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

can explain why lending technologies used, the flexibility of financial institutions, and
SMEs credit availability are greatly different even among developing countries.
Without improving lending infrastructure in the country, no new sources of
financing for SMEs will be successfully introduced. As discussed in previous sections,
the lending infrastructure in Myanmar is relatively poor in many aspects. Banks in
Myanmar do not accept as collaterals anything other than a fixed charge on titled real
estate. However, many landowners in Myanmar do not possess legal titles of the
properties they own or occupy. Registering process for a land title takes much time. The
absence of such land title is an impediment in SMEs’ effort to access bank financing.
Concerning creditors’ rights, Myanmar does not have separate bankruptcy law.
The provision for bankruptcy is only included in the Myanmar Company Act (1914) as a
subsection. When insolvency occurs, solving it through court proceeding takes much
time; it may even more than a year and a costly affair. Therefore, most of the insolvency
cases are resolved by means of informal negotiation between debtors and creditors.
Consequently, creditors are very reluctant to make loans without collaterals.
Strictly controlled by Central bank and restrictive financial measures greatly
restrict the flexibility of the banks. Central bank does not issue new banking license
after 1997. As a result, there is small number of banks in Myanmar relative to its
population and number of businesses. This retards supply of financing to business
sector and reduce competition to offer better services among the banks. Banking
regulations require borrowers have to present Company registration, Industry license,
business license, tax and insurance registration certificates that make difficult for the
banks to lend SMEs without complete documentations as well as it also creates lengthy
time and costly to complete full set of documentations for the borrowing businesses.
Due to the policy of the central bank on controlling the interest rates of
commercial banks, these banks cannot raise the interest rate depending on the level of
perceived risks on the borrowers. That is why banks only give loans to established
SMEs rather than the small and startup SMEs, because they have to charge the same
interest rate regardless of how small or large this SME is and how much risky it is to
lend to an SME.
In terms of business registration, SMEs formed as limited companies must
register with the Company Registration Office located in NayPyiDaw. In addition, they
also need to obtain other licensing requirements for the application of bank loan, such
as industrial license from the Ministry of Industry (1), business license from local
municipal authorities, fire certificate, and insurance certificate. Company registrations
remain valid up to two years and must be renewed thereafter. Registration fee is one
million kyat (approximately $800 for two years). It is a rather big amount for SMEs in