Small businesses still struggle

Kyaw Oo, owner of Lin Yaung Chi Oil Mill, a SME with five employees, said that it is very hard for most SMEs to get a loan.

"We usually see a lot of news about SMEs in the newspapers. For example, how many organisations have launched their initiatives to support SMEs, but we never hear much about how exactly they will support us. We haven’t seen the progress yet. All these proposals are up in the air," Kyaw Oo said.

Myat Noe Khin who has been producing slippers in Sanchaung Township since 2001 echoed this view.

"I really want to get a long-term loan, but we don’t have any collateral. According to the rules and regulations, if we don’t have collateral, we are not eligible to get a loan. Our revenues are small and I am not sure if my company can even survive," she said.

According to a senior official at the Small and Medium Enterprises Development Centre, SMEs applying for a loan must have be officially registered as a private enterprise and must attach a recommendation from the government of the state or region they are registered in.

She said that the loan will be approved or denied following an inspection of the SME by a team of inspectors.

"If they say the SMEs should get the loan it will be provided with the recommendation of the bank’s board of directors," she added. "The maximum loan for one enterprise is Ks 100 million, but even if a SME applies for this it may only get half or one-third based on an evaluation by the inspection team. The loans will carry 8.5 per cent interest per year," the official added, declining to comment on the possible number of SMEs likely to receive loans this year.

The Myanmar Business Survey 2014, conducted by the Organisation for Economic Cooperation and Development and the UN’s Economic and Social Commission for the Asia and the Pacific in May, confirmed that collateral is the biggest obstacle for access to external financing. More than half of the firms that participated in the survey said they need more financing and roughly one-third had external debts. On average, the respondents got more than 80 per cent of financial resources from informal financing, such as personal savings and loans. About 10 per cent of financial needs are supported by internal financing, such as retained earnings. The share of institutional lending was miniscule, just 4 per cent – from both commercial and state development banks, the survey found.

To boost small businesses’ access to funding, state-owned Myanmar Insurance Enterprise (MIE) has implemented a credit-guarantee scheme in an effort to support SMEs. German development agency GIZ and Japan’s Sumitomo Mitsui Banking Corporation provided technical assistance for its implementation.

The credit guarantee sees MIE repaying 60 per cent of a loan if the SME fails to do so. MIE managing director Aye Min Thein said a pilot project for the scheme had been running in Yangon for about one year, but interest from SMEs was low.　"I think it is because they don’t know how useful [credit guarantees] are for expanding their business. If the scheme is successful in Yangon, we will also introduce it to Mandalay and other regions," he said.　

George Soe Win, a senior advisor of Global Treasure Bank and consultant to JCL Group of Companies and General Myanmar Group of Companies, praised the move.

"A credit guarantee scheme is mainly intended for small businesses that do not have collateral to get a loan. For example, if small businesses don’t have any collateral, they can use a credit guarantee scheme to get the loan," he explained.