Small and Medium Businesses: Way Forward Amid the Pandemic

    LightCastle Analytics Wing
    LightCastle Analytics Wing

    A virtual session on ‘Small and Medium Businesses: Way Forward Amid the Pandemic’ was organized by Youth Policy Forum (YPF) on June 4 2020. LightCastle Partners was the knowledge partner of this forum alongside Center for Policy Dialogue (CPD) and Bangladesh Institute of Governance and Management (BIGM).

    The webinar, which was moderated by Bijon Islam, CEO of LightCastle Partners, thoroughly discussed policy-driven mechanisms for increasing competitiveness of Small and Medium Businesses in Bangladesh (CMSME sector) and evaluated the Government’s Stimulus and Refinancing Programs for COVID-affected CMSMEs. Md. Fazlul Kader, Deputy Managing Director, PKSF, Nazeem Hasan Sattar, General Manager, SME Foundation, Syed Abdul Momen, Head of SME Banking, BRAC BANK, and Asif Iqbal, Joint Director, Bangladesh Bank represented the Banking, SME, and Public sector as panelists.

    The webinar was initiated with LightCastle’s presentation summarizing the government’s stimulus package for CMSMEs affected by the pandemic and the resulting lockdown. The government has allocated a 20,000 crore BDT stimulus package which will be available to COVID-affected CMSMEs in the form of subsidized working capital loans. The stimulus package will be financed by banks and financial institutions, who can also avail a Bangladesh Bank-funded 10,000 crore BDT revolving refinancing scheme for this purpose. To watch the recorded version of the session please visit: https://bit.ly/SMEWayforward

    The presentation was followed by a discussion regarding potential challenges of implementing the stimulus package and recommendations for solving such challenges. After the presentation, panelists engaged in a discussion regarding the following topics: collaborating with MFIs to optimize the benefits of the stimulus package, increasing CMSMEs’ success at Public and Private Procurement, increasing CMSMEs’ access to formal markets. and inclusive distribution of the stimulus package to marginalized CMSMEs. The key takeaways are summarized below:

    Collaborating with MFIs to optimize the benefits of the stimulus package

    Dr. Akond Md. Rafiqul Islam, Sr. General Manager, PKSF

    1. To enable the micro and small enterprises with some financial stability, PKSF has formulated 13 protocols to safely run operations in retail markets, wholesale markets, and online stores.
    2. Several micro and small enterprises do not always keep track of their transactions, audit reports, and financial statements. Thus, they will not be able to take the loans from Banks. However, the MFIs can play an integral role in ensuring disbursements through credit scoring and acquiring information from the SMEs with limited financial literacy.
    3. The majority of the CMSMEs are cottage and micro enterprises, and they are the ones in the most vulnerable state. Hence, the stimulus package should have been allocated accordingly to ensure proper funding.

    Increasing CMSMEs’ success at Public & Private Procurement

    Nazeem Hasan Sattar, General Manager, SME Foundation

    1. Despite having 25% contribution towards Bangladesh’s GDP, the SMEs do not get any dedicated budget allocation from the national budget. On the contrary, India allocates significant portions of the budgets to the SMEs with specific guidelines for disbursement and utilization. Specific budget allocations were introduced for women entrepreneurs in Bangladesh last year, however, the funds were not utilized due to the lack of guidelines. 
    2. Local associations and trade bodies must collaborate with Banks to bring SMEs into the fold and urge public and private sectors to procure from SMEs. In addition, policies should be tailored to set minimum procurement targets from local suppliers and women entrepreneurs. To further propel the local markets, consumers’ tendency to purchase local products should be instilled through modernized marketing tactics and incentives.
    3. While it is evident that SMEs rely heavily on Banks for funding, enterprises should also strategize on preparing themselves to cope with the situation. MFIs and other SME associations should come forward to improve the financial literacy of the vulnerable enterprises and make them more eligible to receive funds.

    Increasing CMSMEs’ access to Formal Markets

    Syed Abdul Momen, Head of SME Banking, BRAC BANK

    1. The micro cottage and small enterprises are expected to experience a V-shaped recovery as opposed to the other sectors, largely because the CMSMEs are entirely dependent on the local economy. Once the domestic economy recovers, the CMSMEs will follow the same route.
    2. Credit guarantee schemes are one of the proven tools to address the current challenges in the banking industry. Introducing such schemes will not only significantly reduce the Banks’ risk but also enable them to finance new customers who would otherwise be less prioritized. However, the participation fees for the schemes should be made reasonable to ensure better acceptability by the banks.
    3. Since Bangladesh’s supply chain is manual and cash-driven, the pandemic has severely disrupted it. Digitizing the supply chains can bring about major improvements by introducing multiple distribution channels for enterprises and eventually equip them well for future crises.
    4. During such tough times, any sort of support is valuable for enterprises, and if a digital platform to host all entrepreneurs and businesses can be developed, better sustainability can be ensured through mutual support.

    Inclusive Distribution of the Stimulus Package to Marginalized CMSMEs

    Asif Iqbal, Joint Director, Bangladesh Bank

    1. The SMEs of the country do not yet have any specific insurance products to mitigate risks. Quite instinctively, SMEs turn to the central bank and the commercial banks for funding and support during risky scenarios. Therefore, introduction of insurance products alongside venture capital funds is necessary to not only absorb risks but also open doors to diverse financial instruments.
    2. With the access to information on the tip of our hands, it is the most appropriate time to introduce digital lending. Banks can easily leverage the recently approved national blockchain strategy to implement digital lending systems. Moreover, simplified nano lending should also be introduced to enable SMEs to borrow in minute amounts.
    3. Banks’ risk appetite, risk management capacity and profit maximization must be left up to the banks. Trying to regulate the natural course of the industry through capping interest rates is only putting banks through an intensive stress-test. A major crisis in the banking sector now will create a domino effect in the financial sectors which the state will not be able to cope up with.

     The discussion put forth the following critical steps for the success of the CMSME sector—a collaboration with MFIs for loan disbursement, SME-specific budget allocations and clear guidelines on disbursement, allocation of quotas to SMEs for public and private procurement, and greater integration of technology to streamline operations. Panelists also stressed on the need for a judicious credit system to alleviate the uneven risk of financial institutions participating in the CMSME stimulus program. These policy modifications will be key in helping small and medium businesses thrive and ensuring a more inclusive environment for SMEs.

    Authors: Farah Hamud KhanProject Manager & Senior Business Consultant and  Ishtiak MourshedTrainee Consultant, LightCastle Partners

    The LightCastle team has been analyzing the macro and industry level picture and possible impacts wrought about by the Covid-19 crisis. Over the following days, we’ll be covering the major sectors shedding light on the possible short and long term ramifications of the global pandemic. Read all the articles in the series.

    LightCastle Analytics Wing

    LightCastle Analytics Wing is the research division of LightCastle Partners. It is tasked with producing periodic reports on the different sectors of the economy, analyzing trends in markets and making methodical, thorough and intelligent analysis to improve strategy and drive business growth.