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SME financing in Myanmar has a long way to go

S mall and medium enterprises (SME) in Myanmar face challenges common among emerging markets which in-clude access to market, labour supplies and technologies, regulation and taxation access to financing, infrastructure and corruption. These are some of the findings of the Myan-mar business survey conducted by Organisa-tion for Economic Cooperation and Develop-ment (OECD) and UN Economic and Social Commission for Asia and the Pacific (UNES-CAP) released last May 2014. The survey was carried out nationwide with participation from the Union of Myanmar Federation of Chamber of Commerce and Industry (UMF-CCI). It involved 3,000 firms from various sectors such as agriculture, manufacturing, trade, hotel and other services and even ex-tractive industries all over the country.

Financing remains one of the major chal-lenges as very few have availed of financial services from formal financial institutions, with the absence of collateral as the main hindrance. According to the study, 80% of those surveyed source their working capital from personal savings. Those who access funds from banks tend to borrow short-term. This means there is very limited resources for entrepreneurs that can be used for long-term investment, upgrading and expansion, and is a disincentive for start-ups.

If this is the condition of SMEs in the country, those at the bottom of the pyramid are worse. The “underground economy” com-posed of informal enterprises or livelihood activities that are too small to be registered fall prey to the exorbitant rates from infor-mal moneylenders. The high cost and high risk associated with the very small livelihood activities coupled with the absence of collat-eral prevent formal financial institutions to serve them. Left on their own, these liveli-hood activities have the highest mortality rate among the enterprises.

Recent developments in the financial sector may be considered as the light at the end of the tunnel. For one, allowing the entry of foreign banks may result in more funds that will be made available to SMEs. It may also result to the introduction of more innovative financial products appropriate to the needs of SMEs and even start-up enterprises. The competition resulting from the entry of for-eign banks can be the trigger for local banks to react to the market more favorably for SMEs. Local banks may be pushed to inno-vate and start to be more responsive to the needs of local entrepreneurs, or face the al-ternative of their clients being snatched away from them by new players in the market.

For SMEs who are moving to become large enterprises, the planned launching of the stock market is another development that will infuse more resources in the financial sector. Investors with higher appetite for risk and rewards may channel their savings to the stock market. Foreign investors may also start looking at Myanmar’s emerging market.

Another development that bodes well for SMEs is the emerging microfinance sector. Despite its original mandate of serving pri-marily lower income groups, the number of livelihood activities that graduates to be-come SMEs may push regulatory agencies to increase the maximum loan amount. For now, microfinance institutions fill the financ-ing vacuum for informal livelihood activities, a necessary step to the development of more enterprises in the country. Making microfi-nance services available in the rural areas of the country will invigorate local economies as more people can avail of working capital for livelihood activities and later on, bigger and more formal enterprises.

On the part of enterprises, they have to up-grade their products and services also. They have to face the reality of competition from other countries. In the same study, it was re-vealed that only 1/3 of the respondents were aware of of ASEAN economic integration in 2015 which will make the region a single pro-duction and marketing unit. Awareness in the latest developments in the market must be embedded in the consciousness of Myan-mar entrepreneurs or else they may not be able to cope with the onslaught of competi-tion not only locally, but regionally as well.