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

orrowers greatly impaired the trust in the banking sector, which is an indispensable
ingredient of financial stability. The image of Myanmar’s private banks and banking
sector had been seriously damaged during the crisis.
Following the banking crisis, most private banks returned to business under strict
new central bank regulations, but their operations did not reach the level before the
crisis. This situation was further worsened by suspected money laundering activities of
two large private banks, which were subsequently shut down by the government in
2005. Also in August 2005, the central bank revoked the license of another private bank
for violating the Financial Institution Law. The government enacted anti-money
laundering law in June 2002, which required banks to report to the government all
suspicious deposits, withdrawals, and transfers above 100 million kyat. By the end of
2005, there were 15 domestic private banks operating in Myanmar’s banking sector
after three private banks had been shut down by the government and the merger of
three other cooperative banks to form a single cooperative public-listed bank.
Outside the formal banking and financial sector, there is the active informal
financing sector that exists countrywide. Pawnshops, which acquire licenses from city
and township municipal authorities, scatter all over the country. They charge monthly
interest rate on small loans, 4 percent or 5 percent on average. Unofficial money lenders
charge very high interest rates, from 10 percent to 20 percent per month, depending on
the quality of collateral property. For remittance system, most of domestic remittance
activities are made through the branches of private banks. In fact, the service fees from
the domestic remittance are one of the major sources of revenue for private banks. For
foreign remittance, most of Myanmar citizens working aboard use informal and illegal
remittance system called hondi, since private banks are not allowed to handle foreign
exchange transactions. There is much gap between market exchange rate and informal
exchange rate in Myanmar (more than 200 times) and 10 percent tax is imposed on all
money transfer, so individuals who want to avoid 10 percent export tax and to take
advantage of the more favorable market exchange rate use hondi to send money to their
relatives in Myanmar. The black market hondi banking networks exist in all countries
where Myanmar citizens are working, such as Thailand, Malaysia, Singapore, Australia,
United Arab Emirates, Korea, Japan, Taiwan, China, India, United States, and the
United Kingdom. They take the largest share of foreign remittance transactions for
Myanmar citizens working abroad. The remittance via hondi is relatively more easy and
speedy (no document is required, and within 24 hours, money is already sent) than
formal remittance system via banking system.
Myanmar people’s traditional practice is to keep their wealth in the form of gold,
precious stones, and other tangibles such as real estate. Necessary borrowing money