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SMEs bear the full brunt of financial hardship
SUKANTA HALDER
Small and medium enterprises (SMEs) in Bangladesh are struggling due to political uncertainty, high inflation and rising interest rates on bank loans, according to entrepreneurs.
Many entrepreneurs report that they had little choice but to lay off employees and delay salary payments while others said they cannot pay loan instalments timely due to declining business.
Some added that they have even dipped into their savings to keep operations running. Others said they were resorting to loans or reducing profit margins to survive.
On August 5, Sheikh Hasina fled the country after resigning from the post of prime minister amid a mass uprising. Three days later, an interim government headed by Prof Muhammad Yunus took charge amid a weak law-and-order situation and with the financial sector mired in crisis.
Paritosh Kumar Malo, proprietor of RK Metal in Faridpur, which sells agricultural machinery, said business has not been good for the past two-and-a-half years due to high inflation and increasing interest rates.
“The recent political uncertainty only added to many sufferings, causing sales to decline further,” he said. He added that his company, which previously employed 25 workers, has reduced its workforce to 15 over the past few months.
“We are still unable to pay salaries on time. We were also forced to let employees go,” he said.
Previously, Malo used to clear his employees’ salaries within the same month, but now payments are delayed until the 10th or 15th of the following month.
He said his sales totalled around Tk 5 lakh in October 2024, dropping sharply from Tk 50 lakh in October 2023.
Against this backdrop, Malo has taken a loan worth Tk 35 lakh from Rupali Bank to sustain his business. He also invested a part of the loan into a separate venture.
Many of them are now struggling to boost sales, especially as persistent inflation has eroded the purchasing power of consumers.
Bangladesh has been bearing the brunt of high inflation for more than two years, with overall inflation remaining at more than 9 percent since March 2023.
In October this year, inflation hit a three-month high at 10.87 percent, driven by soaring food prices, particularly for rice and vegetables, according to the Bangladesh Bureau of Statistics.
To curb spiralling prices, the Bangladesh Bank (BB) has been hiking the policy rate, the rate at which it lends to banks, since May 2022. This has led to a gradual rise in the interest rate on loans, particularly after the central bank lifted the lending rate cap in July last year.
On October 22, the central bank hiked the policy rate by 50 basis points to 10 percent in an effort to rein in inflation. It was the 11th upward adjustment since May 2022, when the policy rate stood at only 5 percent.
Zakirul Islam Akul, managing partner of Suansh, a Dhaka-based SME that produces jute goods, said they had been losing around Tk 2 lakh in recent months as sales had dipped but rent for showroom, factory costs, and staff salaries still have to be paid.