Introduction
The Cottage, Micro, Small and Medium Enterprises (CMSMEs) sector is a significant emergent source of employment creation in Bangladesh. Due to its small scale of production and fragile entrepreneurship, it is also the most susceptible to economic shocks posed by the advent of the global pandemic and economic shutdown. Due to the outbreak of the Covid-19 virus, small businesses, including in the CMSMEs, have been scaling down and temporarily closing as consumers stay home to be safe from the spread of the highly infectious virus. As a result, many small businesses of Bangladesh are already on life support.
Small and medium scale entrepreneurs face a multifaceted challenge in terms of temporarily halting sales, whilst paying continuing expenses such as loan repayments, and not receiving easy access to credit hindered by stringent conditions imposed by banks. The government has introduced a working capital loan facility of USD 2.35 billion at a subsidized interest rate for the CMSMEs. The loss on two major occasions- Pahela Baishakh and Eid-ul-Fitr due to the lockdown has been a shock to the enterprises as they have lost their principal scope of business in a fiscal year. The fashion industry alone has lost a total of USD 0.71 billion worth of business.
The CMSMEs elevate economic growth as well as generating employment opportunities because the sector is labor-intensive and less time-consuming for production with less capital expenditure or lower establishment cost. Out of 7.8 million enterprises in Bangladesh, 88% (6.86 million) are cottage enterprises that employ 13.16 million people. A further 0.11 micro enterprises create employment of 0.56 million. CMSMEs together represent 99.84% of the total enterprises in the country. In aggregate, SMEs contribute 25% of Bangladeshi GDP. As of 2018 CMSMEs it stands at 79 billion USD and accounts for 40% of the manufacturing output.
The CMSMEs have been facing a significant crisis due to the global pandemic. About 52% of SMEs have closed after generating zero revenue, and a further 28% of SMEs have experienced revenue losses of at least 50%. In the Service industry, 40% SMEs experienced a heavy hit of considerable revenue loss by 50% or more. About 14% of SMEs have already laid off all their employees. Inadequate financial access was a major obstruction to SME development, and it has worsened the effect of the pandemic.
Female small business owners may be more adversely affected than other groups. Access to finance has always been a serious concern for women entrepreneurs. Women entrepreneurs are supposed to receive at least 15% of all credit within the SME sector as per the directive of the central bank. Despite this initiative, most women entrepreneurs are facing difficulties to acquire credit from banks and other NBFIs. The key barriers are related to collateral requirements and guarantee, trade license and rigidity of loan procedures and lender bias against women entrepreneurs.