Govt stimulus not reaching SMEs: analysts

Low-income cottage, micro, small and medium enterprises are shutting down or on the verge of collapse while a good number of their employees have been made redundant being unable to avail the government assistance to deal with the impacts of Covid-19.

The pandemic has led to the shrinking of their markets leading to the loss of sales and working capital while most lack strong bank connections due to their small size, missing out on the Tk 20,000 crore stimulus package the government announced for them.

It is very difficult for these small-capacity units to regain capital and employees once they are lost, said Monzur Hossain, senior research fellow at the Bangladesh Institute of Development Studies (BIDS).

Some 80 per cent of employment in the country are generated by more than 13 lakh of these small enterprises, meaning they are practically the driving force of the economy, he said.

Loss of these units will cause the recession to linger, he added.

Nearly 35 per cent of the small enterprises conduct business through the banking system and 49 per cent borrow money either from nongovernment organisations or local microfinance institutions.

So the government stimulus should be disbursed by engaging the local microfinance institutions so that even the smallest and the remotest units can avail the benefits during this time of pandemic, Hossain said.

Hossain was addressing a virtual dialogue on SMEs organised by a newly formed Resurgent Bangladesh, a platform to aid policy formation for businesses and industries.

It has been formed by the Metropolitan Chamber of Commerce and Industry (MCCI), Dhaka Chamber of Commerce and Industry (DCCI), Chittagong Stock Exchange (CSE), Business Initiative Leading Development (BUILD) and Policy Exchange.

Masrur Reaz, chairman of Policy Exchange, moderated the dialogue. Six more dialogues would be organised on the SMEs.

Small enterprises are in a severe crisis, facing shutdowns, problems accessing finance, export order cancellations, massive downturns in sales and unemployment, said Ferdaus Ara Begum, CEO of BUILD, giving a keynote presentation on "Covid-19 economic crisis and SMEs of Bangladesh".

The recovery rate of loans from these enterprises is around 99 per cent and there is no scope for nonperforming loans if the disbursement occurs through microfinance institutions, said Safiqul Islam, managing director of SME Foundation.

Banks are not interested in disbursing loans among the small enterprises, said Rashedul Karim Munna, managing director of Creation. He suggested entrepreneurs explore domestic markets as the demand from overseas has been shrinking due to Covid-19.

If necessary the industrial policy could be amended to save the enterprises, the economy's lifeblood, said Abul Kasem Khan, chairperson of the BUILD.

The Tk 20,000 crore stimulus is a very small amount to save the enterprises, said Abdul Karim, former managing director of Palli Karma-Sahayak Foundation (PKSF).

There is a big difference between small and medium enterprises and the definitions, rules and regulations need to be duly stated to resolve problems faced by both types of entities, said Nihad Kabir, president of the MCCI.

The DCCI has already opened a separate desk to help the small enterprises borrow from banks, said DCCI President Shams Mahmud.

Many of the discussion participants suggested creating an updated database of the small enterprises so that the right decisions can be taken for the right entrepreneurs.

Bangladesh Bank arranged a salary disbursement system for the nearly 20 lakh garment workers within three weeks and can bring about a similar model for small borrowers seeking the government stimulus easily and quickly, said CSE Chairman Asif Ibrahim.

Nasir Uddin Ahmed, former chairman of the National Board of Revenue, advocated for reforms in taxation and fiscal management systems so that more revenue can be generated.

For instance, the proposed reduction of corporate tax to 32.5 per cent from 35 per cent is not enough. The corporate tax should be reduced more, he said.

Industries Minister Nurul Majid Mahmud Humayun said the government has been trying to protect existing jobs and create new ones through the stimulus packages.