Big borrowers gain, SMEs still in pain

The Daily Star October 20, 2020

Fund disbursement from stimulus packages for small businesses, farmers has been slow; packages for corporate groups have higher success rate

They were the hardest hit when the coronavirus pandemic struck the country in March, but the implementation of the stimulus packages the government unveiled for small and medium enterprises (SMEs), farmers and low-income groups more than six months ago has been slow because of the reluctance of banks.

In contrast, disbursement from the stimulus package meant for large industries and the service sector was faster.

Both the central bank and the government have taken initiatives recently to speed up disbursement from the packages for small enterprises and low-income people but lenders are yet to pay any heed.

Soon after the deadly virus arrived on the shores of the country, the government and the central bank rolled out 19 stimulus packages worth Tk 106,117 crore to tackle the economic fallout brought on by the pandemic.

Banks have been given the responsibility to distribute more than Tk 80,000 crore from the stimulus packages in the form of soft loans.

For instance, 81.87 per cent of the Tk 33,000-crore package for large industries and the service sector was approved by lenders as of October 6. The whole fund of the package may be disbursed by this month, a Bangladesh Bank official said.

Similarly, as much as 84 per cent of the Export Development Fund, which rose to $5 billion from $3.5 billion, was disbursed since October 5.

“Big businesses are highly organised and they have submitted the required documents to banks in the quickest possible time that helped implement the two stimulus packages easily,” said Emranul Huq, managing director of Dhaka Bank.

Large businesses have also submitted their business continuity plan to banks on time, helping lenders make a decision quickly, he said.

But the stimulus packages for the SME and farm sectors have seen sluggish implementation as lenders are reluctant to promote the packages, a central bank official said.

Banks disbursed about Tk 5,882 crore among 26,664 borrowers since September under the stimulus package worth Tk 20,000 crore dedicated for the SME sector, which is considered the backbone of the economy.

The central bank unveiled the package on April 13 and it later said half of the package’s amount would be provided from the BB in the form of the refinance scheme.

The loan will be given at 9 per cent interest. Of the interest rate, 4 per cent will be borne by the borrowers and 5 per cent by the government.

The SME sector was hit hard by the ongoing economic fallout than the large businesses.

SMEs usually make a large portion of profit ahead of Eid-ul-Fitr and Eid-ul-Azha, the largest religious festivals for Muslims. But they failed to do so in the last two festivals due to the pandemic.

“SMEs are yet to get rid of the crisis. Many SMEs are still feeling shy to take loans from banks,” Huq said.

In some cases, banks are also taking a cautious stance to disburse loans due to the fragile health of the SMEs.

“We have to speed up the loan disbursement to the SME sector at any cost in the greater interest of the economy,” Huq said.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said the central bank could not avoid its responsibility as it is yet to notify the credit guarantee scheme for the SME sector.

Although the scheme has already been designed by the central bank, this has yet not been introduced, he said.

On July 23, the central bank decided to introduce the Tk 2,000 crore scheme to give coverage to the stimulus fund.

A credit guarantee scheme provides a third-party credit risk mitigation to lenders through the absorption of a portion of the lender’s losses on the loans made to SMEs in case of default, typically in return for a fee.

The stimulus package for the SME sector should be raised to Tk 40,000 crore to Tk 50,000 crore given the volume of the economy, said Mansur, also a former high official of the International Monetary Fund.

“We are far away from the goal. The SMEs have been affected the most from the economic hardship,” he said.

The number of cottage, micro, small and medium enterprises in Bangladesh is 7.76 million. Of them, 99.84 per cent are privately owned, said Abul Kasem Khan, chairperson of the Business Initiative Leading Development, during a webinar on September 30.

Of the total industrial employment, 80 per cent are in the CMSMEs. The units account for 35.5 per cent to 50 per cent of the total employment in Bangladesh.

Compared to large corporates, small firms have thin cash buffers, are more leveraged, and they rely mainly on short-term loans and retained earnings. Against this “crisis like no other,” small businesses face severe cashflow shortfalls with few financing alternatives, according to Chang Yong Rhee, director of the Asia and Pacific Department of the IMF, and Kenneth Kang, a deputy director.

“Against the backdrop, the speedy implementation process of the stimulus package is highly important,” Mansur said.

As of September 30, banks disbursed Tk 1,869 crore among 87,526 borrowers under the Tk 5,000-crore stimulus package for the farming sector.

The banking regulator has recently issued a letter to banks asking them to speed up the disbursement, another central bank official said.

The Tk 5,000-crore stimulus package in the form of pre-shipment credit for the export sector made the worst start as only Tk 16.61 crore has so far been disbursed.

Exporters usually avail the loans before shipping products to complete packaging.

The central bank initially asked banks to apply to it for the loan within seven days after shipping goods. But this is quite impossible for the exporters, prompting the central bank to revise the provision last month.

As per the new condition, banks will now apply to the central bank for the loans within seven days after they bankroll clients. The revised regulation will help clients get loans from the package smoothly, the central banker said.

Banks approved 44.43 per cent of the Tk 3,000 crore stimulus package for the low-income professionals, marginal farmers and micro-enterprises.

The disbursement from the package would have increased if state lenders had taken timely initiatives.

Seven state lenders did not distribute any fund from the package, forcing the central bank to issue a show-cause notice on them on Thursday.