New insurance scheme to provide aid in obtaining loans

Co-operative Bank (CB) is preparing to launch a new Credit Guarantee Insurance (CGI) system so that it can extend wider financial assistance to the country’s small and medium enterprises (SMEs).

CGI covers businesses against non-payment of debts owed to them by business customers for goods or services provided on credit terms.

As part of that launch, CB Bank opened an SME centre at its branch in Thiri Mon,Mayangone, Yangon last week.

“The Central Bank of Myanmar only defines one type of loan under which collaterals are required for businesses to qualify. With CGI, many more SMEs will be able to qualify for loans. We will open SME centers across the nation,” Daw Naw Al Phaw, Managing Director of CB Bank, said.

The SME centers will assist SMEs in getting loans. Currently, CB Bank offers CB Bank loans, SME-CGI loans, SME-JICA two-step loans, SME term loans and CB-KfW loans under various interest rates depending on the loan type.

CB Bank has so far extended over K300 billion to more than 1,300 businessman from 2013 to September 2017.

“As there are many types of CGI loans, it greatly supports the businessmen. Now, preparations are being made to draft a CGI law to develop this sector further. After enacting a law, a Credit Guarantee Corporation can be formed,” General Manager of Myanmar Insurance (MI) U Khin Maung Win told the Myanmar Times.

MI first launched CGI in July 2017 but there has not been much interest so far, U Khin Maung Win said.

CGI services are now being provided to over 260 customers at CB Bank, Kanbawza Bank and SMIDB Bank. Of the three, CB Bank has the highest number of CGI-covered clients, totalling 254.

CGI is available to businesses or individuals who want to apply for bank loans with or without collateral. For loans without collateral, the insurance premiums are 3 percent of loan amount in the first year, 2.5pc in the second year and 2pc during the third year and beyond.

For loans with collateral, the premiums are 2 pc of loan amount for the first year, 1.5pc in the second year and 1pc from the third year on.

If one fails to pay back the loan, MI will compensate 60pc of the loans to the bank, while the bank must accept 40pc of the loan as bad debt.

Such loans can be applied for in CB Bank, KBZ Bank, SMIDB Bank, Myanmar Shwe Saung Bank and Myanmar Citizens Bank as well as from Japan International Cooperation Agency (JICA).

Those who want to apply for such loans can join the SME Development Center as members and obtain recommendation letters for the applications, Daw Yi Yi Khaing from that department said.

The highest interest rate for SME in Myanmar is 8.5pc and the highest rate for normal loans 13pc according to Central Bank of Myanmar.

Source: Myanmar Times