The insurance will cover people who deposit between 100,000 kyat (about US$ 125) and 500,000 kyat in their bank accounts, and will not cover people who deposit more than 500,000 kyat, said sources close to the banking business.

The insurance plan is intended to make banking more systematic and ensure lower-income depositors that they can trust depositing their money in banks.

Myanmar Insurance has already informed all banks about the new plan, according to a senior official at a bank that is a joint venture with the Burmese government.

The insurance plan went into effect on Saturday. If a bank offers the service to its customers, a one-year insurance premium is 0.25 kyat per 100 kyat. If a bank fails within the one-year period, Myanmar Insurance will compensate customers who are insured.

“Although the insurance is not a must-buy, if a bank wants to provide better service to its customers, it can offer the insurance,” said a senior bank official.

Observers said the goal of the insurance coverage is to provide a service for lower income and middle class depositors to reassure them about the safety of putting their money in banks. The insurance premium compares to similar insurance in regional countries.

Bank insurance is among a number of Burmese banking reforms. Last week, Mizzima reported that the Central Bank has given a green light for banks to begin offering installment loans under a “hire-purchase system” to private citizens in cooperation with commercial companies and banks.

An official from the Central Bank in Naypyitaw told Mizzima: “The central bank has informed all state-owned banks and private banks that they can now do hire-purchase loans if they wish to do so.” The advisory was sent to all state-owned and private banks on September 15.

The banks will be provided a guarantee for the loan repayment by either an employer of the buyer or the sales company.

“This system is needed for the country. We will use a secure-guarantee system,” said Ye Min Oo. He said a bank would not incur losses under this system.

Commodities that may be purchased include furniture, home electrical appliances, electronic products, computers and other items.

Finance and Revenue Minister Hla Tun told Parliament in late August that the government was consulting the Union Attorney General on amending the Burma Central Bank Law and Burma Financial Institutions Law in order to update them according to current needs.

According to the Encyclopedia of Nations, all 78 foreign insurance companies registered in Burma were nationalized in March 1963. All forms of insurance, including life, fire, marine, automobile, workers' compensation, personal accident, and burglary, are handled by the Myanmar Insurance Corp. Life insurance coverage is compulsory for government employees.