The COVID-19 pandemic has hit hard Bangladesh’s economy and the SME sector — considered the lifeline of the country’s economy (it provides employment to around 7.8 million people directly and livelihood to over 31.2 million overall) — is expected to play a very important role in ensuring how soon the economy could make a turnaround to come out of the Covid glut.
However, the SME sector itself is saddled with a host of issues more so because of the pandemic.
To start with, a staggering 83 per cent of small businesses reportedly did not receive stimulus relief as it was not well-tailored and did not consider the challenges and needs of small entrepreneurs, found a recent survey.
The findings of the rapid survey conducted by the Business Initiative Leading Development (BUILD) and the Policy Exchange of Bangladesh underlined that 69 per cent respondents reported that they were unable to pay wages to staff in 2020 due to the Coronavirus pandemic while 61 per cent of respondents think the situation has not improved and their revenue would fall in 2021.
The survey, carried out in February this year, was based on the interviews of 50 of Cottage, Micro, Small and Medium Enterprises and top officials of private banks — the Cottage, Micro, Small and Medium Enterprises including textiles, leather and leather goods apart from trading, light engineering, packaging, etc. — even as sales of 86 per cent of the firms had reportedly been negatively impacted because of the pandemic while a massive 95 per cent of firms reported a depressed demand compared to the pre-Covid scenario, giving an indication that consumption and demand have not recovered.
All key growth drivers of Bangladesh were adversely impacted with the spread of Coronavirus while the Cottage, Micro, Small and Medium Enterprises were impacted the most; many of them didn’t receive any Government incentive, claimed M Masrur Reaz, Founder and Chairman of the Policy Exchange of Bangladesh (a private policy and strategy advisory platform) while underlining that ‘the design of the stimulus packages was not adequately inclusive because of a lack of consideration of the challenges and needs of such entrepreneurs’ even as he went on to
use data from the Bangladesh Institute of Development studies, as per which, the average revenue reduction for such businesses was 60 per cent in 2020 while about half of them were planning to lay off 50 per cent of staff to survive.
So, they need a second stimulus package, maintained Masrur Reaz, while Planning Minister MA Mannan on his part reportedly maintained that the Government will consider the demand of such businesses if a second stimulus package is formulated while adding that best practices from developed countries should be considered to make the overall economic ecosystem of Bangladesh vibrant.
The Government has announced two stimulus packages for SMEs, but the disbursement process from commercial banks is not adequate. So, many of them did not receive the benefits, claimed Md Masudur Rahman, Chairperson of the SME Foundation while adding that as most of the SMEs are in the informal sector and have no formal documents, banks are not giving loans to them.
“So, a structural change is necessary to ensure access to finance for SMEs,” maintained Masudur.
Meanwhile, experts have opined that the SMEs can be the engine for economic growth and employment generation after the pandemic but not before adding that it all depends on effective response by the Government
Terming SMEs as the bloodline of Bangladesh’s economy, they said it has been creating employment for 7.8 million people directly and providing livelihood for 31.2 million, while adding that SMEs need to be uplifted so that the sector can generate quality employment.
The boost that the SME sector has been looking for has perhaps been delivered in the budget.
“This year, the budget has become business-friendly, more specifically SME-friendly, because the corporate tax rate for non-listed companies has been decreased from 32.5 per cent to 30 per cent,” said Dr Md Mafizur Rahman, MD of SME Foundation, adding, “The advance tax on raw materials imported by the industrial entrepreneurs of Bangladesh has been decreased from 4 per cent to 3 per cent…”
He then went on to state, “In order to protect the small and medium enterprises’ interests, in some cases, duties and taxes on imports of finished products have been increased,” and underlined women entrepreneurs are getting more income tax exemptions and the tax-free income limit for women entrepreneurs has been increased from the current Taka 50 lakh to Taka 70 lakh and these will benefit SME entrepreneurs.
In short, this year’s budget is SME-friendly, he said while adding that big industries get more attention in Bangladesh, because, according to political-economic philosophy, large industry owners can present their demands to the policy makers more forcefully whereas the small and medium entrepreneurs cannot express their views that strongly.
“The SME Foundation has consistently raised the small and medium enterprises’ needs, aspirations and problems before the policy makers. Their demands are slowly reaching the policy makers,” claimed Mafizur.
Meanwhile, in another positive development that might have far-reaching ramifications for the Cottage, Micro, Small and Medium Enterprises, Bangladesh Bank has recently issued a circular that has made cottage, micro and small entrepreneurs eligible for receiving term loan from the Taka 20,000-crore stimulus package.
The BB circular also said that such borrowers would remain eligible for receiving working capital loans even as in both cases, the cottage, micro and small entrepreneurs would receive one-year’s interest on loans as compensation while the medium entrepreneurs would not be eligible for receiving such term loans from the package.
However, their scope for receiving working capital loans would remain valid, the BB circular said while adding that besides, the medium entrepreneurs would also receive one-year’s interest as compensation.
The central bank announced the stimulus package in April 2020 with the aim to support the cottage, micro, small and medium entrepreneurs. Initially, the banks were asked to implement the package by June of the year but disbursements from the package were delayed on various grounds, prompting the central bank to extend implementation deadlines on several occasions even as reports suggest that as of 17th June, 2021, implementation of the package reached Taka 14,913.25 crore, which represents 74.57 per cent of Taka 20,000 crore.
Given the steps initiated by the Government, one can only hope that the sector would overcome the impacts of Coronavirus soon and play its role in reviving the economy of Bangladesh.