Little growth without loans for small firms

Fujiyama Printing Press would like to grow. The firm sees an opportunity to muscle in to the business of printing daily newspapers, with what it claims is a clear business case and interested customers lined up.

Expanding small printing businesses such as this one in Yangon can be an expensive affair. Photo: Thiri Lu / The Myanmar TimesExpanding small printing businesses such as this one in Yangon can be an expensive affair. Photo: Thiri Lu / The Myanmar Times

Yet it shares a constraint common to many local companies – access to capital. Fujiyama would need to upgrade its presses to be able to take on a daily newspaper print run, and cannot afford these machines without a bank loan. However, without property to use as collateral, no local bank will lend the company money, and it is stuck without a way to expand.

This complaint is common across local small and medium enterprises, often turning up as the number one constraint that is keeping small businesses small.

A UNESCAP-supported Myanmar Business Survey released last month said personal savings are the main way local businesses obtain financing.

“The financial sector has long been tightly controlled and overly regulated,” it said.

“The types of financing instruments available to private enterprises are limited with unreasonably high costs. Many turn to informal money lenders instead.”

Most local loans are for less than a year at a fixed interest rate, with few other options open to businesses. The report said that the government has attempted reforms but the pace has been slow as it is a difficult task.

It added that while the local financial sector is rapidly upgrading, the government must provide various technical and financial assistance.

U Thant Myint, owner of Fujiyama, said most small business owners simply do not have the necessary property to obtain loans, so they do not consider banks when planning an expansion.

“We cannot borrow the money because we can’t show possession of property that they need,” he said. “I understand the banks need to see proof, but I simply don’t have it, and so can’t borrow from them.”

“Financing SMEs” is an often-discussed problem. It has become a common buzzword among banks; small local companies often say that in practice they still cannot access the money they need to expand.

Fujiyama is far from the only local company facing this problem.

U Soe Min Oo is a taxi driver in Bahan township. He would like to add to his fleet of vehicles and rent them out to other drivers, though reckons the banks are not on board.

“I’ve been saving my money for a year to buy another car to rent out. This is a good way to extend my business,” he said.

Another option is to borrow money from friends and relatives, but they often do not have much money to give.

“I think bank loans are only for big businesses. I don’t think they can lend to me, so I never try to borrow from them.”

Other companies find alternate ways of getting around a lack of access to finance.

Ko Zarni is the owner of Tar Tar Mobile Shop, and faces the difficulty of paying for his stock, his phones that he then sells to customers.

Many companies now offer some form of consignment payment or credit, meaning he only has to fork over cash after the products have been sold.

Ko Zarni said this means his business does not need loans. Besides his Yangon shop, he also distributes phones in areas like Ayeyarwady Region, without the need to pay the wholesalers in advance.

“We don’t need to borrow much money, so we only need a small investment – basically to cover a car for distribution activities, and accommodation during the trip,” he said. “So my company does not need to go to a bank for a loan.”

Source: Myanmar Times

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