ADB report on SMEs in Myanmar

Policy banks offering subsidised loans to small and medium-sized businesses still have significant unused capacity for financing, said an Asian Development Bank (ADB) report

Among private banks, the Small and Medium Industrial Development Bank (SMIDB) plays a leading role in financing small businesses. It is supported by the Ministry of Industry, and offers interest subsidised rates of 8.5 percent per year, much lower than the commercial rate of 12pc to 13pc.

As of the end of March 2013, total outstanding loans and overdrafts with the bank were worth K72.26 million, a 16.9pc increase from the same period the year before, with a loan-to-deposit ration of 50.1pc.

However, while loans have been increasing due to strong demand from small and medium enterprises (SMEs), the bank’s loan-to-deposit ratio has fallen by more than 25pc, from 75.8pc in 2008, according to an ADB report published on September 1. “So there is still significant capacity for financing SMEs,” it said.

By sector, manufacturing businesses received 37.3pc of total loans as of the end of March 2013, followed by wholesale and retail trade with 30.1pc and services with 7.9pc. These are the most recent figures available.

Other non-bank financing options are also open to SMEs, particularly in rural areas. As of the end of 2014, 10 finance companies are active in Myanmar, six of which were registered in 2014 under the Banking and Financial Institutions Law, according to the ADB.

Among non-banking financial institutions, Oriental Leasing, a subsidiary of Myanmar Oriental Bank provides hire-purchase style lease services. By end-March 2013, the value of its leases reached K16.7 million, a 260.5pc increase from March 2012.

“However, the growth of leased amounts is volatile by year,” said the ADB report. By business sector, transportation dominates the leasing industry, accounting for 80.6pc of the total by March 2013, followed by agriculture at 6.6pc, trade at 3.9pc, services at 2.9pc and manufacturing at 1.9pc, said the report.

Microfinance institutions (MFIs) are separately licensed under the 2011 Microfinance Law. As of the end of March 2014 there were 189 such institutions with total outstanding loans worth K80.7 million, a 173.1pc increase from March 2013.

The report notes that credit cooperatives also play a crucial role in financing small rural businesses. In Myanmar, cooperative societies are organised according to a four tier system, with the Central Cooperative Society at the top and more than 460,000 members in total, as of March last year.

These groups provide short-term, non-collateralised small loans for individuals. Conditions include a 5-10 month repayment period and a 1.5pc monthly lending rate, against a 1pc monthly savings rate. The size of the loan depends on the level of savings and personal guarantees, according to the ADB.

Bazaar cooperative societies provide loans of one to three years for small shop owners in bazaars, taking real estate security as collateral for loans, it said. Microcredit cooperatives, on the other hand, provide non-collateralised small loans of around $50 to $500 to ward residents and villagers, with a maximum lending rate of 2pc per month.

A new SME Development Law, including a revised SME definition, was enacted in April 2015. Since then, statistics on SMEs are in the process of being compiled but as of yet there is no comprehensive data.

However, as of March, small and medium industries numbered 39,062, according to the ADB.

Source: Myanmar Times

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