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

collateral, but these may go up to 40 percent, depending on the financial soundness of
the business. The MEB allows up to one-third of the value of the collateral. The
threshold for loans permitted by the central bank is up to 50 percent of the value of the
collateral property. The term of loan is up to one year, and if business owners want to a
longer term, they can renew their loan after paying back their old loan in full. The
renewal process is the same as in the new-loan application process, but it usually takes
lesser time because most of the required documents are already with the bank.
State-owned and private banks offer an interest rate on loans of 17 percent per annum.
Some banks collect an additional 2 percent as service charge. MIDB charges an interest
rate of 2 percent for bank loans granted but not yet utilized; MEB charges only a
1-percent interest for a similar case.
MIDB used to issue loans only to businesses in the industrial zones. But now it
extends its loan portfolio to the businesses located outside industrial zones. However,
industries located in industrial zones are prioritized, but the same interest rate is
charged for loans made by a business regardless of its location. Recently, MIDB issued
loans to bus owners who wanted to install CNG kits in their buses. In this case, the
bank received the book of ownership of the bus (vehicle registration book) as the
collateral.
Loans to industrial sector have seen a decline in recent years due to the policy of
extending loans to new sectors. In an interview with the manager of loans department
at the MEB, it was revealed that the decline in the loans for the industrial sector
because of a lesser demand for new loan applications from this sector due to unfavorable
business environment.
Because of the aforementioned difficulties, the formal source of financing is now
no more accessible to most of SMEs in Myanmar. The government offers no special
financing program for SMEs at present, even though there was a syndicated loan
program to make special loans to the companies in industrial zones. It was not as
successful as expected due to complicated loan application procedures and many
business owners did not know about this program 63 . There is no arrangement for
factoring, inventory financing, export and import financing, leasing and special-purpose
vehicles on financing schemes for the private sector and particularly for SMEs. Even as
banks would want to offer loan services in such areas, the central bank does not allow
them to do so, according to the existing rules and regulations. Only two viable forms of
lending techniques—trade credit and collateral-based (asset-based financing)—are
adopted in the present setup of SME financing in Myanmar.
63 Interview with one private bank counselor in 2004