Busi­nesses urge over­haul of loan pol­icy

The Myanmar Times - - Business - HTIN LYNN AUNG htin­lyn­naung@mm­times.com

BANK­ING ex­perts and se­nior of­fi­cers from the In­ter­na­tional Coun­cil of Small Busi­ness (ICSB) said Myan­mar must change its loan pol­icy to make it eas­ier for busi­nesses to ac­cess debt for growth.

In Myan­mar, loans is­sued to busi­nesses are ap­proved based on col­lat­eral and are mostly ex­tended over a short term. Com­pared to other coun­tries, the Myan­mar fi­nance sys­tem is weak and changes should be made to im­prove it, they said dur­ing an ICSB press con­fer­ence on Oc­to­ber 5 in con­junc­tion with the 5th ASEAN SME Con­fer­ence in Nay Pyi Taw on Oc­to­ber14-15.

As the con­fer­ence is be­ing held with the aim of help­ing small and medium en­ter­prises (SMEs) de­velop, the spot­light fell on the dif­fi­cul­ties most face in ob­tain­ing loans to do busi­ness.

“All the banks is­sue loans based on col­lat­eral, which is usu­ally prop­erty or land. And they are all one-year-term loans. So, al­though they give loans, it is not ef­fec­tive for most busi­nesses. These is­sues are sur­fac­ing as a re­sult of the strict pol­icy of our coun­try. If there is a good pol­icy for is­su­ing loans, busi­nesses will do bet­ter,” Dr Hla Nyunt, deputy manag­ing direc­tor of Global Trea­sure Bank, told The Myan­mar Times at the con­fer­ence.

One of the poli­cies hold­ing back the is­su­ing of loans is the high in­ter­est rate of 13 per­cent, on top of pro­vid­ing col­lat­eral. Those who can put up as­sets like land or build­ings as col­lat­eral have higher chances of get­ting their loan ap­pli­ca­tions ap­proved com­pared to those who don’t. In ad­di­tion, only those who have paid off ex­ist­ing loans to­gether with in­ter­est are able to ap­ply for a sec­ond loan.

“It is hard to for busi­nesses as they need funds to build up the foun­da­tion and can­not pay the money back un­til they have started op­er­a­tions. The banks need to be more flex­i­ble by ex­tend­ing loans based on the busi­ness prospects. Like banks in other coun­tries, they should also ex­tend more loans based on re­la­tion­ship and trust,” Dr Hla Nyunt said.

The loan con­di­tions also state that busi­nesses ap­ply­ing for loans must be in op­er­a­tion for at least one year. There­fore, it is dif­fi­cult for new en­trepreneurs start­ing busi­ness for the first time to qual­ify for any loans.

Other op­tions In the mean­time, new op­tions have sur­faced to fa­cil­i­tate SMEs. Un­der the Credit Guar­an­tee In­surance scheme pro­vided by Myan­mar In­surance, busi­nesses do not need to pay col­lat­er­als. The take-up rate for such schemes, which are usu­ally viewed as ex­pen­sive, has so far been poor though. Just over 400 SMEs have suc­cess­fully ob­tained bank loans after buy­ing the in­surance out of some 200,000 in Myan­mar.

The In­ter­na­tional Mone­tary Fund (IMF) has also been help­ing to ease the credit crunch. Last year, SMEs had the op­tion of ap­ply­ing for so-called two-step loans from the banks, which are in turn backed by the IMF

Ul­ti­mately, for SMEs to gain eas­ier ac­cess to funds, Myan­mar must over­haul its ex­ist­ing poli­cies, said Mr Richard Dare, deputy chair of ICSBMyan­mar.

“Ac­cess to fi­nan­cial re­sources is the main chal­lenge for ev­ery en­trepreneur and busi­ness es­pe­cially in Myan­mar. How­ever, the cur­rent sit­u­a­tion is such that the loans can be ob­tained only when there are col­lat­er­als given. This pol­icy should be changed,” he said.

Photo: The Myan­mar Times

Work­ers at a brick fac­tory in Man­dalay. Busi­nesses like these need ac­cess to loans which are no­to­ri­ously hard to ob­tain as a re­sult of strict loan poli­cies by lo­cal banks.

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