If we don’t immediately come out with a plan to ensure that the micro and small businesses survive, revive and ultimately thrive, the entire economy of the nation could suffer a big jolt
Micro and small businesses are the backbone of global economy. They account for more than 90 percent of worldwide businesses and contribute 50 to 60 percent of global employment.
The scenario in Bangladesh is not much different. There are around 7.8 million enterprises in Bangladesh and 90 percent of them are micro (including cottage) enterprises.
The International Monetary Fund (IMF) Country Report (2012) for Bangladesh indicated that microenterprises accounted for more than 99 percent of private sector industrial establishments and created job opportunities for 70 to 80 percent of the non-agricultural labour force.
This sector contributes around 25 percent to the GDP, amounting to around $79 billion. Any impact on the micro and small enterprise will have a huge impact on the lives and livelihoods of the people associated with it and on the overall economic health of the country.
The Covid-19 pandemic, however, has brought micro and small businesses to a grinding halt as more than 50 percent of the businesses have become non-functional due to the crisis.
Some of the businesses still in operation are reporting sharp declines in their revenue. Due to the downward trend in businesses or total shutdown of the enterprises, millions of workers have either lost their jobs or are being paid less or are on the verge of losing their jobs.
The medium and large businesses have a very symbiotic relationship with the micro and small businesses as the latter group of businesses acts as an ancillary industry to the former. The revival of big business hinges on the small business and vice-versa.
If we don't immediately come out with a plan to ensure that the micro and small businesses survive, revive and ultimately thrive, the entire economy of the nation could suffer a big jolt.
As the current crisis has kept everybody engaged in estimating its outreach, duration and impact, this is jeopardising the revival planning.
Before a business is able to decipher the crisis, it should be laying low to save cash and other assets – to be used for recovery once the crisis is over.
It is not that all the businesses are suffering the crisis. Between the doom and the gloom there is a certain boom. This crisis has come as an opportunity for certain businesses to grow. These are mostly the ones which are into e-commerce and online provisioning services catering to the people whose movement is severely restricted due to the lockdown.
From the initial trends it seems that the hardest hit is the tourism industry, the restaurants, hotels, medical services, and the small and petty traders on the streets. This pandemic – contrary to everyone's expectation – has provided an unprecedented opportunity for growth to some of the sectors like e-health, e-education, online retail grocery stores, etc.
Can we, however, come out with a strong revival strategy wherein there is a symbiotic or supportive relationship between the sectors which are severely challenged and going through recession and the sectors which are not only growing but are forecast to grow further?
Some of the challenges micro and small business owners face are around developing a thorough understanding of the change in ecosystem and the impact it will have on the enterprise.
It could be about the duration of the lockdown, disruption of forward and backward linkages, or about the relevance of the enterprise in post covid-19 pandemic world – that if the pre Covid-19 status quo would continue or we would find a "new normal".
It is time for businesses to take a pause, reset the goal and then start engaging. Instead of focusing on the growth-oriented approach, survival of the business during the crisis period is the first step towards recovery.
As long as the path to move forward is not decided, efforts should be made to save the capital as much as possible so that there are resources available to move forward.
Most of the micro and small businesses in Bangladesh are a part of an informal economy which lacks legal documentation. It is also a time to work on that front, which would make businesses more resilient in future.
Not having legal identities deprives the businesses of accessing various forms of business development services and capital from a formal institution.
There is a huge need for scouting agencies to come forward and mentor businesses through online coaching and support. It is an opportune time for the big corporates to come forward to provide pro-bono support services to their lesser brethren.
There is no doubt that this crisis is enormous. It has hit every aspect of human lives and livelihoods across a wide section of population.
The government has come out with stimulus packages for the recovery and revival of the economy. But looking at the scale of the crisis, any package is expected to fall short of the needs on the ground.
In order to do realistic planning focusing on revival, the concept of ``Triage" could be borrowed from healthcare. It is used to prioritize patients in case of an emergency medical situation when the number of patients overwhelms the system.
The patients are segregated based on their conditions where seriously ill patients get more attention than critically injured patients with very less chances of survival and the patients with minor injuries are administered some first aid and released.
This concept can be applied to the business as well. The business that has no chance of survival should be given less attention whereas the businesses that could recover with support should get more attention. This strategy will help in optimum utilization of limited resources.
The designing of stimulus packages could also play a crucial role in the revival of micro and small business. It should be guided by the blended finance concept where the financial resources could be a combination of loans and grants from philanthropic as well as financial institutions.
There should be a risk sharing mechanism between the business and the financial institutions where the risks could be further refinanced by the government or the donor. The loans could be designed in such a way that it is properly targeted, including with the subsidised rate of return.
One of the major challenges faced by the micro and small businesses is loan default and the credit rating of the enterprise.
It is strongly suggested that there should be some moratorium on credit rating or the rating regime should be realistically liberalised.
Another major impediment in accessing the finance could be the collateral. The financial services could also be in the form of policy support like the tax holidays, change in the repayment schedule of the existing loans, interest holidays, etc.
It is also worth noting that with the change in net assets of the enterprise, there would be an impact on its value as a collateral which might further reduce the enterprise's borrowing capacity.
It is also an opportune moment for the insurance industry to understand the impact of pandemics or similar disasters and design their product offering accordingly.
Another crucial factor to the revival of the business could be the psychosocial well-being of the owners and its team. The business disruption can have a huge toll on the emotional and mental status of the people.
The owners are very likely to go through a plethora of emotional feelings ranging from shock, denial, anger, disruption, distraction to defeat. This could further lead to "Analysis Paralysis" where the owners and its team members are psychologically prevented from taking bold and realistic decisions.
The effort should be to convert the negative emotions into acceptance which could again be a step forward towards rebuilding. Interventions need to be designed around providing them with psychosocial support, creating space for sharing their concerns and working towards building their self-esteem and confidence.
Lockdown and physical distancing has created another major challenge for the businesses as a whole as people are now becoming more conscious about moving out of the house and getting in physical proximity to other people.
This has created a very huge opportunity for digital transformation. In order to ensure business continuity, the micro and small business should quickly shift to digital platforms in terms of order booking, money transfer and coordinating the delivery of the order.
There might be certain sectors thinking of automating and thus optimising human interface into the business. This might give rise to the businesses using artificial intelligence, deep thinking and big data revolution.
The government can play a crucial role to ensure that the workers are not laid off as a consequence of automation.
The advantages with the micro and small business is that they are local by nature. The labour, the market, the raw material and even the business premises are situated within the community.
Any impact on the business will also have a direct impact on the community where it is situated. Social capital possessed by small business which manifests as trust could play a big role in the revival of the business.
It is easier for the community to empathise with these businesses and contribute to its revival as they are directly or indirectly associated with it.
To conclude, this pandemic has brought major disruptions to the micro and small business. It is a sector which propels the growth of the country. Since we are not sure about the nature, intensity and the duration of the crisis, scenario planning would be key to planning for revival.
We need to take some positives aspects of the crisis and see this pandemic as an opportunity to "Build Back Better".
As a policy decision the government could also prioritize those businesses which are green, labour intensive and promote sustainable development.
There should be a focus on enhancing the institutional understanding of the crisis so that we are better prepared in future.
The crisis is not insurmountable but it is gigantic. Overcoming this requires major, drastic and bold steps. It should not be expected that the government will be able to manage it alone.
It is an opportunity for everybody including the corporates, the media, and the general people to come together and engage as enlightened and responsible citizens.
The author is the country representative of ICCO Cooperation and Director of Truvalu Enterprise, a Social Impact Investment Company.