SANEM’s executive director and Dhaka University’s economics professor, Selim Raihan, explains the gap between the large-medium and the micro-small enterprises – widened by the pandemic – and the solutions to address it, in an interview with The Business Standard
How important is it to define the different kinds of SME enterprises separately from each other?
The coverage of the SME sector is big, if we consider small and medium enterprises as a whole. But there are micro and cottage enterprises within it, with abbreviations like MSME (micro-small-and-medium enterprises) and CSME (cottage-small-and-medium enterprises), who have now emerged to make the smaller groups significant.
If we mean development of SMEs as a development of the micro, cottage and small enterprises altogether, mutually exclusive definitions among the marginalised groups have to be recognised.
The difference between small and medium groups are in their financial strength. Medium enterprises share more common traits with the larger ones, than the smaller groups.
When we talk about SMEs as a whole, blurred definitions of the different groups create confusion and the challenges faced by the marginalised groups go unnoticed. Medium enterprises also have challenges of their own. But they dominate policy discussions while the smaller groups can hardly speak for themselves.
The SME Foundation and the Bangladesh Small and Cottage Industries Corporation (BSCIC) have proposed changes in the definitions of medium and large enterprises. I think this is a good initiative. This will help scale up policy support and development allocation to the smaller enterprises.
If the categories are properly defined, it will be good.
Do you think that woman-led smaller enterprises need a separate definition since marginalised women make up the lion’s share of the SME workforce?
Not necessarily. Although women dominate the workforce, the number of women entrepreneurs in the SME sector is still sparse.
However, the government has to promote women entrepreneurship because women, particularly in the micro and small enterprising sectors, face huge challenges. They face many problems in regards to economic participation for being women. For example, they face problems in accessing bank loans.
Poor women hardly own a piece of land or a collateral item. Moreover, they face [additional] social barriers while participating in economic activities, [such as decision-making and rights to property ownership]. These are the traditional challenges.
Hence, I recommend that policy discussions over SMEs should focus on the challenges of women entrepreneurship, particularly in the micro and small ones. The government should address their problems with special arrangements to attract greater participation by women.
Micro and small enterprises lagged behind in accessing Covid-19 time incentives because they remained financially excluded. Do you agree with this observation?
Integration of the micro and small enterprises with the formal bank and non-bank financial system is very weak in this country. This has been persistently going on for a long time. They [micro and small enterprises] lack collateral items and find the procedures of opening bank accounts very complicated.
On the other hand, banks consider them as risky ventures from a sceptical point of view, concerned over whether they can pay back instalments of loans in time.
The banks also consider issuance of small loans to them as high transaction costs and thus, show minimal interest to finance them through the formal banking system.
During the Covid-19 economic slowdown, micro and small enterprises suffered heavily. They even struggled to access the government-announced stimuli due to their weak relationship with the formal banking system that disbursed the grants, mostly in credit form.
For survival, the micro and small enterprises had to borrow money from informal sources including their family and friends. The problems with financial exclusion were already deep but intensified further during the Covid-19 pandemic.
Many micro and small enterprises were compelled to shut their ventures down because of capital crunch. Several studies by SANEM found that the government-announced stimuli largely benefited the large and, to some extent, the medium enterprises, while letting down micro and small enterprises in the process.
We did not see significant initiatives to integrate the micro and small enterprises with the formal banking system at this critical moment. Authorities tried to address the issue very conventionally and later the initiatives proved futile. The banks should stand by the micro and small enterprises with innovative financing approaches, but they didn’t.
I think if the problems are not addressed promptly, the micro and small enterprises will remain weak and vulnerable and the overall economic recovery in the post-Covid world will be hindered.
Dhaka Stock Exchange has formed a SME Platform. But the platform so far has failed to attract good investment. What do you think?
First of all the micro and small enterprises should be relieved of the barriers to financial inclusion. Their problems with duplicated paperwork, complicated bank account opening procedures and collateral issues, need to be addressed. With their high degree of informality, the micro and small enterprises cannot enter into the stock market, which is [counterintuitively] formal.
Opening of several windows like SME Platform for the SMEs, particularly the micro and small enterprises, will be useless if the barriers are not removed. The authorities may claim success for opening the windows, but they need to understand why the target groups are not availing the facilities.
The gap between the large-medium and the micro-small enterprises is widening. What do you recommend to narrow down the gap?
You see, the economic development of countries across Southeast Asia, for example: China, Japan, South Korea, Malaysia and Vietnam, has been done following SME-focused policy implementation. The striking advantage of SME development is that if the micro and small enterprises are promoted by policy support, it will ensure inclusive development. It helps poverty alleviation and employment generation.
If the large and medium enterprises eat up most of the finance, depriving the micro and small enterprises, wealth will be concentrated in the hands of a few…