Facilitate cottages, micro, small and medium-sized businesses during the pandemic


Cottages, Micro, Small and Medium Enterprises (CMSME) in Bangladesh are going through an increasingly difficult time due to the COVID-19 pandemic. 94 percent of businesses suffered a significant loss in sales in 2020, with a 49 percent drop in sales on average for micro-businesses. This is expected to decline further in 2021. The struggle for survival is not new to CMSMEs. These companies operate with low margins (IFC, 2020), rely heavily on the supply chain, and face cash flow issues. The pandemic has exacerbated these problems.

In addition, they face low customer demand, business closures due to state foreclosure policies, and reduced opportunities to meet new clients. CMSMEs represent about 99 percent of all business units in Bangladesh. Studies mention that 99% of the estimated 7.7 million CMSMEs in the country are in distress, not paying workers’ wages and grappling with the impact of the economic downturn caused by the COVID-19 outbreak.

STIMULUS PACKAGES AND DISBURSEMENTS: The government has announced stimulus packages in different categories for industries to recover from the economic crisis caused by the pandemic epidemic. These include an envelope of $ 3.55 billion for large-scale industries and services sector, an envelope of $ 2.37 billion and an additional envelope of $ 35.5 million for CMSMEs, with an envelope of USD 1.51 billion for export-oriented industries, an envelope of USD 591 million for farmers and an envelope of USD 355 million for people from low-income groups. Due to the slow disbursement of working capital loans for the CMSME sector initially, the government introduced a credit guarantee program of USD 236 million to encourage banks to provide loans to CMSMEs.

However, financial service providers only disbursed 60% of the CMSME package until January 2021 and 75% until May 2021. The Ministry of Finance noted that only 10.8% of this amount went to farmers. low income, small and micro enterprises. Data from the Bangladesh Bank indicates that of the US $ 1.78 billion allocated to CMSMEs, the largest share went to small and medium enterprises engaged in manufacturing and services, with very few artisanal and small enterprises in production. manufacturing or trade receiving these loans.

The well-being of CMSMEs is vital for socio-economic development at both national and corporate level. CMSMEs together represent 80 percent of industrial employment. Their contribution to GDP would be 25 percent and their contribution to exports 75 percent. CMSMEs impact on Bangladesh’s national strategic plans such as Vision 2021 (based on the 2010-2021 Perspective Plan) and Vision 2041 (the Bangladesh 2021-2041 Perspective Plan, which aims to eradicate extreme poverty, achieve the upper-middle-income country status in 2030). The impact of COVID-19 on CMSME could also negatively affect the country’s transition from the least developed country to developing country status. This is expected to happen in 2026 according to the government.

STAKEHOLDERS NEED TO TAKE A MORE STRATEGIC VIEW OF CMSMES: The inability of lenders to serve all CMSMEs is a symptom, not the root of the problem itself. Many CMSMEs cannot meet banking requirements and are unwilling to apply for the package due to the length of the process. A previous survey conducted by the Dhaka Chamber of Commerce and Industry (DCCI) found that 59% of CMSMEs found the disbursement process complex and 18% of them were still unbanked, while many found that the disbursement process was complicated. declared that the loan amount was insufficient.

That’s not all. Commercial licensing and license renewal is a long process that CMSMEs do not want to go through because the opportunity costs are high. There are also dangers in formalizing CMSMEs – many CMSMEs still do not want to be considered for value added tax (VAT). Is there a way to promote the formalization of CMSMEs? Some initial thoughts might include a simpler registration and renewal process, with higher caps to counter the added tax burden.

FORMALIZATION ONLY WILL NOT HELP CMSMES: Bangladesh needs to develop strategies to promote and strengthen grassroots entrepreneurship. These can include incentives for digital adoption where bank agents and mobile money providers offer cash incentives for CMSME business transactions. Digital literacy and awareness campaigns are designed for CMSMEs through the network of Union Digital Centers (UDC). The role of microfinance institutions (MFIs) in supporting CMSME entrepreneurs needs to be formalized. MFIs may emerge as a viable alternative to finance MSMEs due to their extensive network across Bangladesh and their experience in managing high volume and low value portfolios. The country’s MFIs already serve 32.34 million CMSMEs. If the government channeled relief funds directly through MFIs, many more CMSMEs would have received support in these times of distress.

Likewise, data disaggregated by sex and geography – for example, any data allowing a comparison between female and male CMSMEs, or a comparison between the CMSMEs of Sylhet and Rajshahi – could inform and improve policy development to support CMSMEs. .

CATEGORIZATION OF CMSMEs: The most important and strategic step, however, will be to refine the categorization of CMSMEs for better targeting. The current cluster of CMSMEs includes medium-sized enterprises, which often take the form of large factories. A smaller and well-defined group of cottages, micro and small businesses can help the government provide more targeted support. For example, New Zealand has a specific small business strategy aimed at businesses with 20 or fewer employees.

The definition of small business in Bangladesh is not radically different from that in New Zealand. Yet the fundamental contrast is that there is no policy specifically for small businesses. Also recognized by the Minister of Industry of Bangladesh, the definition of medium-sized enterprises must evolve for the benefit of CMSMEs and the 7.8 million Bangladeshis who are directly and indirectly linked to CMSMEs.

Anik Muntasir Chowdhury and Akhand Tiwari are international financial inclusion consultants from MSC, a specialist consulting firm working on financial, social and economic inclusion. [email protected] and [email protected]

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