Myanmar may soon enact a law to guarantee loans made to small and medium enterprises. The Ministry of Planning, Finance and Industry is drafting a Credit Guarantee Corporation Law, U Thant Sin, director of that ministry’s Financial Regulatory Department, told the Myanmar Times. If passed, the law would call for a public Credit Guarantee Corporation to mitigate the risk of loans to SMEs and allow smaller businesses to obtain financing without collateral. “The Credit Guarantee Corporation on behalf of the borrower will give a guarantee to the lender for a loan. The borrower then pays a specified premium rate to the Credit Guarantee Corporation,’’ the Myanmar Times quoted U Thant Sin as saying.
The law would build on economic relief measures enacted during the current COVID-19 pandemic. As factories halt operations and storefronts their doors, the government is working to protect the business community with lowered interest rates and a COVID-19 Fund to provide low-interest loans. The Myanmar Investment Commission has also taken steps to make it easier and cheaper for entrepreneurs to invest. However, while the pandemic may have paved the way for the proposed law, Myanmar has been struggling to reform its finance sector for some time. The national economy depends on SMEs, yet a culture of risk aversion has made it relatively difficult for smaller businesses to obtain loans. This fear of non-performing loans reached a climax in September of last year, when rumors of an unpaid debt crisis caused a run on the banks, a drop in the value of the kyat and a temporary spike in demand for gold.
Stronger public safety nets could make it easier both for new entrepreneurs to obtain capital, and existing SMEs to recover from the economic fallout of the pandemic. Currently, it remains unclear how long Myanmar’s quarantine measures will last or when the nation will return to business-as-usual. Yangon International Airport had originally planned to reopen for international arrivals on April 30th, but recently extended that date to May 15th.
