Myanmar SMEs Receive Financial Support from Japan
- The Japan International Cooperation Agency (JICA) recently approved US$46.5 million in low-interest loans to small and medium-sized businesses in Myanmar.
- The loans can be used for working capital and purchasing fixed assets, with the baseline interest rate at 5.5 percent.
- JICA has been in cooperation with the local government since 2018 to provide loans for development and social projects, totaling US$1.1 billion.
On June 1, 2020, the Japan International Cooperation Agency (JICA) approved US$46.5 million in emergency low-interest loans to assist small and medium-sized (SMEs) businesses in Myanmar.
The new loans can be used for working capital or to purchase fixed assets with the baseline interest rate of 5.5 percent. To enable more SMEs to access the loans, JICA has relaxed the collateral requirements as well as allowed grace periods to facilitate the repayments by SMEs.
SMEs are the backbone of Myanmar’s economy, comprising 99 percent of all businesses in the country and account for some 50-95 percent of total employment. The garments sector, which contributes to 10 percent of all exports, has faced demand and supply problems as 90 percent of raw materials are from China and 70 percent of garment products are exported to European states.
JICA financing Myanmar development
JICA is a Japanese government agency chartered with assisting economic and social development in developing countries. The agency is financing the latest loans through the restructuring of the JICA SME Two-Step-Loan Program, a scheme launched in 2018 designed to provide financial assistance to SMEs in Myanmar.
Under the JICA SME program, eligible SMEs can receive loans up to 500 million kyat (US$359,000) for capital investments, such as building factories, warehouses, and purchasing machineries. Businesses can repay the loans through monthly, quarterly, or annual installments for up to five years, depending on the type of business and their income. The interest rate is set at 5.5 percent per annum.
In January 2020, the agency signed loan agreements with the Myanmar government worth US$1.1 billion. The loans are to finance four projects, which are:
- The Yangon Sewerage System Development – aimed at improving wastewater management in the city of Yangon by improving and installing the sewage system and water treatment plants;
- The Yangon Urban Development Project – improving the urban environment of Yangon by rehabilitating drainage system, developing the central business district, and removing bottlenecks on major arteries in the city;
- Improving Urban Power Distribution – the scheme aims to improve power supply in the Yangon and Mandalay region by repairing distribution facilities; and
- Infrastructure Development – JICA will assist in the funding of basic infrastructure projects such as roads, bridges, and utilities, in regional areas.
In addition to JICA, Myanmar will also seek some US$700 million in loans from the International Monetary Fund (IMF) and US$60 million from the Asian Development Bank (ADB) to plug budget deficits and assist SMEs.
ASEAN Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia and maintains offices throughout ASEAN, including in Singapore, Hanoi, Ho Chi Minh City and Jakarta. Please contact us at firstname.lastname@example.org or visit our website at www.dezshira.com.