The Financial Express

SMEs: Keeping engine of growth in motion

| Updated: November 28, 2020 00:01:24

SMEs: Keeping engine of growth in motion

The country's small and medium enterprises (SMEs) are not in a good state at all amid the Covid-19 pandemic. The deadly virus caused disruption to their production and sales. Nearly eight million entrepreneurs in the sector are incurring losses due to the lingering disruption to their production and sales. Most of the women-owned firms shut down their operations, finding no alternative ways to run their production. It is important to note that the fall in revenue from the SME sector was recorded at 66 per cent or around Tk 920 billion (92,000 crore) in the fiscal year 2019-20.

There is no denying the fact that the SME sector had been playing a significant role in terms of economic growth. With 25 per cent contribution to the gross domestic product (GDP), the sector in recent times had been flourishing to a great extent. The sector was employing over 20 million of the labour force, with only 4.0 million of them employed in the country's RMG sector. So, it can be said that the sector is a key driver of Bangladesh's economy. But the deadly virus forced the workers to leave their work places empty-handed, resulting in a growing unemployment rate. What is worrying is that the bailout facilities announced by the government did not reach them properly.

The entrepreneurs in the SME sector are passing the rainy days of life. Now it is not possible for many of them to come back in business like before. The ailing sector now needs huge financing in working capital.

As in every business sector, the textile millers have also been affected by the pandemic. Nearly half a dozen proprietors of textile mills in Narayanganj and Narsingdi expressed their dissatisfaction over the Covid-19 situation. The coronavirus attacked them severely. They could not pay back loans of banks and non-government organisations (NGOs) because of the disruption to the production and sale of gray cloths amid the pandemic.

With a view to easing the SME sector woes, the Bangladesh Bank has provided some policy support. But, most of the corona-affected producers in the country do not know much about the praiseworthy policy support. There exists a big information gap. So, they are still passing idle time instead of starting business anew by seizing the policy support. So, there should be a campaign to raise their awareness about the stimulus facilities available for them.

The Sharuj Textile of Araihazar in Narayanganj district is still continuing its production despite heavy losses. Mr Sharuj, proprietor of the textile mill, said he did not get his dues to the tune of more than Tk 8.0 million from the local buyers because of a halt to trading amid the pandemic.

Asked about the bailout facilities, he said the lenders were inspiring the entrepreneurs having good relationship with banks. As he said, the private sector banks are assisting the affected businesspeople in many ways, but the public sector banks are showing little interest in disbursement from the packages. With a total of 28 machines and 10 workers, the factory had been incurring heavy losses since the beginning of the pandemic. The local buyers have also become insolvent and they are unable to pay. Every worker gets Tk 20,000 in monthly wage from the factory while the monthly cost for repairing all machines is Tk 45,000. The proprietor of the textile mill began production with his own fund and now he is trying to get financing from the government's bailout package.

Former manager of the factory Amjad Hossain also painted a gloomy picture of the pandemic-time business. In the absence of any government support, it will be difficult to continue production. To maintain cost of production with own capital is totally impossible, he says.

The SME sector accounts for one-fourth of the gross domestic product (GDP). It generates nearly one-third of the total jobs. According to Bangladesh Bureau of Statistics (BBS), the country is currently home to 7.8 million SMEs employing 25 million workers. The BBS data show that a total of 57 million (5.7 crore) people are engaged in the industrial sector. Of them, 80 per cent are involved with the SME sector.

A recent study released by the International Finance Corporation (IFC) revealed the whole picture of the SME sector amid the 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 even know about packages, the survey report also said.

Some 91 per cent of businesses in Bangladesh suffered the worst fall in cash-flow compared with 66 per cent in Vietnam and 69 per cent in Indonesia. Around 37 per cent of the workers in MSMEs lost their jobs as 94 per cent enterprises experienced sharp drop in sales due to the pandemic.

Sadly speaking, around 94 per cent of MSMEs in Bangladesh experienced a sharp drop in sales due to the Covid-19 outbreak while 92 per cent in Sri Lanka, 88 per cent in Afghanistan, 86 per cent in India, 83 per cent in Nepal and 68 per cent in Pakistan. In Bangladesh they got 22 per cent of the stimulus packages in this situation while in India it stood at 38 per cent, in Thailand 33 per cent and in Malaysia 24 per cent.

The SMEs in Bangladesh still suffer from a $ 2.8 billion financing gap. To address the woes of affected entrepreneurs in this crisis time, the need for enhancing financial support is a must now to help the really needy people involved with the cottage, micro, small and medium enterprises.

A decent database on small-scale businesses has to be kept with details of collaboration with local administration. If possible, an SME centre can be set up in every upazila under the state-owned SME Foundation to assist the businesses in many ways. Besides, NGOs alongside banks have to scale up financing for the businesses having little capital during this crisis. The government earlier announced a Tk 200 billion (20,000 crore) package for cottage, micro, small and medium enterprises in response to the Covid-19. But the disbursement from the package was not satisfactory at all.

The owners of large conglomerates in the country are dominating the businesses despite their tiny capital. The SME products cannot enter large cities because of the dominance of the biggies. Technological innovation coupled with digital banking can help small entrepreneurs to get financing timely. Cost-effective financial assistance for SMEs is a must. To mitigate risks, a small loan guarantee scheme could be effective. The absence of research on SMEs and the current VAT system are responsible for the poor volume of production. With a view to competing with developed economies, there is no alternative to diversification of export products.

Following graduation from the least developed country (LDC) status in 2024, Bangladesh is set to lose the existing benefits in the European Union (EU) market. So, right measures should be taken right now to sustain economically. Let us utilise the government stimulus package and other funds properly to save the ailing sector hit hard by the Covid-19. 

The writer is a banker and economic analyst.
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