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

usiness decision making keep them from providing the banks complete and systematic
set of accounting so these banks can make a credit review. Some businesses even
maintain dual set of accounting statements. One is for internal use (true one) and
another one, which will be submitted to tax authorities, is designed to reduce the taxes
business owners have to pay. They are not willing to present their internal records to
the banks in order to get bank loans. In this case, they use independent accountants to
prepare a set of accounting records for them that can be useful only for loan application
purposes. Consequently, most of the accounting records submitted to the bank for loan
application are not totally reliable, since they do not reflect the true states of the
business. Therefore, banks do not rely on these financial statements to make objective
analysis for their loan decisions.
The third reason for these business owner-generated problems is that many SME
owners in Myanmar do not have the skill to make a business plan that can be used to
assess the feasibility of a project. Most small businesses usually start without a formal
business plans. Banks also rarely demand business plans to review the risk of their
customers’ businesses in making loan decisions. They solely rely on the viability of their
collaterals in making loans decisions. Due to this, SME owners cannot systematically
and objectively make judgments on the potentials of their planned business. Instead,
they use subjective judgment and personal experiences to run and manage businesses.
This can lead to reduced quality of their decision making as well as missed
opportunities. Indeed, a good business plan can help in gaining access to a more
favorable credit line offered by the banks and can be used as part of collateral
requirement.
Fourth, some SMEs cannot effectively manage the money they have borrowed.
Traditional SMEs do not know how to manage their cash flow to meet their payment
business obligations on time. This problem leads to overspending in some occasions and
over borrowing in other occasions. Some traditional SMEs cannot even distinguish
between personal income and business income, as well as personal spending and
business spending. When they get a large amount of money from the bank, they do not
use the money in their businesses and instead, they use it for personal expenditures. In
some cases, they offer longer credit terms to their customers more than what they can
actually manage. Thus, they would have no enough money to pay the banks the
principal amount of their loans. As a consequence, businesses go bankrupt.
Aside from inadequate collaterals, lack of proper accounting statements, inability
to prepare comprehensive business plans, and poor cash management, the difficulty in
obtaining loans also lies on the existing perception of banks that lending to SMEs
proves too risky. This has been compounded by the instances of high NPLs in the history