Despite President’s pledge, credit still inaccessible for SMEs

Myanmar will launch its first credit bureau within the next month, President U Win Myint said during his Myanmar New Year speech last week. But industry insiders warn that the move would not bring immediate benefits to the country’s small and medium enterprises (SMEs).

According to the President, the inaugural credit bureau should commence in the middle of 2018 and upon its emergence help a larger number of financially sound SMEs gain access to financial assistance.

Preparations to set up a credit bureau by the Myanmar Banking Association and a Singapore credit agency have been underway since 2016.

When ready, the bureau will be responsible for collecting credit information on local SMEs which can be utilised by lenders when deciding whether to grant a loan or not.

A credit bureau will also help non-banking institutions extend loans to businesses. As such, by cooperating with the agency, SMEs may also enjoy financial assistance from lenders other than banks.

Time needed

While the credit bureau will be a big help to lenders, it will take a while yet before most SMEs reap the benefits.

This is because local SMEs typically do not practice good book-keeping.

Dr Maung Maung Thein, who is an economic expert and former deputy minister at the Ministry of Planning and Finance, said that the main weaknesses for local SMEs are weak accounting practices, lack of transparency and business plans as well as incorrect disclosure of assets.

“When banks extend loans, they are doing so using depositors’ money. So, it has a huge responsibility to ensure the money it loans out is returned with interest,” he said.

As such, the lender will take into account factors such as business prospects and inspect the borrower’s financial statements to gauge its financial health before granting any loans. If the books are not in order, there will be no loan, Dr Maung Maung Thein said.

“In Myanmar, these processes are very weak and business owners should take efforts to improve their books and business plans if they want to take loans,” he added.

In addition, it is also common for local SMEs to fudge their numbers in order to qualify for loans, said Daw Khin Thida Maw, manager of International Finance Corporation (IFC) in Myanmar.

“When business owners make fraudulent attempts to change their accounts or use fake numbers just to qualify for loans, the lenders will find out and that business will be blacklisted and no longer be able to receive loans in the future,” she said.

But if SMEs start getting their books in order and cooperate with the credit bureau now, it will stand them in good stead to eventually qualify for a loan next time, she added.

In the meantime, businesses which have repaid previous loans will likely be the first few to qualify for fresh loans.

“After a credit bureau is established, it will be easier for companies which have already taken previous loans to get new loans as the banks would have information on their credit history. But it will take some time for data to be collected on companies which have not taken out any loans,” said Daw Khin Thida Maw.

IFC is also cooperating with the government, the Central Bank of Myanmar and local banks in developing financial sector in Myanmar.

Source : Myanmar Times

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