Stimulus fails to stimulate

Everything was in good shape for Akhtar Hossain Khan, an entrepreneur in Saidpur, until his business faced closure for two months after Covid-19 arrived on the shores of Bangladesh in March last year.

The proprietor of Khan and Sons used to produce exportable jackets, t-shirts and cargo pants for the buyers in India, Nepal, and Bhutan. His factory had employed 18 workers before the crisis.

"But, I was forced to shut down my 21-year long business all of a sudden due to the first wave of the pandemic," he said.

Khan is yet to summon the strength to restart the business.

"I do not know whether it will be possible at all," said Khan, also the president of the Exportable Small Garment Owners Group in Saidpur.

He had borrowed Tk 5 lakh from a bank and repaid it by selling land just before the pandemic.

"Now, I do not have any capability to resume the business by taking another bank loan," he said.

Khan is not alone. Instead, his case reflected the unprecedented adversity confronting many entrepreneurs in the cottage, micro, small and medium enterprise (CMSME) sector across the country.

In Saidpur, 250 CMSMEs have recovered around 50 per cent of their businesses. Thirty industries have closed. One of the significant barriers the sector has been facing is access to finance. Although the central bank initiated a stimulus package worth Tk 20,000 crore in April last year, this has yet to bring any positive impact on the CMSME landscape.  

Only 10 businesses in Saidpur under Pabna district have managed loans from the stimulus package. Another 50 businesses have recently been enlisted for the loans.

Countrywide, 74 per cent of the fund was disbursed as of June 10.

The stimulus fund allocated to the CMSMEs is insufficient as there are around 80 lakh cottage and micro-enterprises, said Ahsan H Mansur, chairman of Brac Bank, the largest SME-focused lender in Bangladesh.

Some 94,445 borrowers have got loans from the scheme, data from the Bangladesh Bank showed.

"The number of the beneficiaries is small given the total number of cottage and micro-enterprises," Mansur said.

CMSMEs account for 11 per cent of the country's industrial establishments, 30 per cent of industrial employment, 40 per cent of the manufacturing output and 25 per cent of the gross domestic product, according to the Bangladesh Institute of Development Studies.

Smita Chowdhury, an entrepreneur who used to produce toys from jute for export markets in her factory in Kamalganj in Sylhet before the pandemic struck, said she had been compelled to squeeze the business drastically.

Fifty workers were employed at the factory before March last year. The number has dwindled to 15.

The crisis has also forced her to change the category of items as she now targets the local market and her workers produce different types of bags.

Chowdhury repeatedly tried to get a loan from many banks, but to no avail. 

"The SME Foundation has even urged some banks to extend me a loan. But no lender has responded positively because of the small volume of transaction in my bank account," she said.

She has faced a massive loss because of the depressed demand. She now runs her business by mobilising funds from relatives.

Some CMSMEs had turned around from the slowdown, but the second wave has taken its toll on their business once again, said Mansur, also the executive director of the Policy Research Institute of Bangladesh.

"The economy will not revive if the CMSME sector does not recover."

He said the cottage and micro-enterprises had been hit hard by the pandemic, but they had hardly secured loans from banks.

"The government should allocate an additional Tk 20,000 crore for the sector."

The loan should be disbursed through microfinance institutions as many cottage and micro-enterprises do not have access to banks due to a lack of documents, such as the taxpayer identification number and the trade licence.

The central bank has recently carried out an inspection to see whether banks disbursed loans to the affected CMSMEs properly, said a BB official.

Banks largely extended the loans following due diligence. But many of them have shown unwillingness to provide the fund, he said.

Lenders had to spend more time monitoring small loans than the corporate ones, he said, adding that the BB was continuously pursuing banks.

The CMSME sector is going to face a more difficult situation in the days to come due to the recent wave of infections, which are mainly spreading in rural areas where the majority of cottage and micro-enterprises are located.

"Banks have taken a cautious stance in disbursing CMSME loans, and they may become even more careful if the situation worsens," said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.

Many banks also do not have the infrastructure and skill to disburse CMSME loans.

"But banks will have to play a proactive role in extending support to the CMSME sector in the greater interest of the economy," Rahman said.