supplement his family’s daily loans, last month Chit Thaw borrowed $1.50 from the pawnshop. It was a tough month for his family; school fees were due. Tough months are frequent for families like his.
The government-licensed pawnshop’s interest rate of 15 percent is the same if you are borrowing just for the day or for the month, making the daily interest rate higher than the private lender Chit Thaw visits each morning. If, after three months, Chit Thaw cannot buy back the pawned item, it becomes the property of the pawnshop owner, who sells it back to the community at a bargain price.
The woman behind the counter is busy with a steady stream of customers. She barely looks at Chit Thaw. Droplets of sweat settle on her face as she searches out his account in her notebook. He hands over a small folded piece of paper.
‘1500 kyat?’ she says, checking the number. ‘And then interest.’
‘1,725 kyat,’ Chit Thaw says, counting out his money.
‘There we go,’ she says, wiping her face with her sleeve, as she hands over a neatly folded traditional Burmese sarong, known as a longyi. It once belonged to Chit Thaw’s father, who died of tuberculosis when Chit Thaw was two-years old.
‘I miss him,’ Chit Thaw says, ‘But all my memories of him are vague. Now I have to look out for my mother.’
Nobody wears the longyi; it is a memento of a father, but it is also collateral for the loans the family needs. Pawnshops evaluate the value of clothes based on how worn they look, so, it is better not to wear clothes you pawn. Some people in this area share pots and plates with their neighbours as their own sit in the pawnshops.
Chit Thaw’s transaction, a loan of $1.50 is as close as most people in Burma ever get to a formal system of borrowing money.
‘I don’t ask people their stories when they come in for money,’ says one pawnshop employee, whose shop sits along the single rail track that circles the city. ‘It makes people uncomfortable or embarrassed,’ he says with calm pragmatism. Behind him a few sewing machines hang from hooks along the walls, like carcasses strung up at an abattoir. Piles of unclaimed items are wrapped in newspaper and arranged in precarious piles. The old clothes and cooking utensils lying in the pawnshop are both desperate and mundane moments condensed into solid form: the hospital bill, the journey to visit a dying relative, the school fees, the love affair that ended badly. A man enters the store clasping a sewing machine to his chest and unable to hide the drunken stagger in his walk.
‘My sister had a fight with her husband.’ he says. ‘They were fighting all night – she needs a ticket to leave town.’ The pawnshop manager redoubles the knot of his blue-checkered longyi and motions the man to put his sewing machine down. The manager places his hand across it, like he’s stroking an animal. Sewing machines in Burma look like they are from a 19th century Victorian novel; electric sewing machines, just like electric irons, have no place in a country where blackouts are so common.
The manager pauses to weigh up the desperate stance of the man in front of him and the quality of the machine.
‘15,000 kyat,’ he says, the equivalent of $15. As the man staggers out, holding his money, the manager turns to me. He admits business has been good in recent years.
In 2008, cyclone Nargis struck Burma, leaving 138,000 dead and leaving a further 2.4 million severely affected. Those who still had collateral to pawn went in droves, eager to borrow money to repair their homes and tide them over. As the global financial crisis has made things worse, in Burma, pawnshops are about the only industry that is thriving.
This is as close as most of the 59 million citizens of Burma get to a financial institution. Sean Turnell sees such institutions as the ‘canary in the coal mine’. ‘They are the first signal of a political economy that is dysfunctional,’ he says. ‘They trade in products that are simply based on trust, backed by the law and convention. The principal assets of [a financial institution] of course are the loans that it makes, but these are simply “promises to (re)pay” when all is said and done. If there is any doubt that this will take place, perhaps because of monetary and/or political uncertainty, these are worth nothing at all.’
As Chit Thaw negotiates his bike and his father’s clothes out of the pawnshop, he raises an arm to cover a yawn. He was up at 4.30 this morning.
By the time night falls the people will swarm to the child-sized tables of the teashops, to drink Chinese tea and sugary coffee mix and watch the generator-powered TVs. It is at this point that Chit Thaw’s neighbor will call back the morning loan, with ten per cent interest. Chit Thaw hopes his mother will have sold enough fish paste to pay back the interest and buy rice for dinner. If not, they will drink a glass of water and go to bed, and tomorrow once again Chit Thaw will take his father’s clothes to the pawnshop.
By Becky Palmstrom
Published in the New Internationalist, November 2010.