The Financial Express

Reaching out to SMEs in pandemic: How effective is the regional and cluster based targeting?  

| Updated: July 24, 2020 23:56:48

Reaching out to SMEs in pandemic: How effective is the regional and cluster based targeting?   

There are about 10 million micro, small and medium sized enterprises in Bangladesh, accounting for about one-fourth of the total output of the economy. In rural areas, the small businesses have been playing an instrumental role in transforming rural economy; share of nonfarm income in a rural household is now higher than the farm income, on average.

It is the very nature of these small businesses that makes them highly vulnerable to large shocks like COVID-19. These businesses have little capital, have lower access to credit, operates mostly on credit along a fragile supply chain, and sell most of the output locally. A growing body of evidence suggests that these small businesses, particularly the ones in the service sector, are in precarious conditions in this COVID-19 induced pandemic. Note that about two-thirds of the small enterprises belong to the service sector.

Now the question is: how to target these smaller businesses in both rural and urban areas for delivering transfers and incentive packages of the government. Is there any geographical concentration of these enterprises? In order to understand this, we have created two maps of the concentration of enterprises and hotspots of COVID-19

The green color of Figure 1 shows the concentration of enterprise with 1-9 workers - the number of enterprises per 1000 population. The darker the color, the higher the concentration. Similarly, Figure 3 shows the concentration of enterprises with 10 and above workers. It is worth noting that the concentration of enterprises with 1-9 is more in the western part of the country than the eastern part. On the other hand, the enterprises with 10 and above workers are clustered across the whole country -- in greater Dhaka district, Chittagong, Greater Pabna and Bogura and in Bagerhat and Pirojpur in the south.

Now, we overlay the red Covid-19 bubbles on the enterprise maps - the larger the bubbles, higher the number of caseloads per 1000 person in a district. Note that the hotspots of the diseases are more concentrated in the middle and eastern part of the country. Taken together, both the enterprise maps and Covid-19 maps, two things emerge. First, the smaller enterprises with 1-9 workers that are more concentrated in the western part of the country are less likely to be affected by Covid-19 than the larger ones. Second, some clusters of larger enterprises are likely to coincide with the spread of diseases. To summarize, there is a pattern of spatial distribution of the small businesses and regional targeting can be a useful tool to reach them.

SMES: CLUSTER-WISE CONTAINMENT STRATEGY AND DISBURSEMENT OF STIMULUS PACKAGE: According to SME Foundation, there are about 177 SME clusters in Bangladesh 51 districts of the country. There are about 70 thousand enterprises employing about 20 lacs workers.  A recent BIDS study on SMEs conducted during lockdown suggests that they were in dire need for government support to sustain their businesses. In order to salvage these businesses, the government has announced a stimulus package worth of Taka 200 billion. These amount will be delivered as a subsidized credits through the banking channels. The efficacy of disbursement of subsidised credit is under question as a large share of small businesses are outside the banking network.

Hence we propose cluster based regional approach to target the SMEs efficiently. The spatial distribution of the clusters along with the COVID-19 hotspots helps identify the extent the clusters are affected and thus prioritise them. Cluster based containment strategy can also be put in place to contain the spread of the diseases.

In the sub-district level map above (Figure 3), 177 clusters are represented in green. Consistent with the initial two maps based on the number of enterprises using the Economic Census Data, it is evident that the most of the SME clusters are also located in the western and middle parts of the country and the pandemic is less severe in the western part. Based on the severity of the pandemic, we can categorize the clusters from least to most severely affected ones. SME Foundation and PKSF can design special program to assist these ailing businesses based on geography and clusters.

Since this contagious disease spreads spatially, it is important to understand the spatial structure of the economy, particularly the spatial distribution of the enterprises. The containment measures of the disease, distribution of transfer during lockdown, and reaching out to the enterprises with a recovery plan require understanding of the spatial dimension of the economy at the granular level. Currently, we don't have the required GIS data to plan at the very local level.


Kazi Iqbal, Md. Nahid Ferdous Pabon, Tanveer Mahmood and Mohammad Rezoanul Hoque are researchers of Bangladesh Institute of Development Studies (BIDS). This piece is based on a recent webinar organised by BIDS. kazi.iqbal2013@gmail.com.

Share if you like