By KYAW LIN HTOON | FRONTIER
YANGON — The Central Bank of Myanmar has urged the government to begin drafting a moveable asset finance law so that banks and other lenders can accept collateral other than real estate.
Central Bank director general Daw Than Than Swe told Frontier that such a law would lay the foundations for a dramatic increase in access to credit, particularly among small and medium-sized enterprises.
Although credit to the private sector has increased significantly in recent years, many businesses are starved of financing because banks only accept particular types of land as collateral. Under a moveable asset finance law, banks could also accept a range of other items as collateral, including stock, equipment and receivables.
Than Than Swe, who heads the Central Bank’s Financial Institutions Supervision Department, said banks should only be accepting real estate as collateral as a “last resort”.
“The banks tend not to worry about borrowers if they have these hard collaterals but in practice if the property prices drop significantly there will be big problems,” she said.
Than Than Swe was speaking on the sidelines of a conference on movable asset finance for SMEs on March 6 that was co-organised by the Central Bank and the International Finance Corporation, a member of the World Bank Group.
U San Thein, a senior technical expert at German development agency GIZ, said that for moveable asset financing to be successful banks will need to raise their game at assessing and monitoring credit risk.
“The attitude of the local banks is that if a borrower can’t pay back a loan they can just easily seize their property. If an asset is worth K1,000, they just lend K 500 and think that’s risk management,” he said.
Banks will instead need to examine the borrower’s business, including their cash flow, and monitor the borrower’s activities.
But San Thein questioned how long it would take to write a law on moveable asset financing, pointing out that the Financial Institutions Law took years to draft and has still not been fully implemented. Although eight regulations need to be issued to bring the law into force, only four have so far been issued.
But Dr Myo Thant, a central executive committee member of Myanmar’s peak business body, the Union of Myanmar Federation of Chambers of Commerce and Industry, said the introduction of moveable asset finance could help to transform his microfinance business, Zar & Zar Finance. “This is a good chance for the real SMEs that have no property [to grow],” he said.