That banks do not relish loan applications from micro, small and medium enterprises (MSMEs) in Bangladesh is a known fact. But seeing the attitude that the banks have shown towards the MSMEs during this crisis time of the Covid-19 pandemic, many, rightly or wrongly, might find it unacceptable. This is more so when the government and the central bank have laid special emphasis on bailing the minnows out.
The government has so far announced stimulus packages worth over Tk.1.0 trillion for the pandemic-hit industries and business establishments of varying sizes. A sizeable part of the stimulus has been kept reserved for the MSMEs. Following reports of poor disbursement of funds among the MSMEs, the central bank had instructed the banks to ensure greater disbursement of funds to the micro and small enterprises in particular.
But the central bank's advice has gone unheeded, it seems. One particular finding of a survey, carried out jointly by the Business Initiative Leading Development (BUILD) and the United Nations Industrial Development Organisation (UNIDO), bears testimony to the fact. The survey conducted during the March-July period this year has revealed that only 6.0 per cent of the affected SMEs got the government-announced stimulus package assistance. The average disbursement of Covid stimulus to the SMEs in Asia, reportedly, is 36 per cent. Such a low disbursement comes in contrast to big industries that have got most of the stimulus allocations meant for them.
Banks sanctions loans, in most cases, based on relations with their clients. The problem is most CSMEs that are making contributions to the tune of 82 per cent of the country's economy are not clients of the banks. Many of these economic units also do not have trade licences. Nor do they have collaterals to offer to banks against loans. The central bank had asked banks to overlook the collateral issue and concentrate on the books of accounts of the MSME borrowers. But the banks have not been interested in going by the central bank's suggestion.
One can hardly overlook banks' stance since the funds that they would disburse as loans belong to the depositors. The government would reimburse the subsidy given on interest rate. It would not compensate for the amount lost because of the non-repayment of loans by the borrowers. More importantly, the majority of the MSMEs are involved in the informal sector and their relationship with formal banking institutions has been scanty for decades. Traditionally, the MSMEs are dependent on moneylenders, local-level cooperative societies and non-governmental organizations (NGOs).
The minnows, however, are finding it difficult to go to the informal money market during this critical time since lenders too are in bad shape due to the pandemic. A series of reports on the MSMEs published in this paper last week presented a vivid picture of the deplorable state of the MSMEs. The biggies that have all the policy and fiscal supports are now in the midst of a recovery process and, if the pandemic continues to ease, they would soon get back their old rhythm. But, as of now, things are not that easy for the MSMEs. It is now apparent that formal financing institutions will not be able to meet their needs. For the micro and small operators of the economy, the government should put in place a unique platform for micro-financing.