SMEs urgently need cost effective financial assistance
November 10th, 2020 at 4:04 pm
SMEs urgently need cost effective financial assistance

Bangladesh’s small and medium enterprises (SMEs) are in dire straight as to how to sustain after a massive drop in production and sales due to Covid-19 pandemic.

Close to eight million entrepreneurs in the sector have been incurring losses due to no production and sales. In order to address the massive loss, cottage, small and medium enterprises (CSMEs) are currently in a race to seek bailout facilities announced by the government. If the much-discussed SME sector is brought under stimulus facilities soon, the economy is likely to return to normal, no doubt.

In particular, most enterprises run by women have shut down their finding no alternative ways to run production. It is important to note that revenue decrease in the SME sector was recorded at 66 per cent in the Fiscal year 2019-20 with around 92,000 crore loss.

There is no denying that SME sector had been playing a significant role in terms of economic growth. With 25 per cent contribution in GDP, the sector has, in recent times, become flourishing to a great extent. Besides, the sector runs with employing over 20 million labour force were only 4 million in the country’s Ready Garment Garment (RMG) sector. So, it can be said that the sector is a key driver of the Bangladesh economy.  The deadly virus left thousands of workers unemployed. What is worrying is that the bailout facilities announced by the government did not reach them properly.

Those in the SME sector is in a state of uncertainty as it got little backing from the government and without getting that it is impossible to make a come-back. The ailing sector now needs huge financing as working capital. About a dozen proprietors of textile mills in Narayangonj and Narsinghdi suffered heavy losses due to COVID-19 has hit the sector attacked them severely. Even though, They could not pay back banks, and NGOs loans for not producing and selling grey cloths amid pandemic. With a view to ease SME sector woes, the central Bangladesh Bank has given a number of policy supports. But, most Corona -affected producers in the country do not know the details of praiseworthy policy supports. With a huge information gap, they are still passing idle time instead of starting a business. So, the need for enhancing campaign regarding stimulus facilities for the sector is a must right now.

“Sharuj Textile of Araihazar under Narayongonj district is still running production amid huge loss” proprietor of Sharuj Textile – Mr Sharuj told this writer. He did not get his dues worth over Taka 8 million from local buyers as they also had no sell.. He said the lenders are inspiring the entrepreneurs who have good relations with the banks. The private banks are assisting the affected business people in many ways where public sector banks are showing little interest in giving packages. With a total of 28 machines and 10 workers, the factory has been incurring huge losses after pandemic hit Bangladesh.

Local buyers have also become insolvent. Every worker gets Taka 20,000 per month as wages from the factory and monthly for repairing machineries is Taka 45,000, according to Sharuj. He started production with his own funds and now he is trying to manage finance under government bailout packages.

Former manager of the factory, Amjad Hossain, echoed the Sharuj and that without government support the factory will shut down. To maintain cost of production with his own capital is totally impossible.

The SME sector accounts for one-fourth of GDP and generates nearly one-third of its total employment. According to the Bangladesh Bureau of Statistics (BBS) – The country is currently home to 7.8 million small and medium-sized firms with 25 million workers. BBS data show that a total of 5 crore 70 lac people are engaged in the industrial sector. Of them, 80 per cent employees are involved in SME sector. A recent study released by International Finance Corporation (IFC) revealed the whole picture in SME sector that experienced during Covid-19. Only 0.4 per cent of the country’s micro, small and medium enterprises (MSMEs) received financing from financial institutions- the study said. Some 24 per cent of the MSMEs did not receive any financing under stimulus packages and 74 per cent did not know about packages- the survey report also said. Some 91 per cent of Bangladesh businesses suffered the worst decline in cash-flow compared with Vietnam 66 per cent and Indonesia 69 per cent. Around 37 per cent of the workers in MSMEs lost their jobs as 94 per cent enterprises experienced a sharp drop in sales due to pandemic- the repost said. Globally, worth a total of $ 8.0 billion was announced from IFC to help to sustain economies where Bangladesh was nominated to give US$ 75 million as working capital.

Sadly, around 94 per cent of MSMEs in Bangladesh experienced a sharp drop in sales due to outbreak where 92 per where Sri Lanka faced 92 per cent, Afghanistan 88 per cent, India 86 per cent, Nepal 83 per cent and Pakistan 68 per cent. India got around 38 per cent, Thailand 33 per cent, Malaysia 24 per cent and Bangladesh 22 per cent of total stimulus packages for Covid situation.

The SMEs in Bangladesh still now suffer from a 2.8 billion US dollar financial gap. To address the woes of affected entrepreneurs in this crisis moment, the need for enhancing financial support is a must right now. The time demands the greater interest of the country to back Cottage, Micro, Small and Medium Enterprises.

A decent database on small-scale businesses has to be kept as record with details with the collaboration of local administration. If possible, SME center at every Upazila under state-owned SME foundation might be launched aiming to assist the businesses in many ways. Besides, Non-Government Organizations ( NGOs) alongside banks have to scale up finance the businesses having little capital during the crisis. The government earlier announced a Taka 20,000 crore for the cottage, micro, small and medium enterprises in response to Covid-19. The newspapers reports suggest that the distribution of packages was not satisfactory as expected.

It is important to note that the owners of large conglomerates in the country are dominating the businesses having tiny capital. The reach of SME products in large cities has become so complex for the dominance of the capitalist. A technological innovation coupled with recently launched digital banking might help small entrepreneurs to get finance timely. Cost-effective financial assistance for SMEs is a must.  To mitigate risk, small loan guarantee scheme would be effective much. Nevertheless, for the absence of research activity on SMEs and the current VAT system are responsible for the poor volume of production. With a view to compete with developed economies, there is no alternative to diversity exportable products. Nothing but SME products our emerging economy never runs fast. Why are we stumbling to promote the much-needed sector during pandemic despite having huge government support? Following LDC graduation, Bangladesh is set to lose existing benefits from the European Union (EU).

Thus it is very important that correct measures are taken immediately to help these enterprises to sustain economically. Let us utilize government stimulus package and IFC fund properly to save the ailing sector hit-hard by Covid-19.

 

Md Mazadul Hoque is a banker & economic analyst.