If the lockdown continues for more than four months, 68 percent of small and medium enterprises (SMEs) will run out of their cash reserves and shut their businesses permanently, reveals a study.
Already, 52 percent of the SMEs have been compelled to halt their business operations due to the unavailability of raw material and lack of scope to sell their outputs.
Meanwhile, 14 percent of SMEs have either frozen the salaries of their employees or sacked their employees, bringing average salary expenses down to zero.
The study conducted by LightCastle Partners and Sheba.xyz has found that more than 46 percent of SMEs may have to lay off half of their staff within four months if the lockdown persists.
The findings were presented at a webinar titled "Covid-19 & SMEs: Deep dive into Covid-19's impact on SMEs" jointly organised by LightCastle Partners and Sheba.xyz via a video conference call on Thursday.
LightCastle Partners & Sheba.xyz collaborated on an independent study on "Covid-19's Impact on the SMEs of Bangladesh" to give clear insight into the impact, said a press release of LightCastle Partners.
The survey, with responses from 230 SMEs from different parts of Bangladesh, was conducted in late April – after a month of the shutdown had passed.
Of the respondent SMEs, 48.4 percent were from industries involving trade and production: perishables and grains, poultry, dairy, fisheries, jute products, and retail stores. Meanwhile, 51.6 percent were from the service industry: food catering, electrician services, laundry services, beauty salons, MFS agents, and restaurants.
SMEs were the bloodline of Bangladesh's economy, contributing to 25 percent of the country's GDP, said the press release. However, SMEs are now one of Bangladesh's hardest hit sectors by the novel coronavirus pandemic, the press release mentioned.
Bijon Islam, chief executive officer of LightCastle Partners, said, "Close to 31.2 million people's livelihoods are dependent on SMEs and startups. If we cannot find a solution to exit the crisis, this large population will be gravely affected, creating a chain reaction in the entire economy."
"If activities in the SMEs sector are halted for one day in Bangladesh, the sector will incur a loss of more than Tk23,000 crore," said Nazeem Hasan Sattar, general manager of the SME Foundation.
Around 28 percent of SMEs have reported drastic decreases in their revenues – of at least 50 percent.
However, six percent of SMEs – related to essential items like staple foods and emergency medicine – have reported having some leeway and ability to survive the shutdown for at least 8-12 months.
Founder of Moumita Enterprise, a floriculture output-based SME, said, "I have not been able to sell a single flower pod or stem in the past three weeks. So, now I do not know how I will repay this month's or the upcoming months' outstanding loans."
To survive this crisis, 52 percent of the SMEs have asked for soft loans as operational capital while six percent have asked for loan rescheduling without any fines plus a moratorium of at least six months.
Considering the gravity of the situation, some banks have opted not to take any interest for the next three months.
Recommendations from the panel
"The key learning from the pandemic is that transactions in the Ministry of Micro, Small and Medium Enterprises should be digitised to make data-driven decisions or initiatives to provide support. Fintech platforms should come forward in digitising these SMEs to better equip them for such types of crisis," said Md Ashraful Alam, project country coordinator of SHIFT, UNCDF.
Samiul Kabir, chief strategy officer of Sheba.xyz, said, "The disbursement of loans, cashless transactions and a digital supply chain should be implemented immediately to support the SMEs. If we can create an authentic database of SMEs – with the help of public-private partnerships in the financial sector – we can easily reach them during this time and provide support."
"Alternative channels need to be generated by streamlining organisations like Karmo Shongsthan Bank and the SME Foundation. The public banks should come forward in providing loans to affected entrepreneurs. Otherwise, the purpose of the stimulus packages will not be fulfilled," said Nazeem Hasan Sattar, general manager of SME Foundation.
"bKash has experienced 12 times the number of transactions from banks to bKash wallet since the beginning of the shutdown – which shows customers are quickly embracing digital channels for their transactions. So, the banking sector must think differently and be ready to help entrepreneurs cope with economic stress amid the pandemic," said Syed Abul Momen, head of SME Banking of BRAC Bank.
According to the panel at the webinar, the recovery is going to be either U or V-shaped. The participants concluded that to reach the latter recovery trajectory, collaboration – among cross-sector organisations, banks, fintech platforms, and microfinance institutions – is critical to demystify financial services with the help of technology.