SMEs took a massive blow from the Covid-19 pandemic and most are now left in a cash crunch. Micro and small entrepreneurs will not be able to restart their business in full swing if they do not get the government's financial support, Dr Md Masudur Rahman, chairperson of SME Foundation, says in an exclusive interview with The Business Standard's Jahidul Islam.

What is the SME sector's current status amid this Covid-19 crisis?

Over 90% of entrepreneurs in Bangladesh are from the SME sector, and the demand for their products grows seasonally depending on festivals. SMEs failed to sell their goods this year during two major festivals, Pahela Baishakh and Eid-ul-Fitr, due to the lockdown and low demand. It caused a big loss, and their survival is under a threat.

What are the major problems at this time? What are the prospects for the sector?

SMEs in Bangladesh have been playing a vital role in economic and social development, which eventually contributes to poverty alleviation.

The present situation is not favourable for a massive intervention here. However, lack of finance and access to the market are the key problems. Most of the SMEs badly need working capital.

The honourable prime minister declared a Tk20,000-crore stimulus package for CMSMEs. However, most entrepreneurs, particularly micro and small ones, have not got it yet. Meanwhile, entrepreneurs have reopened their businesses but sales are poor due to a low customer turnout.

Another challenge for the sector is a lack of required skills to adjust with the new normal.

What are your future initiatives to overcome problems as well as utilise potential?

I want to set five-year strategic goals with some specific programmes in order to create new entrepreneurs, focusing on rural areas and women.

We have drafted some new project proposals and will submit them to the Finance Division's Skills for Employment Investment Program (SEIP) project. We will take up programmes for improving 177 already identified clusters countrywide to play our significant role in rural employment and development.

We are also working to turn our entrepreneurs digital, focusing on online business.

I will also take initiatives to create alliances with all SME-related associations and stakeholders, including domestic and international development agencies, general and technical universities, banks and research firms.

The sector has significantly contributed to job creation in Bangladesh but lags behind its peers in neighbouring countries in terms of input to GDP. What are the reasons?

Currently, SMEs contribute 25% to the national GDP, but I believe we could enhance it. The government has set a target to raise it to 32% in the next five years.

If India and Sri Lanka can do it, why can't we? We have huge potential, manpower, markets and resources. Now, we need policies conducive to our goals and supporting services. We need to enhance skills for our manpower and ensure necessary services to them.

No organisation can fulfil duties as a real guardian of the SME sector in Bangladesh. What roles will the SME Foundation play?

The country has over 7.8 million CMSMEs, and it is not possible to serve all through a single agency. Yet the SME Foundation has been playing the role of a guardian here.

Unlike other government agencies, it has some added advantages as it can work independently and has partnership with all SME-related associations and stakeholders who help it to implement programmes.

If the government strengthens its capacity, particularly in terms of finance, branch networking and employee skills, it will be able to really serve SMEs.

The government has announced a big package to revive the pandemic-hit sector, but the distribution is low. What is the role of the SME Foundation in this regard?

Its distribution does not depend directly on the foundation but on banks whose willingness and readiness are not friendly to SMEs. And so disbursement is not satisfactory.

Nevertheless, the SME Foundation has been playing a facilitating role since the package declaration was made or even before that. It shared all circulars and policies of the central bank with relevant associations and trade bodies across the country.

We have assigned a senior mid-level official as the focal person who is dedicated to providing information and facilitating support to SMEs under the package. The Bangladesh Bank attended to a number of recommendations of ours and accordingly revised their circulars.

Yet access to formal finance by informal entrepreneurs remains a concern. We are negotiating with partner banks to explore ideas to ensure low-cost loans for SMEs. We hope to discover the ways out shortly.

Many SMEs are not getting loan facilities as they are unbanked. The SME Foundation too does not have any large-scale programme to ensure loans for SMEs. What could be the solution?

I see no possibility of a resolution to the problem in the near future. It is a hard reality that banks are not willing to lend to SMEs. Most banks have no separate credit tool or model for SMEs. They impose the same terms and conditions for SMEs as they do for big enterprises. With no collateral and previous relationships with banks, shortage of documents and, most importantly, a reluctant attitude on the part of bankers, SMEs have to fight big enterprises in seeking loans.

If banks do not change their attitude, no government policy, stimulus package or any other intervention will work.

The SME Foundation's main function is not providing loans. The government provided a Tk200 crore fund to pay its employees and meet other operating expenses. Yet it is running a loan programme from the fund's interest earnings.

We are trying to make several financial institutions understand that the SME Foundation's clusters will create opportunities to finance small entrepreneurs. The SME Foundation helps financial institutions find potential borrowers. Hence, the loan recovery rate here is higher than in any other sector.

In Bangladesh, over 85% of the workforce is in the informal sector, with most of them being in the SME sector. What should you do to make their employment sustainable?

We already have a few programmes running and have started a new one recently to ensure a decent workplace in line with the SDGs.

But we have shortages in financial and technical resources. We seek support from the government as well as from development and international NGOs.