Dollar crisis puts small and medium firms on weaker footing

Before Covid-19 and the Russia-Ukraine war, Ripon Engineering Workshop, a light engineering factory in Jashore, would sell up to 30 units of agricultural machinery to buyers in neighbouring India every month.

The workshop would import raw materials, including chemicals and different components, to make the agricultural machinery, such as irrigation pumps and rice threshers.

"Now, the company's monthly export has slumped to just three or four machines," Ashraful Islam Babu, proprietor of Ripon Engineering, told The Daily Star over phone yesterday.

He said exports fell mainly due to reduced production resulting from problems in importing raw materials, with banks being apathetic towards opening letters of credit (LCs) amid the US dollar crunch.

"For this reason, we cannot make the machinery, causing a significant decline in exports," Babu added.

Likewise, various businesses in Bangladesh have been suffering from difficulties in opening LCs for importing raw materials and finished goods for more than two years now.

Besides, the US dollar shortage has only deepened over the past few months as the outflow of foreign currencies continues to outpace inflow.

However, the situation is particularly dire for small-and-medium enterprises (SMEs).

This is because banks are giving priority to big businesses when financing imports as they have higher financial strength, greater holding capacity of goods and better access to top-tier banking officials.

"There are various items that have higher prices in Bangladesh compared to India," said Harun Ur Rashid, president of the Hili Land Port Exporter-Importer Group at Hili land port in Dinajpur.

"However, we cannot import these items even though we want to. On the other hand, big firms are importing quite frequently," he added.

Rashid also said some banks are asking for up to 150 percent margins against LC opening.

And if any bank does provide an LC, the importer will have to pay Tk 117 per US dollar when settling the import bill even though the official rate is Tk 110 per greenback while it was Tk 85 as of January 2022.

Additionally, Rashid informed that imports through Hili land port have dipped in recent times.

In the past, about 150 goods-laden trucks would enter the port each day. Now though, the number has reduced to nearly one-third, he said.

Hili land port is mainly used for importing wheat bran, stones, spice and pulses from India.

"And with Ramadan ahead, we are seeing large commodity importers bringing goods on ships. So, if small importers cannot import, the market will eventually be controlled by a few, making it easier for them to form syndicates and manipulate prices," he said.

"In reality, small businesses are facing discrimination. Even if banks help us open LCs, they attach a lot of conditions and we have to buy dollars at higher prices than the official rate," Rashid added.

Seeking anonymity, the treasury heads of two private banks acknowledged the unequal treatment.

One of the officials said large importers, especially industrial entities, bring goods on deferred payment while commercial importers issue imports with sight LCs.

As such, banks feel more comfortable with opening LCs with deferred payment terms, he added.

The banker also said large businesses generally get more opportunity and access to finance.

"Small businesses face a lot of difficulties. They have low holding capacity, lack of capital and do not have easy access to finance," he said.

Against this backdrop, he suggested the government take policy measures so that small businesses get better access to finance and thereby ensure increased competition in the market.

The second banker said banks feel confident when dealing with large clients, but the case is different for importers who operate on a small scale.

Echoing Rashid, the official said the lack of access to finance for small-and-medium firms will reduce their scope for competing in the market.

Abul Kashem Titu, owner of light engineering firm Mafia Engineering in Dhaka, said he is passing a tough time as he cannot take work orders for different machinery due to a lack of necessary raw materials.

Like others, Titu has been unable to import components for making light machinery amid the US dollar crisis.

Sameer Haque, director of Delta LPG, said 26 liquified petroleum gas (LPG) companies are in operation in the country.

However, only 10 or 11 of these firms can issue regular imports while the remaining 13 to 14 companies cannot do the same for difficulties in opening LCs, he added.

Haque informed that the companies struggling to directly import LPG are being forced to operate by purchasing the fuel from larger firms that are importing regularly.

The companies even cannot open LCs for importing LPG by paying the full margin in addition to more than the government rate for US dollars, he said.

Md Masudur Rahman, chairman of the SME Foundation, acknowledged that SMEs are facing difficulties in opening LCs to import necessary materials.

The big corporate houses that have good relations with banks are getting priority in opening LCs, but SMEs are being deprived of this benefit, he said.

"We have already discussed the issue with Bangladesh Bank, and the industries and finance ministries to find a solution. But it would take at least six months until stabilisation of the US dollar crisis," he added.

Rahman also said SMEs make huge contributions in terms of employment and so, they should be given priority in facilitating imports.

Ashraf Ahmed, president of the Dhaka Chamber of Commerce and Industry, said the US dollar crisis emerged at a time when demand increased in the post Covid-19 period and impacted LC opening.

"The big houses could manage banks in opening LCs due to their longstanding business relations and volume of transactions. But small ones cannot do the same," he added.

Ahmed also said the US dollar supply will improve as the government is taking several measures to stabilise the country's foreign currency reserve.

"Bangladesh will have a stable foreign currency reserve within three to six months. Then, importers will not face challenges in opening LCs," he added.