Title Financing Small and Medium Enterprises in Myanmar Author(s ...

Twenty-seven businesses surveyed responded that they had to acquire loans not
only from banks but also from their personal network, such as their relatives and
friends, for additional financing requirements. For these loans, they had to pay a higher
interest rate. Normally, the interest rate is 5 percent per month if the lending party is
the person who has close relationship with borrowers. Otherwise, if they borrowed from
outside money lenders (gray market), they would have to bear higher interest rates that
would usually go up to 10 percent to 20 percent.
At present, the most prevalent and available form of financing for SME owners is
trade credit from suppliers, especially from those in the same line of business. In the
trading of rice, wheat, beans, and pluses, as well as in the distribution of consumer
goods from manufactures to wholesalers and from wholesalers to retailers, the practice
of paying cash down payment is very rare. In consumer goods distribution, buyers pay
in cash only during second delivery of the products. In some cases, this second delivery
can be extended up to one month. In the same vein, manufacturers who distribute their
products on credit term also purchase raw materials on credit from their suppliers. The
average credit term is one month in most businesses, but in some businesses, it can be
longer. Businessmen in the same line of business quite know each other so business
transactions are done by mutual trust without formal documents on receiving and
delivering goods and cash payments. This practice can even be observed in businesses
where the volume of transaction and the amount of money circulated is hefty, such as is
bean and plus trading, gold and gems trading, etc.
From the perspective of banks, lending to SMEs is too risky. This is because of
their bitter experience in the past on giving loans to SMEs. According to a bank
manager from the Myanmar Economic Bank (MEB), which is the largest state-owned
banks, made available a vast amount for loans to SMEs around 1996 when the private
sector was in a boom the first time. At that time, banks did not have enough experience
in providing loans to private sector and were not familiar with lending techniques. Also,
the regulations by the central bank were somewhat relaxed at that time. Borrowing
from banks even turned into a business opportunity between businessmen who wanted
to borrow and freelance agents who had connections with the banks. This situation
resulted in many people arbitrarily setting up businesses only with the intention of
acquiring loans from banks. Business owners could easily access bank loans with the
help of freelance agents and by offering their lands and buildings as collaterals, even
though they did not know anything about banking procedures. The agent would only
make minor repair works on the exteriors of a collateral building to deliberately create a
perception that the building was more valuable than its actual value. He or she would
then take photos of the building, fill out the loan application form, and submit it to the