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

Policy on financial sector development
As discussed in section 6.4, the high inflation rate in Myanmar is one of the major
impediments in financial sector development and, in turn, in SME financing. So, the
government should keep inflation rate in check and maintain it within the one-digit
range by adopting effective macroeconomic measures. Higher inflation rate results in a
negative interest rate, and that leads to lower saving and deposit rate in the financial
sector. Again, it hampers capital accumulation and bank financing efforts for the
business sector.
Higher inflation rate also causes higher interest rates and this, in turn, leads to
high investment cost for businesses. The government should then adopt prudential but
not overly restrictive policies for the banking sector. The tightened control over private
banks may damage their efficiency in the long run. So, the central bank should allow
private banks to maintain their own risk management and lending policy for the
business sector. Central banks should encourage private banks to provide medium- to
long-term loans to the business sector and to diversify the range of services they offer.
This is important for the growth of SMEs. Also, the establishment of new banks should
be allowed to increase competition, efficiency, and services in the banking sector, while
the prudential financial policy is in place.
On the other hand, financial market for effective mobilization of domestic capital
from public savings to investment should be fostered and encourage as another source
of long-term capital for SMEs and businesses in the private sector. Regulatory and
institutional framework for setting up financial market in Myanmar should be further
developed and strengthened. Well-regulated and functioning financial market
provides a lot of help to stabilize general assets and prices in the economy, offers
alternative investment opportunities and income sources, diversifies risks, generates
employments, and enhances productivity of the businesses.
Policy on institutional and market development
Many countries with good SME financing infrastructure have adopted credit
guarantee mechanisms as a vital feature in their program. Credit guarantee scheme
ensures risk sharing among participants who have a stake SME financing. UMFCCI
can play a key role in credit guarantee and insurance scheme, since it possesses
intimate knowledge on member businesses. Nonbank financial institutions, such as
finance companies, leasing companies, rural funds, and saving and mutual funds are
best suited for SME lending, so they should be developed into formal structure,
promoted, legalized, and well regulated. These nonbank financial institutions are quite