Loans grow to SMEs, but still not enough to ease concerns

Small entrepreneurs face a tough slog to receive bank loans. The World Bank’s 2014 Enterprise Survey listed access to finance as the largest single concern of local business, ahead of troubles accessing land, electricity and skilled workers.

Domestic loans usually come with short terms and have a high bar for collateral. U Zin Phyo Paing, CEO of Future Myanmar and a consultant to small business, said there is lots more room to provide the funds that are needed among entrepreneurs.

Visits to Mandalay and other towns across the country have laid bare that not enough loans are getting to where they are most needed, according to U Zin Phyo Paing.

“There are not enough loans from the government. I welcome loans from international organisations such as Japan International Cooperation Agency and the World Bank,” he said.

While increased volumes are important, groups must make sure the loans target those who need it rather than larger entrepreneurs, he said. Technical aids and collaboration with local entrepreneurs will also be important.

Speaking at an event last week, U Win Thaw, deputy director at the Central Bank, said that support for small enterprise is fundamental for the development of the state.

Small and medium enterprises represent some 99 percent of Myanmar’s total industry, though with at least half being unregistered, exact figures are difficult to find.

A report from German development organisation GIZ updated in February said that apart from Small and Medium Industrial Development Bank, other banks do conduct business with small and medium enterprises, but do not explicitly have small business loan products in place.

Banks point to prohibitive regulatory framework conditions as the main obstacle, including strict collateral and short repayment periods that typically do not exceed 12 months. Loan amounts are also generally only 50pc of the forced sale value of collateral, the report said.

“For start-up businesses, financing still remains a big challenge as there is no special loan program provided for new businesses, and credits are only extended to running businesses,” it said.

Local private banks, with the help of foreign institutions, are now looking to increasingly target small business. While the eight foreign banks currently set up in Myanmar are barred from lending directly to local business, they may lend to local banks, who can then in turn lend to local business.

The International Finance Corporation, the private-sector arm of the World Bank Group, has previously announced two large loans, to Yoma Bank and Myanmar Oriental Bank, aimed to support the development of the country’s small entrepreneurs.

The most recent one to Myanmar Oriental was signed last month for US$7 million, its second after an earlier one with Yoma for $5 million signed last year. The two loans are convertible to equity should the legal environment shift to allow this.

Daw Kyi Kyi Than, managing director at Myanmar Oriental, said the bank would like to start lending quickly, if possible.

“We will analyse our reviews of applications from small business, as well as check out the market,” she said. “We will do this as well as we can … We will check what type of enterprise can pay back the loan.”

Small and Medium Industrial Development Bank, a public bank under the Ministry of Industry, has lent out K22 billion out of a total kitty of K30 billion to small business, with the rest still to be extended, according to its managing director U San Maung.

After the earmarked money is spent, it will look to government for more funding, he said. It is also hoping for funds brought in with the assistance of the Japan International Cooperation Agency, at lower rates than loans from other state banks to Small and Medium Industrial Development Bank. U San Maung said Myanma Economic Bank lends to SMIDB at 9.5pc, though he hopes the Japanese lending is lower.

Some foreign banks have also lent to their local counterpart. CB Bank for instance is discussing a US$10 million loan with The Bank of Tokyo-Mitsubishi UFJ, one of eight foreign banks currently set up in the country.

Source: Myanmar Times

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