AYA joins pay network
AYA Bank has become the first lender to offer bank cards with a stamp from global payment network provider JCB, which can be used across 190 countries.
SIX commercial banks have signed up to a two-step loan scheme funded by the Japanese government’s development assistance arm, which will provide subsidised loans, guaranteed by state-owned Myanma Insurance, to small and medium-sized companies.
The Japan International Cooperation Agency will issue a K30 billion loan at 0.01 percent interest to state-owned lender Myanma Economic Bank, which will on-lend the funds to six commercial banks at 4pc interest.
From September, the six banks – AYA Bank, CB Bank, Myanmar Citizens Bank (MCB), Myanmar Oriental Bank, Kanbawza Bank, and Small and Medium Industrial Development Bank (SMIDB) – will begin taking applications for loans from SMEs, provided the companies meet strict criteria.
In disclosure documents published on the Yangon Stock Exchange last week, MCB said that it applied to participate in the scheme in November last and was selected in May.
JICA used specific criteria including corporate governance, asset size, number of branches and SME focus in selecting which banks would join the project, MCB said.
This project is an expansion of an earlier scheme, said JICA consultant Jin Yoshida. In February the development agency issued a K4.8 billion loan to SMIDB under similar terms, and in future it will consider granting another loan of K13 billion, he said.
To be eligible for a loan from one of the six banks, business owners must make sure their companies meet standards set out by the SME Development Department under the Ministry of Industry, before registering with that department.
More than 90pc of businesses in Myanmar are classified as SMEs, but only 25pc of these businesses are registered with the ministry, said department head Daw Aye Aye Win. “It is not easy to get small companies to register, but we want to change this by demonstrating that registration will bring benefits and opportunities,” she said.
Once a company has registered, it can apply – with or without collateral – to one of the six commercial banks for a five-year loan of between K15 million and K500 million.
Companies applying without collateral will be eligible for an 11pc annual interest rate, while those with collateral will be expected to pay 8.5pc, said Daw Yi Yi Khaing. Both rates are lower than the standard commercial bank rate of 13pc.
MCB said that it will on-lend at 8.5pc, adding that this will provide a 4.5pc margin – the difference between the interest rate the bank pays on the MEB loan and the rate at which it will lend – without MCB having to use its own deposits.
This will help the bank maintain its loan-to-deposit ratio and liquidity ratio in line with Central Bank requirements, it added.
Priority will be given to consumerrelated companies in sectors such as retail and services, said Daw Yi Yi Khaing.
Loans will not be given to farmers, real-estate businesses, finance and insurance firms, precious metals dealers, bars, pubs, amusement and entertainment companies except tourism, weapons companies or any other sector harmful to social stability, according to a JICA presentation.
Once a bank has received an application, it will be forwarded to state-owned Myanma Insurance, which will decide whether to insure the loan, U Aye Min Thein, head of Myanma Insurance, told The Myanmar Times.
“We have to inspect the companies systematically against strict criteria because there are fraudulent businesspeople everywhere,” he said.
If the company passes the assessment, Myanma Insurance will send a Credit Guarantee Insurance certificate to the bank, which will make a final decision on whether or not to issue the loan.
Banks will only be able to issue loans if they are backed by Myanma Insurance, because if the SME defaults, the insurance company will repay the principle.
In return for the guarantee, Myanmar Insurance will charge commercial banks 1pc to 2pc of the value of each loan in the first year if the company has collateral, and 2pc to 3pc if it does not. The annual fee will fall each year as the loan nears repayment.
This complex system is designed to get around a strict rule barring commercial lenders from issuing loans without collateral – a regulation which has stopped credit from reaching those who need it most, because many small companies do not have valuable assets such as land or gold.
Under current regulations, private financial institutions can accept Credit Guarantee Insurance in place of collateral.
U Ko Lay, chair of the management committee at South Dagon industrial zone, said the scheme’s success will depend on the integrity of all involved. “We want this plan to be successful, but the banks really need to consider which companies should receive the money,” he said.
“If they just give loans to companies they have a good relationship with, it will not work. On the other side, the insurance company must be careful and businesspeople must be honest when applying for loans.”
‘If they just give loans to companies they have a good relationship with, it will not work.’
U Ko Lay South Dagon industrial zone
A worker cleans the area around two cash machines.