Rethinking SMEs

The consequence of Covid-19 is not only limited to human health and well-being; the economy has been disrupted in a massive way.

It is the greatest public health catastrophe in living memory that created a major economic disaster. There was a pause in production in the affected countries, a collapse in consumption and confidence, and stock exchanges responded negatively to heightened uncertainties.

Both global and national GDP growth have taken a significant backward step. Unfortunately, many small and medium enterprises (SMEs) have closed.

Undoubtedly, Covid-19 has severely impacted many entrepreneurs in Bangladesh just like those in other parts of the world. So, rethinking the SME ecosystem is the demand of the hour that would take the nation to the desired destination.

Prominent banks will rapidly create new and alternative credit scoring models that are able to better predict credit risk for smaller SMEs, leveraging cloud and artificial intelligence technologies

And without proper and immediate support to micro, small and medium enterprises (MSMEs), it will be really difficult for the country to attain Sustainable Development Goals, turn Bangladesh into a developed nation by 2041 and achieve the Delta Plan 2100.

SMEs, by nature, are dynamic and a rapidly progressing segment, defined by diversity. The segment is a combination of unique businesses from different sectors and functions at various phases of the business life cycle, with different desires, mixed forecasts and often with owners or leaders with distinctly diverse characters.

Keeping the complex context in mind, the post-pandemic situation needs a new look, and SME support needs to be redefined by the government, think tanks, banks, chambers and other stakeholders.

In addition, there has to be a holistic approach to planning, which must have synchronisation between all related parties. Different approaches by different bodies having no harmony between them will not add any value. After ensuring proper harmony, we need to redefine and rethink the issues that might be the game-changer for the SME sector.

Familiarising and proper planning for cluster-based SMEs is required at this stage. We have to keep in mind that the cost is always a big challenge for the sector.

A cluster-based approach reduces the supply and distribution costs, thanks to the demographic convenience for both suppliers and buyers. But this approach with certain business facilities and incentives must be ensured first.

The advantages and rewards from the cluster-based approach are a win-win situation for all stakeholders since the quality of the product is ensured and pricing is competitive.

Business advisory support is one of the core issues that the SME sector lacks. The world is moving very fast with a lot of changes taking place every day. In many cases, SMEs do not have proper planning and do not get accurate advice.

They do not know when to expand their businesses, when to get finance, when to go slow and how to grow big. The advisory support will at least guide them with proper information, paving the way for them to stay on the right track.

Given the importance of SMEs to the economy, banks need to ensure that they are serving this largely underserved market. A lack of access to finance is still the main constraint hampering the growth of SMEs. This approach has to be changed.

Banks are still fighting for a few tested customers, whereas there are potential SME entrepreneurs whom they are depriving.

Taking over loans from one financial institution by another does not help the economy while onboarding a new customer will do. The government and regulators should support a credit guarantee scheme for new customers onboarded by banks. This will help banks take a major leap forward.

Addressing the needs of the manufacturing and services sectors will give additional momentum to our overall growth.

Social media, especially Facebook, LinkedIn and Instagram, has transformed the relationship between customers and sellers in a more refined and sophisticated way. Digital marketing lets us communicate with our customers in real-time.

The strong impact of digital marketing ensures we get results quickly for our advertising campaign and acquire new customers in a short time. So, digital marketing-related training is urgently needed for our rural SMEs. Banks, NGOs and the government must take the proper initiative here.

SMEs are digitalising rapidly and expect their financial providers to follow the same.

Digitally advanced banks with a progressive fintech solution will dominate the market for short-term working capital loans initially, and subsequently, for more complex products as these firms assemble data about SME customers' business models, stock and inventory levels. This will subsequently lead to increased product penetration post-onboarding.

Prominent banks will rapidly create new and alternative credit scoring models that are able to better predict credit risk for smaller SMEs, leveraging cloud and artificial intelligence technologies.

Technology will be a big part of the upcoming SME ecosystem for Bangladesh. Getting prepared right at this moment with a good harmony with related concerns will be the key to our future success.

It is not for the sake of SME entrepreneurs alone.

Different development goals taken by the government need the SME sector to flourish. The contribution of SMEs to the GDP has long been stuck at 25 per cent. We must break the barrier and boost the number through proper planning and synchronisation.

The author is a banker