What budget brings for small enterprises
These enterprises are one of the hardest-hit by the Covid-19 pandemic because of their lower resilience
The government's response in the proposed budget is inadequate to support micro, small and medium enterprises to be back in business with sufficient strength.
These enterprises are one of the hardest-hit by the Covid-19 pandemic because of their lower resilience.
Ali Zaman, president of SME Owners Association of Bangladesh, told The Business Standard, "We had an expectation that the government will follow austerity in some large expenses, and focus more to support small businesses in this budget. It did not happen even though most of the small businesses are passing a hard time."
"We categorically requested to lower the turnover tax for SMEs and make the VAT system meaningfully refundable. Those also remain unaddressed," he added.
SMEs are barely receiving stimulus loans the government had declared, he said.
The finance minister in his budget speech mentioned the government-announced stimulus package of Tk20,000 crore for the SME sector alongside his announcement of some duty measures favouring the light engineering sector – an SME sector declared the product of the year.
The government mainly addressed the SME sector's challenges through credit flow and that also has its problems, according to experts.
Think tank Sanem in its budget reaction said SMEs are facing difficulties to avail concessional loans.
Dr Monzur Hossain, senior research fellow of Bangladesh Institute of Development Studies, told The Business Standard, "At best, one-third of the SMEs are in position to avail the cumbersome stimulus loan while others do not know the know-how and do not have technical preparedness."
"The one-third also depends on how banks handle the disbursement," he added.
Dr Ahsan H Mansur, executive director of Policy Research Institute, feels the lifeline offered to the SMEs is facing challenges in implementation.
Half of the Tk20,000 crore scheme is being refinanced by the central bank. Also, interest burden is being partially shared. But the credit guarantee is coming at a cost for banks – two percent on the disbursed loan figure.
That made the SME stimulus loan unpopular among banks.
The government in India has announced a three lakh crore rupee financing scheme for the SME sector with 100 percent credit guarantee, and banks are providing lifelines to the SMEs without any hesitation.
"In Bangladesh, credit guarantee should cover at least half of the loan amount at no additional cost for banks," suggested Dr Mansur.
In the USA, initially, a more than $350 billion scheme was declared for the small enterprises at the beginning of shutdown. Within a week, the amount was disbursed. The US government later came up with the second phase of the same scheme amounting to over $300 billion, and thousands of small enterprises are availing it to stay afloat.
They are also offered the portion of the disbursed sum as grants which is being spent on employee retention – paying wages. That helped a large number of American working families continue their jobs.
Dr Nazneen Ahmed, another senior research fellow at Bangladesh Institute of Development Studies, thinks micro and small enterprises without formal registration are suffering more in terms of access to loans.
Only Tk3,000 crore of the Tk20,000 crore scheme is directed to the informal SMEs through microcredit providers who are allowed to charge up to nine percent.
"Again, credit guarantee for the banks who will lend to the microfinance entities from the package is a concern in terms of feasibility," said Dr Mansur, who is also the chairman of Brac Bank, the largest SME loan provider in the country.
According to the government data, over 78 lakh small and medium enterprises are contributing to one fourth of the GDP. The National SME Policy 2019 has focused on enhancing the contribution of this sector to 32 percent by 2024, which will boost employment.
The government has some strategic ways, like over 100 clusters across the country, to reach the goal.
But the possibility for the SMEs and informal micro businesses to rebound after the Covid-19 pandemic without meaningful support remains the question.
