Central Bank of Myanmar approves loans without collateral

HTIN LYNN AUNG 16 OCT 2017

A businessman holds out cash in the local currency, the kyat, access to which is expected to be easier
following a recent CBM move to permit loans without collateral. The Myanmar Times

A businessman holds out cash in the local currency, the kyat, access to which is expected to be easier
following a recent CBM move to permit loans without collateral. The Myanmar Times

Local banks are now permitted to extend loans without the need for collaterals, U Set Aung, Deputy
Minister at the Ministry of Planning and Finance, told The Myanmar Times at the 5th Asia SME
Conference in Naypyitaw on October 14.

The Central Bank of Myanmar (CBM) has allowed local banks to provide loans without movable and
resalable assets as collaterals provided the banks set the suitable risk management policies in place. The
loan process will become complete when the banks can implement proper risk management, U Set
Aung said.

The development should serve as a welcome reprieve for many cash-strapped SMEs. In Myanmar,
access to funds is the main barrier in the way of growth and development of small and medium
enterprises (SMEs). This is because loans issued to businesses are approved based on collateral
typically property or land - and are mostly over periods of just one year.

As such, relaxing the loan collateral system is necessary to help more SMEs qualify for loans.

Fund limitations

Many SMEs say they are still hampered by the many limitations imposed when applying for loans
though. For example, only those who have paid off existing loans and interest payments are able to
apply for a second loan.

It is like buying a car without fuel and it is impossible to drive without fuel. U Ngwe Tun, chair of Aung
Nay Lin Tun Company which produces Nyan Gyi Shin coffee, told The Myanmar Times.
Without capital, one small business cannot develop and expand. Todays world famous Apple Co.
started as a small business. But they had the financial support which we dont have, said U Kyaw Win,
president of Sinma, a furniture export firm.

Credit is also notoriously steep in a country that for years had been plagued by high inflation. Interest
rates for local banks are fixed by the CBM at 8.5 percent to 13 percent.

Be self reliant

But businesses should not expect to be handheld by the government and should learn to stand on their
own feet, U Set Aung said, adding that with lower inflation and a stable exchange rate, the government
has created a friendly and attractive environment to facilitate investments and address the
multinational issues faced by SMEs.

But there are also many things SMEs can do to help themselves, he said during his speech at the
conference in Naypyitaw.

One way is by using mobile technology to create new ways of doing business or facilitating existing
operations. For example in Myanmar, mobile phone penetration has grown to over 100pc in 2017
compared to just 4pc four years ago. Leveraging on this, SMEs can create new business models in areas
like mobile financial services, such as devising better solutions for cross-border payments.

There are many ways for to bypass the challenges of cross-border transactions such as exploring the use
of bitcoins and other cryptocurrencies, U Set Aung suggested. We are talking to the Monetary
Authority of Singapore and the Bank of Thailand to enable cross-border mobile payments to take place
on a real-time basis, he said, adding that the process is not easy and that SMEs should work together to
find solutions and expand.

Currently, there are over 20,000 registered SMEs in Myanmar. The SME Development Department has
already recommended about 4,000 SME for loans and about 1,000 of them have successfully obtained
access to credit for further expansion, The Myanmar Times understands.