Fund crunch drives many SME entrepreneurs out of business

Md Ariful Islam set up a small factory for producing electrical products such as switch, socket board and electrical wire on a plot of their land in 2020. Initially, he got a good response from buyers, but for the past nine months he was struggling for survival due to a lack of financial support.

As he could not produce adequate products, he had to cut jobs.

Though Ariful started his career as a private service-holder in 2015, he had dream of establishing a business platform aimed at creating employments.

In 2018, he quit his job and started a new business of RMG accessories. At the end of 2019, he had been forced to close his business due to fund constraints after he suffered a loss of more than Tk 3 lakh.

Kanij Fatema started business of leather shoes and bags in 2019, but during the Covid-19 pandemic, she has incurred losses and closed her business due to fund crisis as she could not repay her previous debt.

Like them, a good number of entrepreneurs have failed to achieve their dream due to adequate financial support.

According to a national workshop titled ‘Rethinking MSME Finance: A Post-Crisis Policy Agenda’ jointly organized by the SMEF and the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) in June 2022, one-third of people get financial support they need for running businesses while rural entrepreneurs receive only 19 per cent of the funds disbursed.

Despite various financial schemes for supporting the micro, small and medium enterprises (MSME), most of the banks are reluctant to provide financial support, said Mirza Nurul Ghani, president of the National Association of Small and Cottage Industries of Bangladesh.

Only 30 to 40 per cent got financial support which has created hindrances for making new entrepreneurs,

he observed.

A recent study conducted by Madan (2020) showed that demand for finance in Bangladesh for micro, small and medium enterprises is US$ 57 billion. But unfortunately, only 33 per cent (US$ 19 billion) of this demand is currently met, resulting in another 67 percent financial gap in the sector.

“We have not reached all the entrepreneurs for giving finical support as per the demand due to a lack of adequate money and manpower shortage,” said Dr. Md. Mofizur Rahman, Managing Director of SME Foundation.

In Bangladesh, a very small portion of the micro, small and medium entrepreneurs are getting financial support as per the demand.

Sometimes banks are not reluctant to give loan to the small enterprises of insecurities and sometimes entrepreneurs cannot fulfill the requirements of the financial institutions, he added.

Despite having huge potential, the contribution of the CMSME sector to the GDP in Bangladesh is still lower than many other countries.

In Bangladesh, MSMEs are the largest segment of the economy. They account for 25 per cent of Bangladesh’s GDP and employed 87 per cent of the population.