Motobi Union in Feni Sadar Upazila. Eighteen years ago, a resident of a remote village here, Masuk, ventured into the poultry business with bank loans and debts. The recent floods have left him almost destitute, causing him to lose about BDT 15 million. The interest rates on his bank loans have also increased. He has not yet been able to restart operations fully. He struggles to repay his loan installments on time, and there is uncertainty about returning to business.

Most small and medium entrepreneurs in Feni are currently facing this situation. Many have shut down their businesses. Poultry businessman Masuk said, “I received incentive loans during COVID-19, but this time I haven’t received any assistance. I’ve incurred losses of about BDT 15 million. There were bank loans and debts. Due to this situation, many farmers are now closing their businesses and leaving. They have no conditions to restart their ventures.”

This year, nearly half of the districts in the country have been affected by floods in three phases. The districts that have suffered the most damage include Feni, Noakhali, Lakshmipur, Cumilla, Chattogram, Mymensingh, Sherpur, Jamalpur, Kurigram, Gaibandha, and Nilphamari. Besides these districts, agriculture, crops, and livestock in vast regions of the country have suffered significant losses due to floods and excessive rainfall. The cottage, small, and medium enterprises (CSME) sector has also been severely affected. Many businesses in this sector have now lost their ability to repay bank loans.

The ongoing liquidity crisis in the country’s banking sector has made the situation more difficult for them. The crisis, which has been going on for almost two years now, has become more and more intense. Some banks, which are far from giving new loans, cannot return the deposits deposited by customers as per demand. The country’s CSME sector is in a financial crisis in this situation. Many institutions in this sector have closed down due to the lack of bank loans. The concerned said that the functioning institutions also struggle to meet the daily operating expenses.

Jashore’s motor and motorcycle parts trading companies are a big example of this. The district has seen a massive expansion of this business in recent years. Bangladesh Motorparts and Tire-Tube Traders Association said the district has about 2000 motor and motorcycle parts shops. The total investment of these institutions is in the billions, the majority of which is bank loans. Although there has been a slowdown in business, now, the entrepreneurs of these institutions have to pay interest on loans at 13-14 percent. Those concerned fear that many institutions will have to be closed if this continues.

Noting that it has become difficult for such businesses to operate in the current situation, Shahinur Hossain Thandu, president of the Jashore branch of the Bangladesh Motor Parts and Tire-Tube Traders Association, said, “Most of our shop owners are unable to secure new bank loans. The amount they need to repay in interest has also increased for those who have taken loans. With costs rising this way, running a business has become very challenging. There are about 20,000 employees across two thousand shops, with salaries ranging from BDT 7,000 to 15,000. Their employment is now also at risk.”

Local entrepreneurs say that the decline in the flow of bank loans, coupled with high interest rates, has become a major obstacle for them. Faruk Hossain, owner of Madina Metals in the Jashore BSCIC Industrial City, stated, “We produce bicycle rims. We have been facing a downturn for the past four to five years. Due to the increase in bank interest rates, production costs, and transportation fees have risen. However, sales have not increased proportionately. The situation has reached a point where it seems we would be better off selling everything and keeping the money in the bank.”

The decrease in the flow of loans to the SME sector is also reflected in data from the Bangladesh Bank. Reports show that the amount of loans distributed by banks in the SME sector has declined this year. In the last three months of 2023 (September-December), banks distributed BDT 648.42 billion in loans to the SME sector. However, in the April-June quarter of this year, banks provided BDT 545.26 billion in loans to SMEs. By the end of June, the outstanding loans distributed by banks in the SME sector totaled over BDT 3.06 trillion. However, a significant portion of these loans has gone to medium-sized industries and service firms, while investment in small and micro enterprises has been reported to be much lower.

Amid this crisis, a downturn is also evident in the sales of SME businesses. Shawpna Rani Sen, owner of Rangpur Craft, told Bonik Barta, “We primarily sell luxury items. Previously, we used to sell around BDT 40,000 worth of products in a day. Now, that has dropped from BDT 2,000 to 3,000. Many are hesitant to start new businesses. Due to rising interest rates, many entrepreneurs also avoid taking loans.”

Currently, the recovery of loans from the SME sector by banks has significantly decreased. A report from the Bangladesh Bank regarding loan recovery shows that in the October-December quarter of 2023, loan recovery from the SME sector fell by 50.46 percent. Among these, recovery from small and micro enterprises declined by 86.41 percent. According to the report from the Bangladesh Bank, recovery from medium-sized enterprises also decreased by 8.52 percent. As a result of the decrease in loan recovery, the outstanding amount of overdue loans in this sector has increased.

Most of the country’s small, cottage, and agricultural sector entrepreneurs are deprived of bank loans. Entrepreneurs in this sector largely depend on microfinance institutions (MFIs) or NGOs for loans. NGOs usually take loans from banks and distribute small loans at high interest rates. The adverse effect of the liquidity crisis in the banking sector is also seen in this activity. The loan interest rate in the bank sector is now going up to 15-16 percent. NGOs also fail to provide small and medium credit institutions with the required funds in this situation.

Among the private sector banks of the country, BRAC Bank disburses the most loans to the CSME sector. The bank’s Deputy Managing Director and Head of SME Banking, Syed Abdul Momen, told Banik Barta, “Most of those who have taken loans from us are repaying their loans on time.” However, due to the floods, entrepreneurs in some areas have suffered. Especially the entrepreneurs of Feni, Noakhali, and Comilla regions cannot pay the loan installments. Again, the students’ movement in July-August and, in its wake, the government’s shutdown of the Internet and imposition of curfew, entrepreneurs have suffered losses for various reasons.

Syed Abdul Momen said, “Although there is a liquidity crisis in the country’s banking sector, our bank does not have this crisis.” However, the demand for loans from entrepreneurs has decreased. Last year, we had many customers interested in growing their business last year, but that number has come down a lot this year. Moreover, the interest rate is now around 14 percent, which is why many entrepreneurs are not interested in taking loans.

There are no exact statistics on the number of small and medium factories in the country. However, according to the Bangladesh Bureau of Statistics (BBS), the manufacturing industry survey data published in 2020 shows that the number of heavy industries in the country is 2,856. The number of micro, small, and medium enterprises (MSME) factories is about 43 thousand. Among them are 16,770 micro, 23,306 small, and 3,178 medium factories.

According to BBS data, the contribution of the CMSME sector to the country’s Gross Domestic Product (GDP) is increasing yearly. In the last financial year, 2022-23, the value addition of this sector was BDT 5.16 trillion. In FY 2021-22, the value addition of Micro, Small, and Medium Enterprises (MSME) to the economy was BDT 2.49 trillion. The following year, it increased by 7.87 percent. In the financial year 2022-23, the value addition of the MSME sector increased by 16.72 percent to BDT 3.19 trillion.

The industrial sector’s contribution to the GDP in the financial year 2022-23 was 23.10 percent. Out of this, 11.20 percent of large industries, 7.35 percent of MSMEs, and 4.54 percent of cottage industries.

The CSME and agriculture sectors, which play the biggest role in GDP and employment, are now suffering from various crises. President of Feni Traders Welfare Association Iqbal Alam told Banik Barta, “We have lost about BDT 100 million due to floods. However, we have not received any kind of support from the government or any donor organization.”

When asked about the overall issue, Pubali Bank Managing Director Mohammad Ali told Bonik Barta, “The central bank has given a policy exemption for the payment of loan installments to flood-affected customers. In light of the guidelines, we are giving concessions to the customers on their loan repayments. Again, initiatives have been taken by the bank to stand by the affected customers.”

He said, “The economy was under pressure for two years due to high inflation, dollar and liquidity crisis. Now, the changing political and economic situation has increased this pressure. The country’s GDP growth is also predicted to fall below 4 percent. In this situation, it is very difficult to maintain regular business. However, on behalf of Pubali Bank, we are trying our best to stand by the customers. Because we have enough liquidity. We have specially deputed two officers in each branch to increase investment in SME and retail sector.”