Bangladesh ranks as the eighth-most populous country in the world. At various times, policymakers and statemen have argued that this considerable population actually can benefit the country if their strength can be utilized. Micro, small and medium enterprises (MSMEs) can be a way to fulfil that goal. These enterprises can ensure proper utilization of our population and an increase in employment, wealth and livelihood quality. But how are the MSMEs doing in this country? Especially after the recent COVID-19 pandemic? Various reports and surveys indicate that these enterprises are suffering from severe financial drawbacks. Let’s have a look.
What are MSMEs
MSMEs are business enterprises who’s employees and assets remain under certain limits. Around the world, MSMEs outnumber large businesses, and these enterprises are vital for economic growth, employment and sustainability. MSMEs in the manufacturing and service sectors include different criteria. National Industrial Policy of 2016 defines MSMEs:
Manufacturing sector: Fixed asset valued between Tk1 to Tk7.5 million, excluding land and building. The workforce is to be between 16 and 30 persons or below. Service sector: Fixed asset value of less than Tk1 million. The workforce is to be 15 persons or less.
Manufacturing sector: Fixed asset valued between Tk7.5 to Tk150 million, excluding land and building. The workforce is to be between 31 and 120 persons. Service sector: Fixed asset value of less than Tk1 to Tk20 million. The workforce is to be 16-50 persons.
Manufacturing sector: Fixed asset valued between Tk150 to Tk500 million, excluding land and building. The workforce is to be between 121 and 300 persons. Service sector: Fixed asset value of less than Tk20 to Tk300 million. The workforce is to be 51-120 persons.
MSMEs in Bangladesh: Their role and output
In Bangladesh, MSMEs form the largest segment of the national economy. 87% of the civilian population is engaged with MSMEs. These entities include a quarter of Bangladesh’s Gross Domestic Product (GDP). In terms of resource generation and utilization, MSMEs play a pivotal role. National Industrial Policy of 2016 has understandably given priority to MSMEs. 2005 SME policy also speaks likewise.
2013 National Economic Census states there are 1,04,007 micro level, 8,59,318 small level and 7,106 medium level enterprises in Bangladesh. These enterprises employ about 5,58,870 people in the micro, 66,00,685 with small and 7,06,112 with medium enterprises. Overall, these enterprises are responsible for about 8 million job creations. It could be much higher, as stats may have missed some facts.
Manufacturing accounts for 36.67 billion USD worth of export earnings in Bangladesh economy. MSMEs contribution in manufacturing is about 40%. Contribution of MSMEs in the service sector is also very considerable. So overall MSME contribution in GDP is way higher actually.
MSMEs are small scale compared to industrial giants. So they totally depend on locally available raw materials. Thus these enterprises are utilizing local resources for production and service sectors. Moreover, these enterprises are not capital intensive. So income generated by these is often saved for reinvestment. It increases national saving as well as the financial security of the people involved. Unlike heavy industries, which require costly and often imported machinery, MSMEs are mostly labour-intensive. They do use machinery too, but they are mostly cheap and locally produced.
Readymade garment (RMG) and leather (raw and processed) are the two most significant export commodities of Bangladesh. MSMEs dominate both of these industries. In the 2018-2019 fiscal year, Bangladesh exported goods worth XMR.
Most of Bangladesh’s manufacturing and service sector industries are concentrated in Dhaka and Chittagong. However, 51 districts have cluster SMEs. If these clusters could be developed, economic activities will be more decentralized, relieving pressure on the big cities. Besides, MSMEs could be expanded into large scale industries. In fact, most of the large enterprises were started as MSMEs.
In Bangladesh, urbanization is taking place at a rapid speed. But the rural workforce is still huge, MSMEs play a pivotal role in rural employment. About 5.8 million MSMEs operate in rural areas, whereas in urban areas, there are 2.3 million. So, rural development and the economy is very much dependent on MSMEs. However, these MSMEs are essential in urban economies too. Dhaka alone holds about 32.2% of the enterprises. 17.1% is in Chittagong, 15.1 per cent in Rajshahi, 13.5% in Rangpur, 12.8% in Khulna, 4.8% in Barishal and 4.5% in Sylhet.
COVID-19 impact on Bangladeshi MSME
COVID-19 has created a large scale negative impact on almost every sector possible. Export earnings fell to 33.67 billion USD, a 16.93% decrease compared to the previous fiscal year. More than two-third MSMEs were closed down or cut short their activities. These austerity measures created unemployment and impoverishment for millions of employees. It’s yet not clear when economic activities will begin to commerce on full flow. Probably the pandemic and measures being taken to fight it will continue to create a negative impact upon our economy for many coming years.
Worldwide millions of dollars worth of export orders were cancelled, industrial demand lessened and so did the production of consumer goods. Lockdown measures around the world resulted in a sharp drop in consumer demands. A large section of the workforce stood idle, stocked products and various equipment decayed and degraded. At the same time, global supply chains were disrupted on an unprecedented scale.
International Finance Corporation (IFC), World Bank (WB) and the UK’s Foreign, Commonwealth and Development Office (FCDO) has conducted a joint survey on MSMEs, and the results show a bleak picture. It was conducted between June and August 2020. The survey encompassed eight divisions and included 500 MSMEs in Bangladesh.
94% of MSMEs showed a clear drop in sales. 37% of the workforce lost their jobs in a temporary or permanent level, and more than 70% were in a vulnerable position. 83% of enterprises said they are facing loss while conducting business. Bangladeshi MSMEs were already in a vulnerable position, and the pandemic hit them hard. The closing rate of women-owned MSMEs is 37% while 21% of the male-owned MSMEs also stopped their operation.
Bangladeshi MSMEs under Corona: Less than 1% gets stimulus funding
COVID-19 pandemic created a cash strap situation for the MSMEs in Bangladesh. Working capital, machinery and renting capabilities have been exhausted. Many closed down and are in dire need of cash incentives to start operating again. COVID-19 won’t last forever, already many economic activities have commenced, and this is likely to increase in the near future. So cash input, short or long lived, is a must for restarting or boosting the MSMEs. Accordingly, the Bangladesh government has channelled stimulus funding for all types of business, but MSMEs have benefitted very little from these incentives. According to the survey titled “Business Pulse Survey: Impact of Covid-19 on MSMEs in Bangladesh”, only 0.4 per cent of MSMEs received financial assistance from government institutions. A staggering communication gap was also revealed. About 61% of MSMEs didn’t even hear about government packages. About 14% applied but didn’t receive any support, while 10% said it was too difficult and complicated to use for the funds. 5% of the surveyed MSMEs failed to fulfil the qualification criteria, while the rest 10% had other reasons.
It’s a grave situation for the dying MSMEs. About one-third of them are finding it impossible to pay the loan in instalments, and about XMR vital enterprises.
By mid-2020, the government has allocated Tk20,000 crore low-interest funding for MSMEs. Bangladesh did launch One-Stop Service (OSS) and Single Window Services to ease business conduct for exporters and importers. But MSMEs seem in vital need of funding which is not present.
What to do
The survey revealed a staggering communication gap on behalf of the government funding initiative. MSMEs need urgent cash inflow and subsidized loans to operate smoothly. The government is reported to have instructed banks to provide subsidized loans and stimulus packages to these enterprises. As the survey indicates, maximum MSMEs were unaware of the government incentives of providing stimulus funds. A more communicative approach might help in resolving this issue. Bangladesh is notorious for its bureaucratic red tape; some important measure might be necessary in this regard.
Several reasons are there behind MSMEs weakness, and these have been present beforehand. These issues are to be taken into considerations; otherwise channelling of stimulus funds won’t get the job done. Ease of government regulations and policies are urgent. In Bangladesh, MSMEs suffer from crucial shortcomings regarding safety, environment, design, technology, successful usage of the internet, waste management etc. These issues, alongside other geographical, social, economic and political landscapes, need to be taken into consideration to boost the MSME centric economic model.
As many MSMEs gradually develop into large scale industries, and current ones are pivotal for Bangladesh’s massive market and emerging economy, the government must concentrate more in this sector. Increased funding and other steps will help the MSMEs to play their role in boosting the economy after the COVID-19 pandemic.