During a meeting held by the Private Sector Development Committee (PSDC), members of the agricultural and SMEs sectors raised the issue that private banks do not issue loans for either sector. The members added that if Myanmar’s economy is to develop, the country’s SMEs and agriculture will need to take off and grow. Loans are vital for their growth.
Therefore, officials from the Ministry of Planning and Finance, the Central Bank and the Ministry of Commerce decided that a requirement has to be established for private banks to grant loans to the two sectors, said U Win Thaw, who is also the vice chair of the PSDC. It is understood that private banks must dedicate a minimum percentage of their commercial loans to agriculture and SMEs sectors.
“Private banks must grant a specified [minimum] percentage of their loans to farmers and SMEs.
“At the same time, the loan interest rate will be allowed to be more than 13 percent, depending on individual applications. This is because private banks will be badly hit by loan failures. It is not realistic to have those banks lending without collateral and with a low interest rate,” U Win Thaw explained.
Currently, loans are being offered to SMEs sector by state-owned SME Development Bank. Only a very small amount is given by local private banks.
For the agricultural industry, loans are offered by the state-owned Myanmar Agricultural Development Bank (MADB). During 1990-2000, private banks had lobbied the Central Bank to allow them to give loans to farmers, but the institutions were banned from any involvement in the agricultural sector, partly because the MADB had already existed during that time, said U Than Lwin, retired vice president of Myanmar Central Bank and consultant of Kanbawza Bank.
U Kyaw Win, Union Minister for Planning and Finance, said last week at a meeting with entrepreneurs at the UMFCCI that private banks will be allowed to take part in agricultural sector.
The MADB is only able to provide loans to cover the cost of some crops and is insufficient to support the entire industry. Therefore, the government will encourage private banks’ involvement for the development of the sector.
“We will allow private banks to get involved at their own pace in agricultural development. Loans that are given for the cost of particular crops are not enough for the development of the sector. And with the MADB alone, we are unable to implement projects necessary for agricultural development. Agriculture will develop more rapidly if the private sector is allowed to contribute,” said U Kyaw Win.
In the past, private banks only granted loans on the basis of collateral requirement and they never offered loans to SMEs or agricultural sector.
Currently, public banks are providing loans at 8.5 percent interest rate to SMEs and 8pc interest rate to farmers. However, interest rate of commercial loans in private banks offered to those two sectors is 13pc. It will put banks in a difficult position when they are required to lower the interest rate from 13pc, the minister added.
“There are difficulties for private banks – no collateral requirement and lower interest. Because of these difficulties, private banks never offered loans for the two sectors,” he said.
Although the national economy is heavily dependent on agriculture, private banks are not engaged with the sector. Apart from the MADB, there is not even one percent of loans granted by the private banking sector. Hence, the current administration is discussing on how to improve the situation.
Out of the total microfinance loans provided by the Ministry of Finance, 30pc of them goes to SMEs and agriculture.
Members of the PSDC are of the view that it is not reasonable to demand private banks to fix the loan interest rate at 8.5pc to SMEs and 8pc to farmers, a rate set by state banks. Private banks provide 8pc interest rate for deposits so the loan interest rate cannot be too low. The members are now considering how much percentage of loans the banks can offer to the two sectors.
In the 2016 Monetary Law, restrictions have been liberalised in lending – collaterals are no longer necessary for giving loans. Myanmar banks can grant loans based on their trust on the business. The law states that the Central Bank has loosened the restrictions of bank activities. However, there is also a restriction in place demanding that the loan interest rate cannot be higher than 13pc.
“There is a rule that the rate cannot be more than 13pc. At present, the Central Bank has a plan to review this and come up with an arrangement which is convenient to both the banks and the private sector. We will consider what type of loans can have a rate of more than 13pc and how much loans can be provided for such purpose,” the director general said.
If people fail to pay back their loans, the banks will encounter difficulties in paying deposits from its customers. This is detrimental to the financial system and the national economy. Therefore, for people seeking bank loans, they need to provide strong guarantee. According to the institutional procedures, the amount of money lent to agriculture by private commercial banks will be little, suggested U Thein Myint, deputy general manager of Co-operative Bank.
U Than Lwin said that private banks provide loans by keeping properties, buildings and houses as collaterals. It is vital for the bank not to lose the money in the case that the borrower fails to return the money. He also said that the government or the Central Bank needs to issue a guarantee before private banks can provide loans to farmers, and then the farmers can benefit from the low interest rates by getting loans from banks, rather than from private lenders.
“Private banks ask for collaterals before giving loans. It is not good to seize the lands, farms, and animals from the farmers although those items are put up as collaterals. The government needs to make an arrangement on what sort of guarantee should be given.
“For example, if the Ministry of Agriculture and Irrigation provides a guarantee for a loan, what will happen if the farmers are unable to pay back the loan? Can the government guarantee? If the government can guarantee, it will be easier for the private banks to loan,” he added.
“As for the agriculture loans, we will arrange the guarantees to be issued by the related committees, perhaps with the Wyne Gyi Chote system [a Myanmar system of spreading the lending risking among a group of people] or other suitable methods to strength the security of the lending for private banks,” said U Win Thaw.
– Translation by Win Thaw Tar, Zar Zar Soe, Khine Thazin Han and Swe Zin Moe