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Myanmar ‘SMEs in desperate need of new financing options’

Jul 03. 2016
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THE MYANMAR government has been urged to find new approaches to boost financing for small and medium-sized enterprises (SMEs) as successful SMEs could help lower poverty in the country, an economist said.
At the Myanmar Banking and Finance Conference 2016 last week, Prof Aung Tun Thet, an economist and adviser to Myanmar’s Federation of Chamber of Commerce and Industry, noted that SMEs now rely on bank credit for business expansion amid fierce competition from imported products. However, they are facing credit constraints and this should be tackled.
The official statistics show that there are 126,237 registered SMEs in Myanmar, accounting for 99.4 per cent of overall companies across the country. 
“Most of our SMEs are under pressure from cheaper imports and foreign competition. They are constrained by non-competitive exchange rates, cumbersome bureaucratic procedures, the poor state of infrastructure, lack of effective institutional structure, and limited access to finance,” he said.
He proposed a wide range of financing alternatives. Specific assets such as accounts receivables, inventory, machinery, equipment and real estate should be allowed to back bank loans. 
Meanwhile, the bond market should be developed to allow SMEs to raise funds. SMEs should also be introduced to hybrid instruments. 
Financing issues aside, he said local small businesses were weak as they have limited awareness and understanding of alternative instruments. In the medium and long term, enabling the regulatory framework and supportive financial infrastructure would be needed for them to maintain sustainability. 
The government should consider more tax incentives and training. 
He said SMEs played a key role in Myanmar’s economic development and largely contributes to employment creation, investment, growth, and innovation, as they can generate significant domestic and export earnings. Small businesses should be utilised as a key instrument in poverty reduction. 
Janet Hyde, investment specialist with Asian Development Bank’s trade finance programme (TFP), said trade finance would be a key pillar to boost Myanmar’s economic growth. 
“Myanmar’s economy is still largely cash-based, which means importers are paid for their parts on remittance basis, sometimes in advance of receiving their shipment. This practice is very straightforward and expensive. We do not think it is really in the long-term business interest of companies in the country. Small companies, in particular, are exposed to unfair business terms,” she said.
ADB aims to partner with local banks and trading firms to support trade finance in Myanmar. Last October, it signed an agreement with CB Bank to provide up to US$12 million per annum to support the trade finance operations of the bank. This marked the first TFP facility to assist the trade finance capacity of a local bank in Myanmar. This move would allow banks in the US, Europe, Singapore, Thailand, China and elsewhere to work with Myanmar banks to support more trade with Myanmar companies. 
“Our facilities will aim to create traditional trade finance capacity for local banks effectively by creating their existing lines and new banking relationship… I am thinking of good infrastructure, telecommunication equipment and power plants that fill ongoing infrastructure building in the country. We will also support SMEs so that even small companies can have a share of Myanmar’s growth prospects. This will have a direct impact on impending growth and job creation and smaller enterprises… We will focus on more trade finance banks in Myanmar and our target in SMEs is part of our strategy,” she said. 

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