Is the government doing enough for small firms?

Sadat Rahman (not his real name) has a small photocopy shop right beside a renowned university in Rongpur. Since schools are closed, there is hardly any business. He was sitting quietly at a corner of a school classroom when I entered the room. As a development practitioner, working with skills development and entrepreneurship, I was eager to learn from a few micro and cottage businesses whether they were able to avail the recent loans that GoB has set to disburse to support businesses like his. His answer was quite grim. He said after multiple attempts he gave up the effort as the paperwork that is required to avail such loans are beyond his understanding. He particularly mentioned that the loan required him to provide a letter of recommendation from a government official, and he didn't know anyone who could provide that.

Marufa said the same thing. Even though her beauty salon started getting clients again, she is struggling to make ends meet for a family of three. As a single mother, she recalls how hard it was to afford the basic necessities even during Covid-19 crisis, as her business would have no customer for days. She already has a substantial loan and did not know what she would do with more loan. She asked for support on what she could do to diversify her business, especially about how she could sell things on facebook, as many of her friends are doing in order to earn more. She started a small food business on the side, but didn't know how to advertise for it. Marufa requested for a business recovery plan so that she could get back to earning a decent living.

Marium started a small tea stall four years ago. As a person with disability, she is cared for by her family and community. But during the pandemic, she struggled to keep her business afloat as for months no one came to drink tea at her store. She started using disposable cups, and that had generated some customers. She also started selling basic grocery items. Now that business is going back to normal, she liked the idea of receiving a low interest loan. But she would also like to receive training on how she could keep proper records of her expenses and a steady cash flow.

There are millions like Sadat, Marufa and Marium who are in need of not just loans, but guidance to recover and diversify their business after the crisis period. Many like Marufa are indebted and are unclear about how to plan, execute and scale their businesses.

It is commendable that the government announced a Tk 15 crore stimulus package for small traders, entrepreneurs and farmers who have no access to finance from banking channels, to receive loan at 4 percent. After Covid-19 hit, the cottage, micro businesses had been the worst hit. So it is important for GoB to recognise that unless these small traders and informal sector businesses are given "business guidance" on how to utilise their loan, they risk falling into more debt. A comprehensive support package would be necessary so that these loans are put to the right use.

From business to bank handholding" services

Most cottage and micro businesses owners come from disadvantaged communities. These owners need guidance to run and expand their businesses. Loan comes as a secondary tool for expanding their business, but 9 out of 10 do not even keep records of their expenses or know how they would diversify their business. They also need assistance to prepare documents to be loan ready. GoB's financial institutions could partner with grassroots level NGOs and community led organisations, set up support services for businesses where these establishments can get easy access. Currently, many like Sadat do not even know where to go and where to collect these documents from, or even how to proceed further.

Specific targets and services for women and marginalised groups

There needs to be special "handholding" services for women and girls, and other disadvantaged population who want to move forward with their businesses. Again GoB has announced a Tk 428 crore project to enhance the skills for women entrepreneurs, develop 256,000 unemployed and disadvantaged women and hone them as entrepreneurs, it is crucial to influence women to grow their businesses. Our culture still does not support women and girls to run and expand their businesses, and many struggle to even convince their own families. Often people like Marium fall behind in the crowd, and local organisations who work closely with people with disability can support girls like Marium to move ahead as self-sustained human beings.

Digital literacy for businesses that will avail the loan

As per South Asian Network on Economic Modelling (SANEM)'s study that came out in August 2020, about 50 percent of urban households and only 30 percent homes in rural areas have access to the internet. This number is even lower when it comes to women and girls, which is only 10 percent. Apart from this, the smart phone penetration would have to be increased, and taught, especially for women who would want to diversify their businesses online. Without addressing the digital divide systematically, it will not be possible for small businesses to sustain in the long run.

Rethink "documents" while dealing with micro and cottage businesses

As most businesses in this space are running informally, the banks may need to re-think documentations. Documentations can be set based on the socio-economic profile. For example, Brac's microfinance and skills development unit has jointly developed a loan package that is only geared towards the youth, that have technical skills (like mobile phone servicing, tailoring, ICT services, etc.). The skills unit ensures that the youth are aware of basic business acumen, while the microfinance unit ensures that youth are able to repay the loan by visiting them regularly. Such low interest rates for loans can be put to more effective use if basic entrepreneurship knowledge is given to these young minds.

Keeping a database

A dynamic database management system to track people from various socio-economic backgrounds is essential—data collectedfrom all financial institutions on not only loan repayment schedule but also to ensure that they receive guidance on their businesses development. For example, if Marufa is part of a database and it is updated on a yearly basis by tracing her, it will be easier to track her progress. This can be done in a decentralised manner in each upazilla level. However, GoB would need the support of a tech based organisation that would be able to support them. Currently, the data that is collected is not used much to analyse the trends of these cottage and micro businesses and to up their abilities.

While 37 percent people are employed in the micro and cottage businesses, they have the potential to grow and be job creators of the country. It will be good to see organisationss coming forward to guide the youth like Sadat, Marufa and Marium to take the country forward.

Tasmiah T Rahman is the current In Charge of the Skills Development Programme at Brac.The case studies and recommendations are from learnings of the Promoting Incubation Support to Enterprises (PROMISE) project, a Brac initiative.