While the Small and Medium Industrial Development Bank (SMIDB) offered to distribute K20 billion in loans in 2014, as of now, K12 billion have yet to be distributed, owing largely to informal business practices, according to an official from the Ministry of Industry.
Like all businesses in the country, SMEs need to register and pay tax, but this is often a rarity. To secure loans, however, SMEs need proof of business registration, tax payment and land ownership, which is an insurmountable barrier for many.
Daw Aye Aye Win, deputy director of SME Development Centre, said, “Many SMEs have not paid taxes, registered their businesses, and have operations on land informally. These are the main problems. However, K8 billion of loans have already been provided to SMEs which have complete documents.”
She added that there are over 800 SMEs applying for the loans currently. The loans will be provided when they submit complete documents.
In order to make sure that more SMEs are able to apply for the loans provided by SMIDB, the regulations have been reduced. For example, a requirement of five years of land ownership has been temporarily reduced to four years. Instead of copies of tax payment for three years, now tax payment for one year is needed, according to U Aye Myint, an official from the Ministry of Industry.
SME owner and machinist U Hla Khaing said that he had prepared necessary documents to get the loans, but could not get enough financing as he needed to expand his business. They encountered difficulties because it cost money to prepare the documents but the amount that they really need cannot be provided, he said.
“It cost K1.5 million to prepare the necessary documents. We need K40 to K50 million to run the business. But we got only K10 million. Fifteen percent of the loan is already used to prepare documents. These have been added to the debt left to repay.”
Some SMEs are just starting their businesses and they do not have tax payment records, profit and loss account. Applicants must not only submit proof of land ownership, but also prove that land is not farmland to get loans, in addition to one year's proof of income and expenses. The loan must be repaid in three years at an interest rate of 8.5 percent per year.
According to SMIDB's plans, Yangon, Mandalay, Sagaing and Shan states will receive K2 billion each, while other states and regions will be provided with K1 billion each. Last year saw the third round of loan distribution, after K5 billion were provided per year in 2012 and 2013.
So far, loans have been provided to 14 SMEs in Kachin, 12 SMEs in Kayah, nine SMEs in Mon, 17 SMEs in Rakhine, three SMEs in Shan State, 27 SMEs in Sagaing, four SMEs in Tanintharyi, 39 SMEs in Bago, 37 SMEs in Mandalay, 25 SMEs in Magway, 19 SMEs in Yangon, 17 SMEs in Ayeyarwaddy region, 14 SMEs Naypyitaw Council Territory, for a total of 237 SMEs.