The government of Bangladesh has financed 19 stimulus packages to revive the economy from the coronavirus pandemic in 2020. About Tk 103,000 crore and almost 3.7% of the Gross Domestic Product (GDP) of Bangladesh, a substantive amount includes support for export-oriented sectors, the service sector, cottage, micro, small, medium and large businesses, the agriculture sector and pre-shipment loan refinancing to help businesses operations and pull through their losses.
But in reality, the big businesses are at the front of the queue in gaining the fruit.
Small businesses and low-income earners are largely deprived because the announced stimulus packages did not materialize in the desired manner although they faced the hardest hit because of the pandemic-induced adversity as per news reports.
However, the stimulus package has more liquidity support and less fiscal support since more than 80 percent of the support is in the form of repayable loans to be disbursed by commercial banks. Bangladesh Bank was supervising every stage of the liquidity support package though the objective should be to maximize loan disbursement to the needy enterprises and minimize the misuse and abuse of funds.
Former Governor of Bangladesh Bank Salehuddin Ahmed accused the central bank of poor disbursement of loans to small businesses and criticized the reluctance of commercial banks for allegedly favoring influential quarters.
The banks didn’t pay heed and whatever amount was demanded is given without too many excuses. But numerous issues are to be solved by the minors – letting them fall behind the queue.
As such, 3,046 big industries borrowed Tk25,411 crore worth the Tk33,000 crore prioritizing the export-oriented garments as Tk2,263 crore loan in June and Tk2,534 crore in July last year for staff salaries.
Tk3,000 crore was added for the readymade garment industry for facing shortness in July. Export Development Fund (EFD) for the export-oriented sector was increased to $5 billion from $3.5 billion at the end of January with only 2% interest for disbursement.
So far, Tk 4.28 billion has been disbursed by the government’s specialized banks to rehabilitate returnee workers and affected rural small business people from a package worth Tk 32.0 billion!
The special refinancing scheme equal to Tk 5,000 crore for the agricultural sector with a 4% interest rate and Tk 5,000 crore for export-oriented industries has also not made any progress.
Causing those Professor Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue said, ‘The banks have more interest in and better relationship with the big players.’
Accused banks are showing their costs of the fund is about 6% at this time along with 6% operating and administrative costs. Therefore, banks fear recovering the cost in the case of small loans. A larger portion of this loan will go to remote areas since the CMSMEs are spread across the country. This will add the cost further.
Another reason is-banks that need essential networks and trained staff to serve the micro-entrepreneurs to afford any collateral. But banks cannot cover risks and associated supervision costs from the 9% interest rate that has been fixed by the government in the case of the stimulus package.
The most important issue here is that banks will have to disburse the affected entrepreneurs and take full responsibility for the risks attached to the loans. This is the main reason for banks to be reluctant.
Though there is a huge demand for loans from the SME sector, financial institutions are not responding for these reasons. On the demand side, micro-entrepreneurs do not feel comfortable complying with the procedures imposed by banks to obtain loans. These include lowering of REPO rates, reduction of Cash Reserve Ratio (CRR) and increasing advance deposit ratio (ADR), etc. The uneven treatment is resulting in an uneven recovery.
Again, these stimulus packages require mortgage and collateral. Observers and economists feel that providing these units a good share of the stimulus package can only render the government’s move meaningful.
The loan package, an amount of Tk 20,000 crore was announced where the government’s sharing of 5.0 percent of the 9.0 percent interest rate, is still challenging to implement unless a mechanism is in place.
The central bank lastly set March as the deadline to the SMEs. Till 21 January, about 78,000 small entrepreneurs have availed loans though their real number is about 4 million due to lack of the documents mandatory for bank loans.
Professor Mustafizur Rahman said CPD has been approaching another stimulus only for the SMEs by the micro-credit institutions and NGOs for better success.
Meanwhile, financial institutions have not been successful in lending to various sectors while their disbursement target was Tk1,135 crore. The Bangladesh Bank had approved the only Tk214 disbursement against the package. Indeed, several international organizations have alerted that emergencies may be conducive for vested interests and for exploiting public funds for private benefit.