The government of Myanmar has recommended that more than one thousand small and medium sized businesses (SMEs) should come under consideration to receive bank loans. This information has been released by the Central Department of Small and Medium Enterprises Development (CDSMED) and is good news for the start-ups in the country.
The Ministry of Industry has 46,794 businesses officially signed up and registered with them, and have recommended that financial institutions offer loans to the selected enterprises after they conduct an assessment.
Any SME that wants to borrow money from a financial institution has to apply for membership of the CDSMED. The department then releases membership numbers to specific institutions recommending that they release funds.
While this is positive news for the SMEs that have been selected, it’s still a very small number of the total of businesses in the country. A CDSMED official says this is down to the fact that a lot of the registered SMEs simply haven’t yet applied for a loan.
So far, KBZ and CB Banks have been offering loans this way, usually at an 8.5 per cent interest rate. These local banks have linked up with the Japan International Cooperation Agency (JICA) to supply the loans.
A representative for KBZ bank said: “After JICA has green-lit the application, we pay the loans. This makes SME loans easier to acquire.”CB Bank’s representative added: “Borrowers can discuss with banks, depending on the amount of loans, and whether they are capable of providing collateral. However, the projects must be systematic.”
To qualify for a loan the business has to have some collateral and have been operating for at least two years. These are obviously tricky challenges for brand new businesses, and holds them back from obtaining vital financial resources.
A young entrepreneur who is launching a start-up to sell international flight tickets online said: “I would like to expand my business but it requires am two-year minimum operating experience. So, it is difficult to secure the loans and expand the business for now.”
And it seems it not just start ups that are struggling to obtain business loans. It’s equally as difficult for moderately established companies to successfully benefit from a loan, something that could hold back the economic development of Myanmar.