Being the worst victim of the virus pandemic,78 lakh SMEs struggle for survival as bank loans still remain elusive to them
Mazhar Hossain from Narayanganj had been making handloom saris for 40 years. The weaver has ten manual looms with a capital of Tk20 lakh. The coronavirus-led shutdown shuttered the business in March, and Mazhar spent the capital for salary payments of his staff and supporting his family for the next two months.
After laying off 18 employees, the weaver turned up at the door of others to manage three meals a day for his family. Although the shutdown ended in May, the weaver was unable to start all over again as he had eaten up his capital and demand was spiraling down.
Abandoned by her husband, Sharmin Akter set up a confectionary cum coffee shop in Dhaka's Wari four years ago. She began the business by borrowing Tk2 lakh from her relatives and had been repaying the loans smoothly from her sales.
Her capital ran out in three months in rents and household expenses followed by the virus outbreak. "I used to make Tk8,000-10,000 per day before the pandemic. Sales have dropped to Tk1,000-1,500 since the reopening after three months. There is no option before me except to close down the business," said Sharmin.
Like Mazhar, Sharmin was worried over loans, staring at tough days ahead.
There are stories similar to those of Mazhar and Sharmin.
The small and medium enterprises (SMEs) faced severe setbacks in their business in the last two festivals – Pahela Baishakh and Eid-ul-Fitr – amid nationwide shutdown because of the outbreak of coronavirus in the country.
And even two months after the shutdown was lifted, the sector has no signs that it will recover anytime soon from the fatal blow it suffered due to the pandemic.
According to the Asian Development Bank (ADB), the SMEs in Bangladesh generate employment for 70 to 80 percent of people in the non-agricultural sector.
More than 78 lakh entrepreneurs of the sector, who contribute 25 percent to the country's gross domestic product (GDP), are now in a severe capital crunch owing to the virus outbreak in Bangladesh.
Though the government announced a financial stimulus to cushion the virus fallout for export and large-scale industries, the low-cost loans are yet to reach the SMEs.
SME entrepreneurs say many of them have failed to apply for loan since they do not have any relations with banks. Apart from that, conditions for the loans disqualify many SMEs.
Dhaka Chamber of Commerce & Industry (DCCI) President Shams Mahmud said though the SMEs are the worst victim of the virus fallout, banks are not showing interest in supporting them.
"That is because most of the SMEs previously were not connected to bank services," noted the DCCI president.
Shams Mahmud said, "SME entrepreneurs suffer from numerous issues, including loan scarcity, access to market, not improving product quality, lack of technology and training, and lack of skilled workforce. The rigid conditions make loans from stimulus packages elusive for the SMEs."
Mazhar Hossain applied for bank loans but his application got stuck in borrowing conditions. Meanwhile, Sharmin did not apply for bank support as she is not familiar with the loan availing process.
A recent Bangladesh Institute of Development Studies (BIDS) research shows only 16 percent SMEs among a total of 78 lakh enterprises in 177 clusters continued operations during the shutdown. Nearly 68 percent SMEs face a risk of business closure. The sector may lose 66 percent in income by the end of this year.
The research noted that most of the SMEs were struggling to pay their staff. The enterprises could pay 55 percent salary on average. Salary arrears at each SME amounted to Tk6.23 lakh on average.
8 lakh handloom weavers in distress
Sirajganj and Tangail supply most of the locally-made garments. In Sirajganj, there are more than 1.5 lakh machine and manual looms, where around 3 lakh weavers are employed. Besides, four lakh people in Tangail are involved in the weaving sector.
Total 7 lakh entrepreneurs in the two districts -- with capital ranging from Tk10,000 to Tk10 lakh --are fighting for survival. Most of them have already borrowed cash during the shutdown and now an uncertain future awaits them. The weavers are yet to qualify for bank loans.
"Salaries and household expenses in the prolonged shutdown ate up two-thirds of my capital. Now I only have the machines. Without capital support, it is not possible to start over," said Sirajganj's Belkuchi upazila weaver Sayed Mia.
The weaver claimed he had communicated with the banks, only to find that he could not apply for loans.
Meanwhile, the pandemic has jeopardized the future of more than 20,000 weavers in Narayanganj's Jamdani Palli and Mirpur's Monipuri Palli, two traditional hubs for fine hand-woven and crafted clothing. A dull Baishakh and Eid sales dried up most of their capital.
Sabur Mia, owner of a fashion outlet in Mirpur's Monipuri Palli, said, "We are selling old stocks as we lack capital to go for production again. We also do not qualify for bank loans due to the conditions attached."
Like him, most of the entrepreneurs of the two clothing hubs said resuming full-fledged production was impossible without capital support.
Local garments makers unable to resume production
Apparel manufacturers on the bank of Buriganga at Keraniganj supply 70-80% locally-made clothing across the country. Around 20,000-25,000 garments on both sides of the river and adjacent areas employ more than 10 lakh workers.
The thriving apparel manufacturing hub for producing clothing for the lower-income and middle-class people usually plans sales centering on Eid-ul-Fitr. Sales during the festival – nearly 70 percent of their total business around the year -- are the lifeblood for the apparel makers of the areas.
Most of the factories are totally dependent on bank loans for working capital – to pay rents, salaries, raw material and machinery purchase. They repay the banks after the Eid sales and have enough saved to restart business the next year.
The virus outbreak and two-month-long shutdown forced the manufacturers to spend from the working capital this year.
Muktar Dewan sells denim pants manufactured in his factory at the Keraniganj Zila Parishad Market. He sold clothing worth around Tk2.5 crore last year's Eid, while sales dropped to Tk20 lakh this year.
Muktar had announced a special offer to clear the rest of his remaining stock since he was no longer in production due to the capital crunch.
"All 40 employees are on leave as I do not have cash to resume production. I have been making ends meet from current sales," he told The Business Standard. Muktar further said that he was yet to receive any response from the bank though he applied for loans nearly a month ago.
Restaurants, tourism take a beating
Small and medium 5 lakh eatery owners are yet to be back in business though the government allowed them to reopen with health safety measures in place. Restaurant sector people said they had been struggling as they were allowed to keep the shops open on a limited scale -- only from 10 am to 7 pm every day.
Bangladesh Hotel-Restaurant Owners Association Secretary Khondoker Abdul Kadir said the sector provided five lakh entrepreneurs and other several lakh workers with their bread and butter.
"We heard hotels and restaurants will get loans from the stimulus announced to salvage the SME sector. But we are unable to even apply for loans as restaurants fall in the service category and there are too many conditions," he commented.
Conditions make Tk20,000 crore stimulus elusive
According to the Bangladesh Bank data, banks approved Tk2,060 crore loans as of July 23 under the government announced stimulus packages. Of them, 28 banks have disbursed Tk600 crore loans.
Banks said businesses and services under the cottage, micro, small and medium enterprise (CMSME) sector have more demands for loans. Most of the entrepreneurs are applying for term loans while the stimulus packages are supposed to be distributed only for working capital.
Fifty percent of the total loans will be distributed for the production sector while business and service sectors are eligible for highest 20 percent and 30 percent of loans respectively. A large number of SMEs take term loans as they do not require bank borrowing for working capital.
Besides, the three-year-long stimulus packages will get government interest subsidy only for a year. Therefore, the loan recovery in later two years may prompt troubles, which deter banks for loan disbursement for SMEs.
A Bangladesh Bank official said the slow SME loan disbursement also worries the central bank. The Bangladesh Bank took written commitments from a few banks for loan disbursement to the SMEs. Decisions will be taken after discussion with the finance ministry.