Since the scheme was introduced at the start of this year, BMF has amassed a total of 500 customers and demand is still rising, BMF general manager Daw Kaythi Oo told The Myanmar Times.

The scheme aims to help new business owners who need to borrow money to grow but who lack the assets – typically land or property – to put up as necessary collaterals.

And while local banks have started providing loan assistance to small and medium enterprises (SMEs) at the behest of the State-run SME Development Department, firms less than two years of age still face difficulties qualifying for the loans.

To help owners of new start-ups and businesses, BMF will accept all types of vehicles as collaterals, including personal cars, taxis and commercial cars.

The loans given will be 40 percent of the appraised value of the vehicles, with a payback period of between 6 and 18 months. Monthly repayments will include interest and principal payments. This is different from repayments to banks, under which the interest is services monthly while the principal is repaid at the end of the year.

Interest will be charged at 2pc per month or 24pc per year, which is about twice the rate charged by local banks. “The interest rates charged are also in accordance with regulations and the high risks involved,” Daw Kaythi Oo said.

Despite the high interest rates however, demand for MBF loans is still rising, as many businesses own personal or commercial vehicles. In contrast, there are only a few who own property. “Despite the high interest rates, people are still borrowing from us because of the easy collateral,” she said.

Bank reform

The emerging trend represents a sign that local banks need to improve their loan application processes to attract and retain more customers. “When borrowing from the banks, the appraisal process takes a long time and many customers are often disappointed in the end,” a senior officer from a local bank told The Myanmar Times. “Banks must reform and shorten this appraisal process.”

To be sure, some progress has been made to make applying and qualifying for loans in Myanmar easier. For example, the Central Bank of Myanmar currently allows some private banks to extend loans with or without collaterals, depending on each bank’s risk management processeses.

Still, the process has been slow and the banking industry as a whole remains encumbered by an over-focus on collaterals, high interest rates, insufficient capital reserves and poor understand of their customers,” Philip Koh, adviser to the board of directors of Kanbawza Bank, said during an event in October.

In the meantime, loan service providers like BMF are gaining market share. In fact, it is now in the process of making arrangements to open new branches in Mandalay and other major and townships to expand, Daw Kaythi Oo said.

To reduce the risks and promote a sustainable national banking and financial sector, major reforms and overhauls are urgently needed. 

Source: https://www.mmtimes.com/news/non-bank-loan-providers-gain-market-share.html