The Financial Express
Swasti Lankabangla Swasti Lankabangla

The punishment for being small

The punishment for being small

When the government started announcing the multiple relief packages for various Covid-hit sectors of the economy from March last, there was a strong fear that small and marginal operators would be largely bypassed, as usual.

The fear has come true. The rates of implementation of low interest-bearing relief packages meant for the cottage, small and medium enterprises (CSMES), agricultural sector operators and low-income professionals, farmers and small traders reportedly have been between 17.5 per cent and 9.53 per cent until August 31 last, the deadline set by the government for implementation of the packages.

The deadline for the loan packages has now been extended up to October 31 next to help pick up loan disbursement.

In contrast, nearly 71 per cent of the 330-billion taka package announced for large industries and the service sector has been executed.

The export-oriented industries are even luckier.  They have got 100 per cent of the 75 billion-taka package meant for paying wages to their workers and employees. The government has recently added Tk 2.5 billion more for these industries.  The rate of interest on the loan for these industries is only 2.0 per cent.

Unlike most affluent countries, the government had given the responsibility of making available the relief packages, amounting more than Tk 1.0 trillion, to the country's scheduled banks.

The central bank lowered the policy rates and put in place the refinancing facilities for banks to help banks mobilise enough resources for disbursement among the Covid-hit businesses. The government has been making available funds to compensate the banks for their loss on account of interest rate reduction.

It was more of a foregone conclusion that the owner of large industries, export-oriented or otherwise, and big service sector players, would have easy access to the relief packages. They have the power to influence a government decision or reach the management of banks.

For decades, because of their connections with the power-that-be, the access of the big guns to bank loans has been more or less smooth. Some of them despite being delinquent borrowers could evade harsh actions and be given the chance of rescheduling their loans time and again defying the existing rules. As  a last resort for saving these errant big borrowers, the central bank had introduced the 'loan restructuring scheme'. The money market regulator has preferred to look to a different direction when the defaulters have abused this facility, too.

The fact that banks are not interested in financing small and medium enterprises (SMEs) has come to the fore time and again. This particular kind of borrowers and other low-income and marginal businesses do not have the collateral that the banks are interested in. Nor have they the political muscle or organisational strength. So, banks have little interest in them.

Banks while making advances to any client want to be sure about the recovery of the same. So, lending without securing enough collateral remains a risky affair for banks. But, the total size of the default loans in the case of a few large borrowers is several times bigger than that belonging to thousands of small-scale borrowers.  

Unfortunately, a good small-scale client/ borrower, most of the times, does not get due attention from the bank officials. The situation in the case of high-profile yet delinquent borrowers is found to be, surprisingly, opposite in many cases.

The central bank, reportedly, is not at all happy with the rate of disbursement of loans from relief package for the small-scale and marginal borrowers. It has extended the deadline to help improve the situation. Hopefully, banks would soften their attitude towards this type of clients and help them survive the onslaught of the pandemic.



Share if you like