The World Bank’s private sector lending arm, International Finance Corporation (IFC), has approved a loan of $5 million to Yoma Bank to test the waters for a possible $30 million deal in the coming years.
The move aims to help Yoma build financial mechanisms for extending loans to SMEs, as well as building a core banking system, enhance risk management and corporate governance, and develop new products and delivery channels for SMEs, IFC said.
SMEs in Myanmar are severely hampered by a dearth of financing, a problem the IFC program seeks to address. However, financial laws have not yet caught up with the growing economy.
“As the central bank, we are not really restricting the banks to make project financing, it’s just that the infrastructures are not yet there … Project financing is usually long term, and order to have longer term lending, you need to have very good assets to allow them to lend,” U Set Aung, deputy governor of the Central Bank of Myanmar, said.
“The banks can do longer-term loans with proper management. Because necessary financial markets and financial instruments are not ready, this is not technically possible.”
He added that the Central bank is working to create the necessary markets to increase lending.
Yoma Bank Executive Chairman and CEO Serge Pun said that this would not be an issue, noting several workarounds to the existing financial laws.
“If we feel comfortable that your business is a viable one, that will have cash flow that is capable of repaying the loan within a certain reasonable period of time, we want to lend to you even if your collateral is insufficient.
“What we have been doing to convince the central bank when we are a bit seemingly above what is safe is our internal issue with the central bank,” Pun said.
If a business could not provide sufficient collateral for a new construction, a smaller loan will be given to allow construction to begin, and the property continually reassessed and equity reevaluated, he added.
Pun said that this system would help support SMEs as long as proper oversight was followed, and it was ensured that the loan money went into the specified business with a solid business plan.
IFC’s investment and advisory support is expected to help Yoma provide an additional 1,000 loans worth $370 million to small and medium enterprises in Myanmar by 2019, the lender said.
“IFC puts a strategic focus on supporting the development of Myanmar’s financial and banking sector as banks are critically important in helping entrepreneurs grow their businesses and contribute to the overall economy,” said Karin Finkelston, IFC’s Vice President for Asia Pacific.
However, representatives of both the IFC and Yoma Bank were careful to stress that this is not a handout, and that the loans were to be given on purely commercial terms.