SME can be the driver of economic recovery

Bangladesh economy is fairing relatively better despite the pandemic-induced global economic slowdown. Bloomberg has recently ranked Bangladesh as the 20th Corona Resilient country out of 53 large countries. Bangladesh's performance is better than developed countries like the UK, the US, France and Germany. No doubt, like the whole world we too were initially at a loss in facing the unprecedented health crisis. However, we have been learning by doing and our medical professionals learned quickly how to manage patients better. The public administration has also been quite up and doing in making people aware of how to respond to this crisis. At the same time, we are doing even better in keeping the economy afloat. The government was prudent enough to declare as many as 21 stimulus packages worth 4.3 per cent of GDP. As a result, while global economy is projected to shrink by 5.2 percent by IMF, Bangladesh economy has been growing better than many of its peers. ADB has projected our growth to be more than 6 per cent. And IMF is projecting it to be around 4 per cent. The World Bank remains a bit more pessimistic. However, recently the World Bank has become more positive about Bangladesh's prospect amid the global slowdown. Their 'South Asia Economic Focus' has identified Bangladesh to be the forerunner in South Asia in terms of pandemic management, growth, and economic recovery. Export remains in the positive despite initial downward trend. During the last five months remittance inflow has increased by 41 per cent, thanks to the cash incentives and easing of the transmission management. Implementation of mega projects including the Padma Bridge has gained momentum. Agriculture has been the strongest safeguard for Bangladesh as it has not only been providing the desired food security but as well absorbing nearly forty per cent of our labour force with both hired and self-employment. Employment in the informal sector is gradually regaining its pace.

However, there is no scope of complacency while standing just in front of the second phase of the pandemic. The whole of the western world is in a bad shape even though the distribution of the vaccines is on. The outbreak of new strain of the virus in the UK has been at the source of the latest uncertainty. The sudden turn of events has created so much of uncertainty in the global economy that most of the share markets are nosediving. We are particularly concerned as all this may have serious implication for our main export (RMGs) as the demand for most of the same originate from the western countries. If this uncertainty continues for a longer period, our gains in the external economy are bound to be in jeopardy. Given this perspective, we may have to strategise our recovery plan more cautiously. Fortunately, the rural Bangladesh remains our safest bet. We should, therefore, put more focus on how to support our vibrant farm-sector along with the non-farm sector which provides 60 per cent of our rural income. And here comes the issue of faster implementation of the already declared stimulus packages for the cottage, micro, small and medium enterprises (CSMEs) which is yet to gather steam.

The CSMEs sector employs about eight million people contributing to one-fourth of our GDP and bulk of the total employment. Naturally, the policy makers are expected to prioritise this sector in their plans and programmes for economic recovery. These are not usual times. Hence, there is no scope to move ahead with 'business as usual' policies. Fortunately, we were wise enough to take some bold and innovative steps early on to safeguard the economy. However, there have been some implementation snags and we must act swiftly to make midcourse corrections. Also, we must ensure proper coordination among all the sectors with focused attention to the bottom of the pyramid. The large enterprises have been able to lift most of the stimulus given to them, but the small ones are still struggling. The banks and financial institutions could not fully change their gears and reach bottom of the pyramid as desired.

Another issue, and perhaps the most crucial one, to take note of is the declining demand originating from loss of income. To increase income of the consumers we need proper fiscal policy support, particularly through revamping the social security programmes. Also, we must prioritise implementation of some mega projects that will multiply employment. Additionally, public procurement can also add to the demand for CMSME products and services. The government is already thinking positively about blocking a segment of public procurement for the CMSMEs. India has been providing such support for CMSMEs for quite some time.

On the one hand, bolstering domestic demand is a prerequisite for CMSME growth. On the other hand, growth of CMSME business can also have positive effect on domestic demand. This is, indeed, synergistic. Bangladesh Bank, of course, realised this early on and has been paying special attention to financing CMSMEs for the last decade or so. SME Foundation has also been very active. And above all, the government has also provided the necessary policy impetus. As a result, this sector has gone through significant positive change over the said period. CMSME finance has gained momentum. Participation of women in this sector has also increased. As far as I remember, the amount of CMSME loans disbursed as well as the number of loan recipients more than doubled between 2010 and 2015.

One of the major challenges is that over half of the CMSMEs have grown around the two largest cities. To solve this, SME Foundation has been emphasising on cluster based CMSME financing. While serving as the Bangladesh Bank Governor, I worked with the SME Foundation in different CMSME clusters in Sirajganj and Jamalpur. Another major challenge for CMSME proliferation is low level of women participation (less than one-third). We have witnessed that if geographic clusters are properly identified and CMSMEs in those areas are given access to finance, the outcomes can be very positive. For example, almost a decade ago, Bangladesh Bank pushed the commercial banks to finance the mostly unbanked Nakshi Kantha entrepreneurs of Jamalpur. In continuation of that initiative, today almost fifteen hundred women entrepreneurs are producing Nakshi products there and generating monthly revenue between 30 to 40 million BDT. Many of them have gone for e-commerce and f-commerce, thanks to the district administration for facilitating this move by encouraging tech-savvy young volunteers to support them.

Despite all these positive outcomes, finance for CMSME still appears to be scarce. Bangladesh Bank initiated a Bank-MFI linkage programme that has become quite successful. Commercial banks are reaching the small entrepreneurs throughout the country by wholesaling credit to MFIs. PKSF and SME Foundation are also reaching the CMSMEs through such partnership arrangements. These are all yielding positive results. Along with these, new digital finance solutions such as agent banking and mobile financial service also can be harnessed for CMSME financing. Bangladesh Bank has already permitted City Bank and bKash to initiate a joint pilot programme for this. This programme will be providing small-scale working capital (around Taka ten thousand) through e-KYC upon checking mobile financial transaction flows using artificial intelligence. Such loans will be approved automatically within a couple of minutes. This experiment, if successful, will without any doubt revolutionise working capital facilities for small entrepreneurs. I have heard that IPDC will also be coming forward with such data-based automated credit programme. Other financial institutions may be in the pipeline as well.

The CMSME sector with so much potential and, yet facing such challenges deserves to get more support. One of the stimulus packages for this sector amounting to Taka two hundred billion was declared by the government as early as in April 2020. Unfortunately, not even half of this package has been implemented so far. CMSMEs will also benefit from the BDT 50 billion stimulus package declared for agriculture sector. The pace of implementation of this package is also not that satisfactory. A similar BDT 30 billion stimulus package is there for MFIs also. This too can benefit the rural CMSMEs. CMSMEs are facing regulatory bottlenecks in availing these loans. Moreover, these loans are only for working capital. However, many of the CSMEs are first-time borrowers and hence are not eligible. A part of these packages ought to be converted into term loans so that the new CSMEs also get access to this stimulus for a medium to longer time.

 We can take the case of many women e-commerce entrepreneurs, for example. Banks normally ask for their trade licences whenever they apply for fresh loans. To have a trade licence they need to have commercial addresses. But they are doing business from their respective residences. Banks can choose to consider their personal bank accounts as business accounts and consider that to be adequate to give them small size loans. There is already a regulatory space for such experimentation. Banks need to be forthright to take this journey forward. Similarly, the freelancers can be encouraged to open accounts with AD branches of the banks to get the cash incentives plus the usual stimulus for bringing remittances from abroad. I am happy to know that The Ministry of Finance has already constituted a committee to incentivise these foreign exchange earners. The sooner this is done the better. Certain other recommendations regarding CMSME financing may also be seriously considered:

• The entire stimulus package for CMSMEs is going for working capital. A part of this should go as term loans for new entrepreneurs for a bit longer period.
• Deadline for distribution of the packages has been set at the end of the current year. To avoid risk of bad loans, the deadline needs to be extended by at least six months.
• Considering the second wave of Corona and overall situation, the loan repayment period should be extended from one year to two years from July 2021.
• 22 per cent of the total stimulus package has been allocated for CMSMEs. Considering contribution of this sector and its potential, the share should be further increased. Malaysia and India have allocated 22 per cent and 30 per cent for their CMSMEs.
• Share of CMSME stimulus allocated for women entrepreneurs should be further increased.
• Another special stimulus package of about Taka one hundred billion can be rolled out by the central bank as wholesale credit to be given to PKSF, SME Foundation and MFIs on partnership model with the banks. The central bank will charge a nominal fee and the rate of interest at the borrower's level can be fixed on consultation.

Just coming up with stimulus packages for CMSMEs is not enough. Implementation of these programmes need to be closely monitored. In Bangladesh Bank, we used to monitor LCs through a digital dashboard. Bangladesh Bank is thinking about coming up with similar web-based monitoring for stimulus package implementation. Regional offices of Bangladesh Bank may also be used for monitoring. District and upazila administration can also monitor implementation of stimulus programmes as they do for agricultural credit. The consumer interest protection centre's hotline of Bangladesh Bank (16236) may also be utilised to receive complaints from applicants and resolve them.

Las September, in an article in the Financial Times published from London, honorable Prime Minister wrote that thinking about current employment will not suffice and we must think about employment for tomorrow as well. She inferred so due to her farsightedness. And there is no alternative to supporting the CMSME sector which will create adequate future jobs. In the same article, the honorable Prime Minister also emphasised on having a green economic recovery. CMSME will also contribute significantly to the green growth of our economy if we can guide them through. There is no scope of losing hope despite uphill challenges. And CMSME can indeed be the powerhouse of such optimism. Hence, to ensure sustainable proliferation of the CMSMEs all stakeholders must come forward in a concerted manner.

Dr Atiur Rahman is the Bangabandhu

Chair Professor and former Governor

of Bangladesh Bank.

dratiur.gmail.com