Myanmar is yet to further strengthen local financial institutions given the low number of bank accounts held by its citizens as well as limited lending to small and medium-sized enterprises (SMEs), said a German expert.
“Currently, Myanmar’s financial sector has too few depositors. The majority of people have no significant role in the sector. The sector is still weak. To be exact, only 5 per cent of the country’s total population has bank accounts,” said Bernd Kuzmits, regional director of Germany’s Division for Technical Cooperation Instruments at Federal Ministry for Economic Cooperation and Development.
He was in Yangon last week to advise the German Agency for International Cooperation (GIZ)’s project to develop the financial sector.
GIZ recently selected three local banks – the Small and Medium-sized Industrial Development (SMIDB), Kanbawza and Yoma Bank – for its project. These banks will be trained to come up with tailor-made financial services to SMEs.
“As a first step, we are providing financial assistance for SMEs through the three local banks. As second step, necessary assistance is being provided for the upgrade of the associations which offer banking courses, like Yangon Institute of Economics and Myanmar Banks Association. As a third step, efforts are being made to exercise international fiscal standards. Finally, we will help support the emergence of better laws and procedures for the fiscal sector. Germany is cooperating with the Banks and Monetary Development Committee to implement this,” said Kuzmits.
“Myanmar’s SMEs cannot afford to extend their businesses as they face many difficulties securing loans. As a result, those SMEs cannot create more jobs. They miss opportunities. Myanmar is implementing a project in cooperation with the government of Germany to cover losses in the fiscal sector. This move aims to ensure stability and sustainable development. SMEs are in urgent need of financial assistance.”
Thomas Foerch from the GIZ said: “There was transparency in selecting the three Myanmar banks. They were picked because they met banking management standards.”
In 2012, loans extended by local banks in Myanmar accounted for only 0.6 per cent of gross domestic product, according to a survey by KPMG. It was the lowest in Asia, particularly compared to 169.3 per cent in Thailand.
The UN Escap said in the “Economic and Social Survey of Asia and the Pacific Report 2015” that private sector access to credit continued to grow rapidly last year, by well over 30 per cent.
This year, nine foreign banks will start their operations, which should boost wholesale banking. Highlighting weak enforcement of contracts in the World Bank’s Doing Business, Escap noted that the enforcement and judicial system reform will be important for the financial sector to develop.
The GIZ is providing technical assistance to boost SME development with the project that is due to run until the end of 2016, when other banks will be added to the programme.
According to GIZ, the lack of access to adequate financial services is one of the main obstacles to the growth SMEs. The financial sector as a whole is in urgent need of development and is insufficiently adapted to the needs of SMEs. Sustainable financial services that meet the needs of SMEs do not exist. This is largely a consequence of restrictive regulations applied to the banking sector, and of the institutional and technical shortcomings of the commercial banks.
Under its project, running from 2012 through end-2016, GIZ aims to support the government and the country’s financial institutions in developing a suitable legal framework, effective supervision of the banks, and international accounting standards, as well as in the training of experts. It is also assisting the central bank in establishing an adequate regulatory and supervisory environment.
The project supports the adherence to international financial reporting standards by the banking sector. It is training service providers who will, in turn, provide training to bank employees on the assessment of risks associated with small-scale enterprises, and what products are appropriate for SMEs. Working with three pilot banks which have branches throughout the country, the project is developing financial products adapted to the needs of SMEs.
SMEs now account for more than 90 per cent of the country’s business. However, most of them have lacked access to funding, resulting weaknesses in expanding their operations. In turn, this led to fewer employment opportunities and missed opportunities, said Kuzmits.
A stable and effective fiscal sector played a crucial role in the country’s economic development, Kuzmits added. Financial development served as a medium for money savers and investors and was an essential mechanism for any country’s economic growth.
Source: Myanmar Eleven