SMEs hung out to dry
They were the hardest hit segment when the whole economy came to a halt because of the countrywide pandemic-induced lockdown.
But the real struggle for the cottage, micro, small and medium enterprises (CMSMEs) stemmed from the lack of access to funds they needed to make a turnaround when the curbs were partially eased.
A credit guarantee scheme was introduced to help reluctant banks disburse the stimulus package among the CMSMEs starving for the credit. But stringent conditions have rendered the initiative unattractive.
The latest disappointment has been delivered by the proposed budget for the fiscal year starting on July 1, which promises inadequate measures for the segment considered to be the economy's backbone.
The government did roll out a Tk 23,000 crore stimulus package to support CMSMEs. But the disbursement did not see much uptick until recently as most banks did not have the focus and infrastructure to take the funds to the enterprises.
The stimulus package alone did not upset the CMSMEs.
The government's indirect measures like the reduction of tax proposed in the budget for the next fiscal year are too scanty as the steps would not be able to revive the CMSMEs, according to experts.
The CMSMEs in the agricultural sector, ICT related industries, women entrepreneurs, and some units acting as a backward integration of large industrial units may benefit to some extent from the proposed budget.
However, the rural CMSMEs, which employ semi-skilled and unskilled workers, will not benefit from the proposed measures.
Economists, businesses and trade body leaders called for direct cash support of Tk 20,000 crore to Tk 30,000 crore for the segment.
CMSME operators say nearly 15 per cent of CMSMEs have closed and 50 per cent are still struggling to survive in the absence of financial support.
Most of the pandemic-induced job losses took place in the CMSME sector and it is a big challenge for the government to bring them back to the job market.
"CMSMEs need direct cash support as they do not have the money in hand, and their lenders are also cashless," said Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue (CPD).
He proposed a Tk 30,000 crore second stimulus package for CMSMEs to boost the cash flow to the units.
Of the amount, 30 per cent should go to the new entrepreneurs, he said.
Moazzem suggested involving non-governmental organisations (NGOs) and microfinance institutions (MFIs) to disburse the loans, along with the banking channel.
In Bangladesh, there are about one crore CMSMEs, which generated nearly 90 per cent of private sector jobs and contributed 25 per cent to the gross domestic product before the pandemic arrived.
As of May, only 72 per cent of the Tk 23,000 crore fund has been disbursed, whereas the disbursement rate was 100 per cent for the stimulus package unveiled for large scale industrial units.
Banks are reluctant to lend from the stimulus money to CMSMEs as the potential borrowers cannot fulfil the conditions. A portion of them are unbanked and borrow money from NGOs or MFIs.
"We could not give loans to the real small units," said Md Jashim Uddin, president of the Federation of Bangladesh Chambers of Commerce and Industry, at an event of the CPD on Saturday.
He urged the government to come up with cash support of Tk 20,000 crore for the cottage and microenterprises.
Apart from banks, trade bodies and chambers can be used in giving out loans as most of them are registered with local trade associations, the entrepreneur said.
He called for extending the loan repayment to December 31 from June 30 as most of the CMSMEs are yet to offset the losses caused by the economic slowdown.
Md Ali Zaman, president of the SME Owners Association of Bangladesh, said the budgetary measures were inadequate to protect the CMSMEs.
Instead of unveiling another big fund, Zaman suggested the proper disbursement of the previous package and easing rules so the affected CMSMEs could receive the finance.
He demanded the withdrawal of 5 per cent VAT on CMSMEs for the next two years to help revive sales.
According to the definition, firms with a paid-up capital of up to Tk 30 crore are considered small enterprises. As a result, the subsidiaries of conglomerates enjoy the benefits earmarked for CMSMEs, he said.
"The paid-up capital threshold should be fixed at Tk 10 crore to extend the facilities to the real sufferers," Zaman said.
Ahsan H Mansur, executive director of the Policy Research Institute, said the government should have kept a sizeable fund for CMSMEs in the proposed budget.
The amount of fresh fund may range from Tk 20,000 crore and Tk 30,000 crore. Of the fund, one half should be given as a grant, he said.
Mansur called for the continuation of the 4 per cent loan subsidy and the extension of the repayment period.
According to the former official of the International Monetary Fund, the central bank rolled out a Tk 2,000 crore credit guarantee scheme for CMSMEs, but the initiative had not been effective so far.
An effective loan protection scheme has to be put in place for the financial institutions so that they become keen to lend.
"All risks should not be imposed on banks," said Mansur.
Another sticking point is the reliance on banks to channel the funds. But most banks do not have a focus on SMEs and the infrastructure to reach them.
Some banks are concentrated in trade financing, and some are in corporate banking. As a result, this group of lenders has to rely on NGOs and MFIs to distribute their share of the stimulus package.
But the operational cost for the MFIs is higher than banks, and the former cannot give out the loans to the end borrowers at 9 per cent.
So, the banks that have the concentration in the CMSME segment should have been given more funds to disburse under an effective credit guarantee scheme, Mansur said earlier.
More interest subsidy, an effective credit guarantee scheme, a tie-up between banks and NGOs and MFIs, and the use of technology could give much-needed funds to the CMSMEs, he said.
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