Lending to SMEs needs a bigger boost

The government’s plan to double loans to small and medium enterprises (SMEs) is welcomed, but a banker is quick to say more is to be done if local SMEs are to get stronger in light of the Asean Economic Community and to play a crucial role in economic development.

George Soe Win, a senior advisor of Global Treasure Bank and consultant to JCL Group of Companies and General Myanmar Group of Companies, said in an interview that 120,000 SMEs nationwide need annual financial support of Ks 100 billion, or about US$100 million. This is in contrast to the government’s plan to lend Ks 20 billion this year.

Aside from more loans, Soe Win urged the government to ensure the growth of micro-businesses through access to financial and technical support, as well as through tax benefits

"I agree that the AEC will bring opportunities to our country. But I am sure it will bring many challenges to our SMEs. So there are many.

The Small and Medium Industries Development Bank was set up to support SMEs but as of March 31, its outstanding loans were just Ks 86 billion nationwide.

Due to the small credit facility, only 62 SMEs received loans from government entities last year.

In Myanmar, SMEs are companies employing no more than 100 workers and investing no more than Ks 5 million.

According to the Small and Medium Enterprises Development Centre, which is chaired by President Thein Sein, of Ks 20 billion, the 14 states and regions, and Nay Pyi Taw Union Territory, will receive Ks 1 billion each, and Ks 5 billion will be reserved for lending through the development bank.

The country’s reforms are also intended to encourage local businesses, especially SMEs which account for over 99 per cent of Myanmar's nearly 127,000 registered enterprises. SMEs are, in many countries, recognised as the backbone of economic growth, contributing significantly to the GDP through job creation and income generation while alleviating poverty.

A UN Escap report "A New Policy Framework for Myanmar's SME" said the majority of SMEs in Myanmar are not prepared to face the global transformation of business strategies and practices, meaning that they are unable to take advantage of the benefits and opportunities provided by regional integration. Access to funding tops the challenges that they are facing.

Efforts by international lenders to assist Myanmar SMEs are in the pipeline. The Japan International Cooperation Agency said it would provide $20 million for SME loans in Myanmar, while Vietnam’s Bank for Investment and Development said it would provide $30 million.

The United Nations Industrial Development Organisation, Vietnam-based Vina Capital Foundation’s Lotus Impact fund and German development agency GIZ have all announced support programs, while Singapore, the US, the UK, the EU (and several of its member countries) have all committed to assisting the development of Myanmar SMEs.

There is no data on how much local SMEs contribute to the gross domestic product (GDP). In the European Union, during 2001-2009, SMEs’ products accounted for 43.4 per cent of the bloc’s exports and employed 67.4 per cent of its workforce.

Myanmar SMEs in the manufacturing industry are considered weak. Myanmar reaped the highest export revenue from the shipments of oil and gas as well as timber. In the second quarter, it posted a trade deficit of over US$1.4 billion.

"If Myanmar is serious about helping SMEs, it must focus on implementing practical solutions to streamline the business environment," said Yangon-based development economist Jared Bissinger in an article published in the Nikkei Asian Review.

In his view, one of the biggest challenges for business in Myanmar is simply getting started. Corruption is still common in the country. Government services are generally poor, the legacy of decades of military misrule and corruption. Poor services prompt businesses to pay "tea money" to move things along, he said.