Strict Lending Rules Limit Growth of Hire Purchase in Burma

By Kyaw Hsu Mon 17 September 2013

RANGOON — Hire purchase is failing to catch on in Burma due to strict Central Bank rules limiting the length of credit agreements and demanding large amounts of paperwork from consumers, observers said this week.

After private banks began to prosper in the country once again in 2010, there were signs a hire purchase market would take off, but progress appears to have stalled.

Banks operating in Burma have formed links with the housing, automobile and electronics retail sectors and hire purchase is available in the major cities, allowing consumers to take home goods immediately but pay in installments.

But Than Lwin, vice chairman of the Kanbawza Bank, said it was important for the banking sector that use of hire purchase is expanded from its current size.

“The hire purchased system is a part of the banking system, it needs to develop more in future,” he said, insisting that Kanbawza is the bank in Burma that has the most ties with trading companies that mean it can offer credit on goods.

He said government restrictions were holding the development of hire purchase back.

“The central bank only allows us to hire cash for 36 months at the maximum,” he said.

The Central Bank also requires consumers hoping to buy goods on hire purchase to provide numerous documents and at least two guarantors, with proof that these sponsors could cover the debt, to show their creditworthiness.

Than Lwin said an awaited condominium law, that will clarify how ownership of properties above ground level, is required to make it clear how hire purchase agreements—three-way exchanges between seller, bank and buyer—can work.

“Most customers want to buy apartments or condos that are more popular than other types, but the problem is the condominium law is in process. We have to talk about ownership if we’re going to make a hire purchased system here,” he said.

Ye Min Oo, managing director of Asia Green Development Bank (AGD), also said that a three-year limit on hire purchase agreements was limiting the demand for such agreements.

“If the Central bank allows a long-term hire purchased system, we’re ready to do it,” he said.

As well as the short terms of hire purchase, AGD asks customers to stump up 30 percent of the cost as a downpayment.

Although hire purchase may be partly responsible for the growth in car showrooms and new cars on Rangoon’s streets, observers say its use is decreasing in the property sector.

The ungenerous terms mean middle-incomes people in Rangoon—usually those who benefit most from hire purchase—may be priced out of the market.

“How can we buy an apartment priced 100 million kyat [about US$104,000] over three years?” asked Ko Kyaw Naing, a trading company employee who earns 200,000 kyat, or about $208, each month.

“We have to pay a 30 percent downpayment. That means 30 million kyat first, then 1.9 million kyat a month for three years without bank interest included. How can we buy this kind of condo here? I can’t even imagine.”

A senior advertising manager at Naing Group Construction, who declined to be named, said property developers had been using hire purchase to sell apartments and draw in cash during construction, but credit through this method had dried up, leading to projects stalling.

“We had a sort of hire purchased system in some construction projects, but now it stopped because most projects have not been completed yet,” said the manager.

“In my experience, developers need money before the construction, that’s why they’re selling with this system, but now you can see Rangoon developers don’t sell with hired purchased recently.”