Business owners wait inside the UMFCCI office in Yangon to apply for a low-interest loan from the government on August 7. (Thuya Zaw | Frontier)
Business owners wait inside the UMFCCI office in Yangon to apply for a low-interest loan from the government on August 7. (Thuya Zaw | Frontier)

‘We have no money’: COVID-hit businesses rush to secure loans

More than 10,000 businesses have applied for low-interest loans from a second tranche of K100 billion, amid warnings that more assistance is needed and it should target a more diverse range of businesses.


“Token number 53, you can now enter the room to submit your loan application,” says a woman reading from a document in a plastic sleeve.

Scores of people sitting on chairs in front of the woman look up briefly, then return to their phones.

It’s August 7, and there’s an expectant buzz in the air at the Yangon headquarters of the Union of Myanmar Federation of Chambers of Commerce and Industry. Hundreds of hopeful, nervous business owners and staff are waiting their turn to apply for a soft loan from the government.

Some are sitting quietly on socially distanced chairs, while many others are filling in documents at tables or reading information posted on the walls explaining who is eligible for the loans and how they can apply. The deadline to submit applications is just three days away.

U Zayar Myo, owner of Aung Zeyar Min Marine Fisheries Group, has just filed his paperwork, seeking a loan of K250 million. He had come prepared with a recommendation from the Ministry of Agriculture, Livestock and Irrigation and had no problem submitting the documents.

“If you meet the criteria, it’s easy to apply. The staff at UMFCCI were helpful in explaining what to do,” he said.

Zayar Myo has been running his business for more than 10 years; before that, he captained fishing vessels for other owners. After COVID-19 hit, sending demand plummeting, he halted operations and has since had to lay off about half of his staff.

If the loan is approved, he’ll be required to re-hire them, but he says that’s not a problem because there’ll be plenty of work when the fishing season opens in late September. He plans to use the loan to repair his 10 boats and pay the wages of 250 crew members.

“At the moment we have no money to do these things – we haven’t had any income for a long time,” he said.

“Actually, I calculated it would cost K500 million, but I decided to do it as cheaply as possible and applied for only half that amount.”

His caution is partly due to uncertainty over demand. Fisheries exports have been hit hard by COVID-19, and domestic consumption is also thought to have declined because of lower sales at restaurants and markets. “If I can’t make money this season after taking the loan, I know I’ll have to sell my fishing boats to pay it back,” Zayar Myo said.

But competition for loans is fierce. Zayar Myo was one of more than 10,000 business owners who applied for loans from this round of COVID-19 support before the August 10 deadline, UMFCCI figures show.

U Zayar Myo, owner of Aung Zayar Min Marine Fisheries Group, after applying for a K250 million loan on August 7. (Thuya Zaw | Frontier)

The COVID-19 loan fund has been one of the government’s signature initiatives to assist businesses hurting as a result of the impact of COVID-19, which the World Bank expects will slow Myanmar’s GDP growth to just 0.5 percent in 2019-20, down from earlier estimates of 6.4pc.

Launched in late March with an initial K100 billion – including K50 billion from the Social Security Fund and K50 billion from the government budget – the fund has offered one-year loans at 1pc interest, far below what private banks charge.

Applications from struggling businesses immediately flooded in, to the point that when the government launched the COVID-19 Economic Relief Plan just a month later, it was already indicating that the fund might be expanded up to K500 billion.

The first round was open to businesses in five sectors – garment CMP; other contract manufacturing; hotels and tourism; restaurants; and food industries, consumer production, and general manufacturing and services – and eventually distributed K101.1 billion to more than 3,000 enterprises between April 29 and July 1.

Three-quarters of the loans went to businesses in the food industries, consumer production, and general manufacturing and services categories.

On July 29, the government began accepting applications for loans from a second batch of loans from a K100 billion pool targeting businesses in eight sectors: agriculture and livestock; fisheries; export promotion industries; import substitution industries; supply chains involving products for export; food manufacturing; foreign employment services; and vocational training schools.

UMFCCI joint general secretary U Aye Tun, who is also secretary of the chamber’s COVID-19 Fund Working Committee, said managing the fund had not been easy because the need for credit was so great.

“There’s not enough to support everyone, but it’s really difficult to decide on the priority industries,” he said. “Also, we are still getting some applications from businesses in sectors that were prioritised in the first batch of loans, but not this time. We have to follow the rules so we can’t accept their application … it is a difficult situation,” he said.

Although the number of COVID-19 cases had remained comparatively low for many months until the recent spike in cases in Rakhine State, many businesses have continued to struggle.

“For most businesses, sales are yet to return to their former level,” said rice exporter U Nay Lin Zin, owner of Excel International Trading.

He has also applied for a loan from the government’s fund, which he plans to use to cover staff salaries and “long-term projects”.

In common with many export-oriented businesses, COVID-19 has badly hit Excel International Trading’s bottom line.

Rice prices have dropped and Myanmar’s currency has remained relatively strong, hurting the competitiveness of the country’s produce on foreign markets.

Nay Lin Zin normally exports about 8,000 tonnes a month to China, Europe and other parts of Asia, but at the moment he’s sending just a quarter of that.

Despite the huge drop in sales, Nay Lin Zin said he’s kept all of his 60 staff on the books.

“I’m really not focused on exporting at the moment given prices and the exchange rate. But I can’t just get rid of all my staff – I need to think long term and keep my human resources, and just wait and see if the market changes,” he said.

More than 10,000 businesses applied for loans from a K100 billion second tranche announced by the government in July.  (Thuya Zaw | Frontier)
More than 10,000 businesses applied for loans from a K100 billion second tranche announced by the government in July. (Thuya Zaw | Frontier)

The sluggish economy means that loan recipients in some sectors worry that they will not be able to repay them after a year.

In the CMP sector, few factories have received orders since COVID-19 emerged at the start of the year, putting the future of their businesses in doubt.

“Business is still not good, but a year will come around very quickly and then we’ll have to pay back the loan,” said Daw Yin Yin Moe, who owns Hla Yin Moe Co Ltd and runs a garment factory in Yangon Region’s Mingaladon Township.

“In this situation, I’m only willing to use half of the loan I received. I’m worried that if I invest all of it in my business, the business still might not do well and I won’t be able to repay it,” she said.

She was also critical of how long it took the government to disburse the support. “There was a gap of about two months between the announcement of the loan fund in the newspapers and when we actually got it. And the amount that I got was just one-fifth of what I requested. It took a long time because of the lack of clarity on the process and the working style of government staff,” she said.

Yin Yin Moe is far from the first to criticise implementation of the scheme. In April, a company named Apex International issued a statement saying it had rejected the K6.5 million loan that the government offered after it initially requested K300 million. The same month, a company linked to the Minister for Hotels and Tourism U Ohn Maung received a loan of more than K100 million, prompting howls of protest.

There are also concerns that many businesses will not be in a position to repay the loans after a year, and whether the government will be able to recover the money lent to businesses that go bust. The committee in charge of dispensing the loans has said that businesses that fail to repay the loan will face legal action. They will also be blacklisted by the planned credit bureau, and the committee will warn microfinance and non-bank financial institutions not to lend to them in future.

Although the loan can only be spent on salaries and business operations, companies are not required to retain a certain proportion of staff – a rule that has been applied in many other countries dispensing emergency credit.

Although the two rounds of loans have been oversubscribed, a relatively small proportion of businesses have applied, studies suggest. A nationally representative survey of 500 firms spanning a range of industries and company sizes, as well as the formal and informal sectors, found that just 9pc had applied for government support – despite 83pc of them reporting reduced sales, 51pc encountering cash flow shortages and 29pc struggling to access credit.

“These results suggest that the government may need to expand its outreach efforts and develop a broader, more inclusive set of programs,” the World Bank said in its June Myanmar Economic Monitor. It warned that the current design of relief measures targeting businesses may result in assistance going to “a narrow segment of formal firms … there is a significant risk that it will not reach informal firms or SMEs in other sectors”.

But Aye Tun said the biggest problem was a lack of money to go around. At K200 billion, the COVID loan fund is equivalent to just 0.2pc of GDP.

“The amount provided by the government is small. Relative to GDP, other countries have allocated far more,” he said. “This is likely due to budget problems … but the economy won’t recover by spending K200 billion alone.”

Further economic stimulus, particularly support to keep businesses going through tough times so they don’t lay off employees, would be important for getting the economy going again and alleviating suffering, he added.

“Many workers have now lost their jobs. There are a lot of unemployed people who returned from abroad and can’t go back again. They need job opportunities.”

U Aung Naing Oo, permanent secretary of the Ministry of Investment and Foreign Economic Relations, said “no definite decision” had been made on whether to allocate more money to the COVID loan fund.

“I don’t know yet whether the government will provide more support,” said Aung Naing Oo “I think the cabinet will make a decision after monitoring the situation of this latest round of loans.”

COVID-19 fund loan eligibility criteria

  • Must be owned by Myanmar citizens and been affected by Covid-19.
  • Needs to be operating or if suspended must resume operations immediately after receiving loan.
  • Must have a business licence issued before March 31, 2018.
  • Must have been earning income for past two years.
  • Must be able to repay the loan within one year.
  • Loan must be used for staff salaries and business operations only.
  • Cannot be blacklisted by DICA or relevant government departments.
  • Must have paid all relevant taxes.
  • Board of directors or owner must be able to guarantee the loan repayment.
  • Cannot be facing legal action from a bank for unpaid debts.
  • If in the agriculture, livestock or fisheries sectors, must be a commercial company rather than a family business; must not be receiving loans from the Myanmar Agriculture Development Bank; must submit a recommendation from the relevant township administrator

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