A linkage between microfinance institutions and banks is necessary to ensure funding for the recovery of small and medium enterprise (SME) and cottage, micro, small and medium enterprise (CMSME) sectors from pandemic shocks, said experts on Thursday.
They also suggested separating micro and small organisations from medium-sized enterprises to facilitate their access to formal finance.
Forming an SME bank can also help resolve their financial crisis, speakers said at a webinar titled "The Pandemic and SMEs: Shock-absorbing policy measure and future debates – Impacts in Bangladesh and lessons from responses around the world".
The SME Foundation and Friedrich-Ebert-Stiftung (FES), Bangladesh office, jointly organised the virtual discussion.
While presenting a keynote paper, Dr Atiur Rahaman, former governor of the Bangladesh Bank, said SMEs have severely been affected during the partial lockdown. Amid Covid-19, SME revenue decreased by 66% as 79% products remained unsold. Some 42% of employees received a partial salary while 4% did not get salary at all.
Financing in the SME sector has declined significantly in recent times. The number of loans disbursed to medium enterprises fell by 21% year-on-year, while that for small enterprises decreased by 40%. A similar pattern is visible in terms of the amount of loans disbursed to SMEs, he pointed out.
The share of SMEs in total stimulus packages in Bangladesh is significantly lagging behind that of India, Thailand and Malaysia, Dr Atiur said adding that a larger share for SMEs could have been ensured taking the macroeconomic significance of the sector into account.
A major challenge for SME growth is a lack of access to formal finance due to high lending rate, strict requirements – collateral, licence etc.
The former governor further said half of the SME industries are located in the two big cities of the country. So, there is no alternative to expanding the SME sector for strengthening the country's economy and sustainable development.
He said, "Some 26% small and 48% medium entrepreneurs are involved in exports. This is a promising aspect for our economy."
The former governor suggested that stakeholders ensure maximum utilisation of incentive packages in innovative ways by enhancing mutual cooperation and coordination so that the SME sector can recover quickly from the Covid-19 impacts.
Industries Minister Nurul Majid Mahmud Humayun, as the chief guest, said "As an emerging economy of the South Asian region, the scenario of Bangladesh's SMEs is no exception. SMEs globally have suffered tremendous setbacks in terms of their production, marketing and so on amid the Covid-19 pandemic."
He called upon all to work together to save the country's SMEs.
The government has already announced various incentives for the SME sector's recovery from Covid-19 impacts. Prime Minister Sheikh Hasina announced an incentive package of Tk20,000 crore to ensure an uninterrupted supply chain in the sector. The sector is gradually turning around, the minister said.
The labor-intensive nature and the fascinating art of SME products have made the South Asian region, including Bangladesh, capable enough to stay in competition in the global market in terms of both quality and prices, he added.
The SME sector has a commendable contribution to GDP growth, employment generation, women empowerment, as well as export earnings.
He said, "SMEs have been treated as the driving force of our national economy. It has the pivotal role in achieving our national goals like Vision-2021, LDC graduation by 2024, achieving SDGs by 2030 and to be a developed country by 2041."
SME Foundation Chairperson Dr Md Masudur Rahman presided over the discussion. FES Bangladesh Resident Representative Tina Blohm also spoke at the event.