Monday, September 25, 2017

SMEs still struggle to source financing

Small and medium enterprises (SMEs), the backbone of Myanmar’s economy, say they are still struggling to source financing for start-ups and business expansion with insufficient funding made available by banks.

President U Thein Sein’s government has recognised the importance of SMEs, the pillar of the private sector which accounts for 90 percent of economic output, and has established an SME Development Center under the Ministry of Industry. Part of its mandate is to provide training to SMEs on understanding banking regulations and processes required to obtain bank loans.

Despite such efforts, a survey of some 2500 SMEs by the German Institute for Development Evaluation, published last August, found that only about 20pc of SMEs have an outstanding loan.

“Customers and relatives or friends are clearly the most common source of finance. Key factors are trust and longstanding relationships. Larger firms also regularly apply for loans from commercial banks. Land and buildings are usually used to satisfy collateral requirements. Most SMEs have considerable additional funding needs and plan to apply for loans for business expansion,” the report said.

Ma Kim Chaw Su, managing director of the International Banking division at KBZ Bank, said SME owners and managers lacked understanding of financial accounting in applying for loans.

“We need to sure the business is strong and we also look at cash flow, products and business projects. Foreign banks also look at these points with my bank,” she said, referring to loans made available by newly opened foreign banks in Myanmar for SMEs through local banks.

Loring Harkness, founder of Ngwe Su, a community finance platform, says owners of micro businesses often do not have access to financial services and, when they do, those financial services are not always affordable. Access to savings, investments and insurance should be expanded, he said.

“Some micro businesses don’t need financing if someone already has the money. You can start a micro business with little or no money at all. Myanmar banking should catch up soon but right now it’s very behind.  Loans are only available for the rich,” said Ryan Russell, senior consultant at Myanmar Business Answers.

“There is a huge gap between them, with micro-finance that starts at $30 and goes as high as US$5000 and $1 million which is where the banks are at right now.  A lot of micro businesses need $2000 to $20,000 to get started.  And many could use a lot more if they are going to start with several staff on salary,” he said.

According to U Aung Min of the Union of Myanmar Federation of Chambers of Commerce and Industry, banks extended loans totaling K30 billion ($23 million) to 344 businesses in the first nine months of last year.

U Zaw Min Win, chair of the Myanmar Industries Association, said interest rates of 8.5pc were too high for many businesses.

Kee Shin, president of Malaysia’s Small and Medium Industries Association, told a recent meeting of the ASEAN Economic Community that governments needed to give consistent and stable support to SMEs. Some 90pc of small businesses were worried about the challenges of financing and most countries in the economic region were witnessing a slowdown in SME growth, he said, stressing also the need for foreign direct investment and intervention by NGOs.