Home Insider Articles Responsible Business Fund – Danish Grants to Myanmar’s SMEs

Responsible Business Fund – Danish Grants to Myanmar’s SMEs

Emerging markets and countries on the fast track of economic development, including Myanmar, find small and medium enterprises to be the route towards the goal, with their employment potential, higher growth rates, lower establishment costs, flexibility and a host of other benefits. This has been elaborated by State Counsellor Aung San Suu Kyi, as well, in the latest Oxford Business Group report released last month. She is convinced that micro-and SMEs are ‘employment generators’, and ‘a source of innovation, wealth creation, poverty reduction and human empowerment’.

Myanmar has been a late starter and as one of the last frontiers on the path of development, it is imperative that it learns from the mistakes and hurdles of others and adopts the latest technologies available for ‘green’ growth, and implement responsible business practices in order to achieve sustainable development goals. As a developing nation, it is benefitting from assistance coming from experienced, richer, and developed countries.

Aid has been flowing in varying degrees from wealthy nations to poorer ones for over three quarters of a century, and Denmark is one out of just five countries that exceeds the UN target of granting 0.7% of its gross national income as aid (it actually gives more than 1% of its GNI). Denmark’s aid program points to its feeling of responsibility towards creating a better world by assisting in fields of healthcare, education, and responsible business particularly in the private sector. Myanmar has benefitted from Denmark’s humanitarian assistance as well as being treated as a priority nation for its development assistance.

It is here that Denmark’s Responsible Business Fund (RBF) has proved to be a godsend for Myanmar’s SMEs. The Fund is a 94-million kroner ($13.6 million) program for nearly four years to provide partial grants to deserving SMEs in the private sector, in seven areas, helping them demonstrate responsible technologies and business practices apart from generating employment, pushing growth and economic empowerment. It is headed by Amarnath Reddy, a highly qualified and experienced management professional who has worked with the Danish Ministry of Foreign Affairs on projects aimed at assisting the growth of the private sector in developing countries in Asia and Eastern Europe.

Denmark opened its Embassy in Myanmar in August 2014, further reiterating its long-term commitment to bilateral relations, and has since been consistently encouraging the private sector in Myanmar. The Ambassador H.E. John Nielson has been actively involved in RBF activities and offers his expertise and support at all times.

RBF’s selection criteria

The Fund started with a big purse, but with initial apprehensions about selection of projects and how best to promote growth. Registered SMEs were non-existent a decade ago and they emerged as part of the formal private sector just 5-6 years ago. As relatively new entrants into business, it made sense to have them circumvent the traditional carbon-intensive, not-so-responsible business methods and adopt the latest available technology and lay the foundation for sustainable development in Myanmar.

Number of Businesses Supported – By 7 Areas of RBF Support

RBF realized that SMEs here, had two big requirements: understanding what a responsible business is, which RBF decided to ‘demonstrate’ to them, and provide a partial grant that would take their business forward.

Grants being free money, would have had scores of companies queueing up, and to prevent this a stringent set of rules were laid out, and seven key areas identified. The seven areas include:

  1. Energy efficiency
  2. Water use efficiency
  3. Waste treatment and recycling
  4. Occupational safety and health
  5. Food safety
  6. Managerial and supervisory skills
  7. Practical and technical skills

The first three areas fall in the ‘resource efficiency’ category, that is, making investments for more efficient use of resources. The next two areas of occupational safety and health, and food safety, would make the SMEs ready for the export market, by being able to meet international standards, in the textile industry, for example. Food safety standards being poor, prove to be a loss to Myanmar, since raw materials are exported, and finished products of the same are imported back for local consumption. Lack of funds for capital investments combined with insufficient knowledge has been a major deterrent, and RBF has put in efforts to provide both.

The eligible SMEs needed to fulfill the following requirements:

  1. A Myanmar registered company with not more than 600 employees or a paid-up capital less than 1 billion Kyats.
  2. Falls in one of the categories mentioned above.
  3. Has been operational for at least two years and can provide externally audited accounts for the previous year.
  4. The technology/capacity building solutions proposed to be implemented have not already been used in the vicinity/district.
  5. The business does not operate in the excluded sectors of liquor, weapons, tobacco, gambling etc.

Such companies would then be eligible to apply and receive 40-80% of their project cost. Interestingly, RBF decided not to hand out 100% capital as aid to any business, the rationale being, that genuine businesses should have the wherewithal to raise a small percentage of the cost which would also show the degree of success their business will potentially achieve. Raising the first 20-50% of the capital expense may be a challenge but not impossible, given the changes in banking regulations and other sources for funding.

Grant Disbursed – By 7 Areas of RBF Support

A ‘Challenge Fund’

Within the seven delineated areas, RBF puts forth a ‘challenge’ to applicants to come up with a project that is using an innovative method, technology or process that is being used in their area for the first time, reflecting a ‘responsible business practice’. SMEs ready to meet this challenge would get 50-65% of their project cost from the Fund, provided they are able to clearly indicate how they plan to improve the standards in their field of business, make it ‘responsible’ and collect the remaining 35-50% of the funds needed to get started. 

An important deciding factor for allocating funds to an SME is the ‘payback period’, the time span in which the money spent as investment would come back to the business, after which the asset would become free. For instance, the cost of installing a solar PV (solar photovoltaic that converts sunlight into electricity with the use of semiconductors) should be recovered from the savings accruing from reduced electricity bills. The shorter the payback period, the more business sense a project makes. Companies coming up with such proposals, only the first in their field have been supported by RBF, and have proved to be ‘demonstrators’ to other businesses to follow suit.

The selection process

The first step, when the Fund was set up, was to educate SMEs about the areas in which they are providing grants. The process of calling for proposals began in the last quarter of 2017, and subsequent calls were made thrice a year in 2018 and 2019. The applications and proposals were scrutinized by the RBF Secretariat which then were submitted to the Board for approval. All the SMEs that met the criteria laid out, were found to have demonstration potential, and an appropriate payback period, have been given grants. Till date, 631 SMEs have been given grants in the 7 listed areas, spread across each state and division of Myanmar. Each of them have been handed over funds as and when they have completed groups of activities previously approved.

RBF gives grants not loans

RBF is the first grant-based fund helping SMEs, offering ‘free money’ as part of Denmark’s program of offering development assistance to developing countries. It is however not the only one, a UK-funded Business Innovation Window offers similar grants in four key areas including agribusiness, forestry and textiles. Numerous other countries have provided grants and aid to NGOs and government agencies for development project in specific fields. RBF is unique since it is helping private individuals, who till recently did not have access to funding. 

The free money however, is never given as an advance and does not cover the entire cost of the project. The entrepreneur has to collect funds and get started, but RBF helps by giving letters to banks and equipment suppliers, that it the SME meets their conditions, they will pay the banks or stakeholders directly.

Motives beyond just funding

The aim of RBF extends far beyond handing out free money. It wishes to educate and empower, and improve the lot of the small entrepreneur, while also demonstrate to the government that the private sector can play a significant role in economic development, generating income, employment opportunities and increasing output. The Fund works closely with the Department of Small and Medium Enterprises which is now under the newly formed Ministry of Planning, Finance and Industry, and its officials are members of the RBF Board along with officials from the Danish Embassy.

The projects funded are required to submit status reports from time to time, and RBF monitors their progress closely. 20% of the approved grantees failed to conclude the grant agreements as they were not able to fulfill the conditions of approval, and dropped out.

RBF does not limit support to top-of-the-line equipment and machinery, its aim is clearly to lift businesses higher from their current levels to the extent that is feasible and practical. The projects could be as simple as building biomass fueled burner for refried beans used in Myanmar’s famed tea leaf salad La phet, or supporting coffee growers with solar dryer domes to dry coffee beans to prevent wastage, the intention is the same, to improve and make things easier for earnest businesses.

The fact that there have been 40-50 replications of RBF funded projects is an indicator of the success of their model.