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

Legal, judicial, and bankruptcy environment also affect lending techniques and
type of collaterals covered by loan covenants. In the country with lengthy and costly
judicial process, no one wants to go to court in cases of default, so they take extra care in
granting loans without sound collaterals. This also leads to a lengthy credit assessing
process. It limits the use of movable assets, such as account receivables and inventory,
as collaterals. The inadequate provision on bankruptcy process makes it difficult for
creditors to take action when a debtor is unable to repay loans. In such environment,
factoring, and export and import financing may not be viable options for the lenders.
The protection on credit rights and property rights, effective dispute resolution process,
and arbitrations on contract law are very important aspects of both financial
institutions and venture capital funds.
As discussed in previous sections, Myanmar has a lot of weaknesses in this area
that make some lending techniques not feasible. Such limitations on financing SMEs
should be assessed extensively and improved in a timely and correct manner.
Taxes and regulatory environment also has a direct effect on SME credit
availability. Some taxes do not favor certain types of lending techniques. Experiences of
some countries show stamp taxes on factored invoices, and certain types of value-added
taxes can have a negative impact on factoring. Enforcement by regulatory authorities to
make sure that rules and regulations are complied with is very important to create
effective lending infrastructure for SME financing as formulation of rules and
regulations themselves.
8.5 Suggestions to introduce new lending techniques and financing sources
As discussed in the beginning of Section 7, there are six lending methods
available in the field of SME financing. To improve SME credit availability, there are
some additional lending programs that financial institutions and governments initiate,
such as import trade financing, export trade financing, credit guarantees, government
subsidies, venture capital, and securitization of loans.
Now only asset-based (collateral-based) lending technology is commonly used by
both state-owned and private banks in Myanmar. Relationship lending technology is not
practiced even though small financial institutions and high context culture of Myanmar
favor this type of lending. It may be due to the regulations of the central bank on
available lending technologies and the gap between banks and businessmen. Trade
credit is commonly used among all kinds of businesses. Export and import financing,
leasing, factoring, credit guarantee, and other forms of financing are not found in
Myanmar. And also, venture capital funds are totally absent in Myanmar.
To improve sources and size of SMEs financing, present lending infrastructure