The Reality Check

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The Covid-19 pandemic has posed new challenges for the lives of individuals along with the risk of a global downturn. Most nations have been trying to ensure that their economies do not fall into a quagmire. However, the challenges posed by the pandemic in developing nations like Bangladesh are more complicated as a significant portion of the populace face economic vulnerabilities.

The picture at a glance

The blow was very sharp for small and medium enterprises, exporters, and farmers of the country. Soon after the virus set its foot on the shores of the country, Prime Minister Sheikh Hasina announced stimulus packages and pre-shipment credits worth Tk 106,117 crore to tackle the economic downturn brought on by the pandemic, of which Tk 20,000 crore was meant for SMEs and Tk 5,000 crore for agriculture sector. The responsibility was given to the country’s scheduled banks. However, due to lack of central bank’s initiatives and banks’ negligence, the disbursement has been going out at a snail’s pace. As of August 31, only 17.5 and 9.53 percent of the relief packages meant for SMEs and the agriculture sector respectively have been executed. Moreover, whether the loans have reached the targeted people is yet unknown to the central bank. However, there seemed to be no reluctance in executing the package announced for large industries and service sectors. The rate of interest on the loan for these industries were also set at only 2 percent.

A higher number of workers in the SME and agriculture segment were traded off for more profitable business with a large borrower segment. A statistic might make the scenario clearer. Dhaka bank has been entrusted to disburse Tk 758 crore as large loans to only 257 clients, while 3,100 clients have been enlisted as eligible for SME loans worth Tk 250 crore. A report by the International Labor Organization mentions about a total of 2.5 million pandemic affected SMEs in Bangladesh.

Incentive packages announced

The responsibility now rested on the government to provide support and assistance to these marginalized sections. As such, it was ruled that Tk 3,000 of the newly announced package for SMEs would be given to cottage and micro enterprises in rural areas. Since they were previously out of the banking channel, loans would be given only upon fulfilling specific requirements. Women entrepreneurs were also eligible for at least 5 percent of the package. Government will also provide interest subsidies to beneficiaries. It will be responsible for 5 percent of the declared 9 percent interest for a maximum of one year. To prevent defaulting, banks will provide loans only after painstaking assessment of applicant’s current financial condition, previous record, and bank-client relationship.
Due importance was also given to the farming sector which received an incentive package worth Tk 5,000 crore. Under this stimulus package, farmers are required to pay a maximum of 4 percent interest on loans taken. The loan will be valid for 18 months, with a 6-month grace period. On the other hand, the country’s export sector received stimulus packages in the forms of pre-shipment credit and workers’ salary package.

The truth behind the veil

The figures look quite satisfactory. These all point towards a swift recovery from the economic slough as long as the real picture stays behind closed curtains. Despite repeated notices to banks and non-bank financial institutions to disburse the fund for SMEs by October, so far only Tk 4,120 crore has been received by 11,183 borrowers. The deadline for loan disbursement among farmers has already been crossed. But only a little more than 20 percent of the total package has reached the prime drivers of our economy. The exporting sector has been a little lucky in this regard. Although the current figure of pre-shipment credit disbursement stands at an unsatisfactory level of Tk 1.1 crore out of Tk 5,000 crore announced, all of Tk 7,700 crore meant for paying wages were disbursed within time.

Many SME clients also lack proper strategies for a comeback, which entails credit risks for banks. This section of borrowers does not have the collateral or organizational strength to materialize transactional relationship with banks.

While the SMEs, farmers and exporters are going through shortage of funds, large industries and service sectors have been given the lion’s share. Perhaps, unlike the story about the Tortoise and the Hare, this time the Hare will win the race. Why would they not? After all, they have bagged all the support from the lenders. As of now, this section of the economy has received 72.85 percent of the Tk 30,000 crore worth fiscal lifeline allotted for them.

An insight into the reasons

What could the reason behind this discrepancy be? Lending money to small and medium enterprises involves high acquisition and maintenance costs to avail proper information and data. Many SME clients also lack proper strategies for a comeback, which entails credit risks for banks. This section of borrowers does not have the collateral or organizational strength to materialize transactional relationship with banks. On top of it, the recent flood worsened the situation, as many small-scale farmers felt the absence of enough capital to pay back loans in time.

Has the government been idle?

The government acknowledges the gap from both sides of the story. In response to it, discussions are underway with the World Bank to implement a credit guarantee scheme worth Tk 5,000 crore to cover up some uncertainties on lenders’ end. Government has also decided to form a steering committee in each district under the leadership of the deputy commissioner to foster district-level loan disbursement.

Previously, banks were required to apply for the loan to the central bank after shipment of exported goods, despite exporters’ willingness to avail loans before the shipment. This would cause unnecessary delay and hinder activities in the exporting sector. To smoothen the implementation of the stimulus scheme, the central bank ruled that banks will have to apply for loans to the central bank within seven days after they fund export sector clients.

Who is responsible- virus or us?

If I had a fortune teller in front of me right now, I know for sure what I would have asked. ‘When will the pandemic end?’ But having a fortune teller seems like a distant dream now, as social distancing is still a must. But as a nation, the timeline of the pandemic should not be our key concern. Rather proper implementation of policies to make sure we secure our future as much as possible should be the first task at hand. The V-shaped economic recovery will turn into reality only if roadblocks to an equal and effective implementation of all financial schemes is addressed. Otherwise, inequality would slowly corrode all the progress we have made so far.

The question we need to ask ourselves is:

‘who is responsible for the newly created inequality? Is it us or is it the virus itself?’

 

By Md. Nafis Khan

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