SMEs are in dire need of a lifeline from banks | The Daily Star
12:00 AM, August 24, 2020 / LAST MODIFIED: 01:55 AM, August 24, 2020

SMEs are in dire need of a lifeline from banks

Businesses are recovering but the small and medium enterprises (SMEs) are being left behind.

Subsequently, easy and generous financing for them, particularly the micro, small and women entrepreneurs, has become urgent and imperative.

The SMEs contribute about one-fourth the country's gross domestic product and employ millions of people.

Still, a large number of the micro, cottage and small businesses have remained missing from formal financing and the government-announced Tk 20,000 crore stimulus package for the sector.

This was shared at an online discussion jointly organised by LankaBangla Finance and The Daily Star on supporting the SMEs to cope with the Covid-19 pandemic.

Planning Minister MA Mannan was present among others.

Discussants said the pandemic induced a long shutdown, which was a catastrophe for the SMEs, especially micro and small businesses that mostly operate informally.

The SMEs suffered Tk 92,000 crore in losses during the shutdown, said Monzur Hossain, a senior research fellow of the Bangladesh Institute of Development Studies (BIDS).

They are yet to recover even though there are signs of a resumption of economic activities, he said, citing one of his latest studies on the impact of the pandemic on the SMEs.

"Therefore, the implementation of the stimulus package is vital for the SMEs."

A majority of the micro and small businesses do not have access to bank finance because they operate informally and cannot prepare documents in line with the requirements of formal financial institutions.

A certain portion of the stimulus can be delivered through microfinance institutions along with taking support from SME Foundation for the benefit of small businesses, Hossain added.

The SMEs are the engine of development and it is particularly true for a developing country since they provide diversity, employment and value addition, said Selim RF Hussain, managing director and chief executive officer of BRAC Bank.

Some 55 per cent of value-addition in Japan comes through the SMEs, he said.

Small clients of BRAC Bank were on their way to recovery following the withdrawal of the countrywide shutdown by the government from June.

BRAC Bank, one of the biggest financiers of the SMEs, also brought changes in its loan products to fit with the needs of its borrowers, he said.

Initially, responses from the SMEs for the stimulus package were low because of a lack of awareness, said Md Mahbub ul Alam, managing director of Islami Bank Bangladesh.

Awareness increased later and Islami Bank, another major lender to the SMEs, got more applications. The bank provided loans to 2,100 out of 3,600 applicants, he added.

To support micro businesses, Islami Bank also finances through its microfinance window in rural areas, he added.

The macro scenario of loan disbursement does not match with the micro picture, said Mohammad Abu Eusuf, professor of the Department of Development Studies at the University of Dhaka.

Many micro and small businesses and women entrepreneurs continue to be left out from the stimulus package for the SMEs.

"A one size fits all approach will not help."

Citing his recent study among women entrepreneurs, he said 95 per cent of the respondents did not get the fund.

They are begging at the doors of banks for loans but in vain, said Eusuf, also director of the Centre on Budget and Policy at the University of Dhaka.

"Their situation is different and they should be treated differently," he added.

Khwaja Shahriar, MD and CEO of LankaBangla Finance, echoed the same.

"We all should work so that SMEs can recover," he added.

The condition of micro and cottage enterprises was very weak and these businesses need support on easy terms, said Ferdaus Ara Begum, chief executive of Business Initiative Leading Development (BUILD).

She urged for increasing the repayment period of loans for small entrepreneurs.

Citing that India offered Rs 3 lakh in collateral-free loans, she demanded granting Tk 2 lakh as collateral-free loans for small and micro businesses.

"Overall, we are lagging behind loan disbursement," said Centre for Policy Dialogue Research Director Khondaker Golam Moazzem.

The government's intentions were good but banks were not properly doing their job of implementing the stimulus plan.

They are focusing on lending to those who have. They are showing slackness, he said, demanding that the central bank disclose bank-wise loan disbursements against targets.

"If the economy recovers, why will the SMEs not get loans?" he asked.

Frustration has gripped many micro and small entrepreneurs as they were not getting any finance, said Nazeem Sattar, general manager of SME Foundation.

Banks are giving priority to their existing clients, he said, while demanding measures to ensure loans for the SMEs that do not get it from banks.

"It is necessary to develop an alternative mechanism for those small businesses that are not served by banks."

State banks have branches all over the country and they have an important role to play, Sattar added.

The central bank eased application procedures for loans and cut documentation requirements for the SMEs, said Asif Iqbal, joint director of the Bangladesh Bank.

"We have to be prepared to serve a huge demand surge in the post-pandemic period," said Planning Minister MA Mannan.

He suggested that the central bank consider ways to relax repayment schedules for the SMEs and energise state banks so that they lend to the SMEs more aggressively.

"The pandemic has created a shift toward virtual marketplaces from physical stores. We have to utilise the digital prospect," he said.

Md Kamruzzaman Khan, senior vice-president and head of SME Financial Services of LankaBangla Finance, said the non-bank financial institution gives focus on lending to manufacturing SMEs.

Syed Ashfaqul Haque, executive editor of The Daily Star; Borhan Uddin, executive director of the Institute of International Business & Management; and Shabbir Shawkut, technical advisor-capacity building and public-private dialogue of The Asia Foundation, also spoke.


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