Businesses urge overhaul of loan policy
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.
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.