More support is needed for progress of Small and Medium Enterprise (SME), as financing SMEs can help to boost Myanmar’s economy

1 พฤศจิกายน 2561

As some 99 percent of businesses in Myanmar are categorised as small- and medium-sized enterprises (SMEs), anything that can be done to help these businesses can only boost Myanmar’s economy.

Among the most immediate issues SMEs in Myanmar face is access to funding. According to the Myanmar Micro, Small and Medium Enterprise Survey 2017 distributed by the Ministry of Planning and Finance, businesses in Myanmar rely on self financing for nearly 80pc of starting capital while financial support from banks is just 8pc.

In addition, banks in Myanmar offer commercial loans with interest rates of up to 13 percent a year. Moreover, fixed assets are required as collateral for the loans. This makes gaining access to loans difficult or expensive for SMEs. However, the banks are at the moment unable to offer cheaper loans given that the local inflation rate, although much lower than before, is still not stable enough to support a dip in interest rates.

In the meantime, SMEs are looking elsewhere for financial support. In 2016, the Japan International Cooperation Agency (JICA) signed an agreement with Myanmar under which money would be lent to local banks which would then provide loans to SMEs in the so-called two-step loan process.

During the first three years of the project, JICA provided K60 billion (US$37.6 million) for loans and it will provide another K200 billion starting from fiscal 2018-19, Minister for State Counsellor Office U Kyaw Tint Swe said at the sitting of the Pyidaungsu Hluttaw on September 19.

The JICA loans are intended for companies in manufacturing, labour-intensive businesses, retail, wholesale, and services. 

The maximum that can be borrowed is K500 million, 80pc of which can be used for fixed assets and 20pc as working capital. Interest will be charged at 8.5pc a year for loan tenures between three and six years. In addition, credit guarantee insurance is also available for borrowers that do not have collateral. 

Loans amounting to more than K60 billion were provided to 292 SMEs until the end of 2017. SMEs in the manufacturing sector are given priority for JICA’s SME loans followed by the service industry. Most of the loans were offered to SMEs in Yangon and Mandalay, according to official data released by the Myanma Economic Bank (MEB).

Earlier this year, MEB began extending loans to business from a wider range of sectors such as production, trading, export, import substitution, recycling, energy and technology. Loans to the relevant businesses will be capped at K300 million with interest of 9pc a year for tenures of three to five years.

The authorities have also taken steps to move away from the restrictive collateral-based lending system to a cash-flow-based lending system, under which banks are able to lend to businesses based on their credit worthiness. 

Under Notification No. 7/2017 issued by the Central Bank of Myanmar last November 24, banks were instructed to give out more loans based on the cash flow system, depending on the borrower’s nature of business and historical cash flow patterns.  

Lack of info

However, SMEs are still finding it difficult to access those loans as they have problems providing information such as financial statements, growth plans and tax information that help lenders evaluate their credit worthiness. One of the consequences is large portions of the funds available end up in the hands of larger corporations, which are not as in need of loans as many startups or SMEs.

“We see that the loans aren’t received by real SMEs but ended up in the hands of large businesses,” said businessman U Min Htike from South Dagon Industrial Zone.

“The first SME loans were given only to the established companies and just a few startups received the loans. However in the second phase, startups will receive more consideration,” said MEB General Manager U Win Naing Oo, during a talkshow on “Financial Support for Agriculture and SMEs” broadcast by the Myanmar Athan radio station.

Daw Aye Aye Win, secretary of the SME Development Agency, said, “Most SMEs want to obtain loans but loan providers have criteria that must be met. Businesses that have problems getting loans have to become smarter. They need to have a good business plan to show lenders. After getting loans, they also need to implement their plans effectively.” 

One way is for more SMEs to open bank accounts. By doing so, the business leaves a trail of its spending trends that make it easier for banks to evaluate its credit worthiness and ability to repay loans.

The Myanmar Times understands that some banks are already training staff to examine the documents and statements of each SME that applies for a loan.

Meanwhile, the authorities are also in the midst of opening a credit bureau to gather information and look into borrowers’ debt histories and help banks decide whether they want to extend loans to applicants or not.

More can be done

“Business owners have to adhere to regulations and procedures for loans, but sometimes, the procedures contain unnecessary red tape. So, the process of granting loans itself has to be made more efficient,” said U Aye Win, chair of Myanmar Food Processors and Exporters Association.

Asked to comment about the JICA loans, U Ngwe Tun, founder of local SME Genius Coffee Production, said there are local SMEs that do not receive loans because they do not have the necessary documents to qualify for a loan. Others that have proper documentation do not apply because they feel the loans are not large enough.

“Sometimes a business needs to expand so that it will gain the ability to compete. Instead of the loan limit not exceeding K500milion, the amount should be made flexible depending on the size of the business. This would be more effective,” he added.

 

(The Myanmar Times: https://www.mmtimes.com/news/progress-sme-financing-more-needed.html )