Businesses Need Support for Sake of Economy

A businessman took a loan of Tk80 crore from a bank just before the outbreak of Corona pandemic with a hope to expand his factory and maximise production capacity thereby. The loan amount has now accumulated to Tk170 crore. The amount may seem unusual, but the reality is that a high interest rate makes the loan amount almost double in five years, which is exactly what has happened in the case of the businessman. Because of this enormous amount of loan, he needs Tk25 crore to pay only interest on the loan every year, which his business cannot generate even if it runs on a full scale. His factory expansion started producing the desired result as production and turnover were maximised and loans were being regularly paid. But his struggle started with the outbreak of the pandemic and subsequently intensified as the crisis emerged one after another, which has pushed his business to a difficult situation. This is not an isolated incident; rather, it reflects the overall situation the country’s most businessmen have been facing. 

The business community’s plight first started with the outbreak of the Corona pandemic, which multiplied after the start of the Russia-Ukraine war and finally worsened during the interim government's rule.   In fact, one and a half years' rule of interim government had technically destroyed the country’s business community mentally and financially. So, the country’s business community has been passing through the most difficult situation for the last five years. During this period, the business community’s turnover has drastically dropped, production cost has risen, profit margin has significantly declined, some businessmen have incurred losses, cash flow has declined and there have been many other adverse effects. In consequence, many business houses have been closed, many have been scrambling hard to survive while others are about to close. Those who are either struggling or thinking of closing could not maintain debt servicing; consequently, their bank loan has doubled in some cases, which is also reflected in the recent surge in the country’s NPL.

That businessman told me he has been moving from bank to bank but miserably failed to convince them that he himself is not responsible for this situation but rather has been the victim of circumstances beyond his control. He further added that he is not receiving any support from the bank, instead receiving treatment of imprisonment if the loan is not paid, as legal action will follow. Whereas special support from the bank will not only survive the businessmen but also help the country’s economy rebound. Business volume has been very low during the last two years, for which investment is very low, and consequently, employment generation is also very low. There is correlation between investment, business, and employment, as more investment helps business grow, creating more employment, which eventually helps the economy. Again, there will not be investment if business does not grow. More businesses require more investment, which creates more employment. So, businesses must keep continuing and growing in any circumstance, even with special support for the greater interest of the employment generation and economic growth. 

The difficulties the business community have been passing through include (I) shortage of working capital, (II) unusual debt burden caused by interest accrued at an excessively higher rate, (III) tremendous pressure from the bank to repay the loan despite a drastic fall in revenue and cash flow, (IV) harassment and embarrassment of the so-called CIB report, (V) an unusually high interest rate on loans, which is around 15%, (VI) a problem-ridden banking sector and their reluctance to support the business community and (VII) very weak demand of goods and services caused by the people’s income loss or job loss. Among these problems, working capital shortage and outstanding bank loans have taken shape; if not resolved, they may lead to the closure of many businesses. In our country, businessmen always rely on banks for working capital finance, so if lending from banks is tightened, they face difficulty in managing working capital. At the same time, outstanding loans of almost all businessmen have been doubled, which cannot be paid through regular revenue and cash flow generation. If some special measures are not taken towards addressing these acute problems, many businesses will be out of operation, causing serious consequences to the economy.

Bangladesh Bank should take the country’s businessmen’s plight into active consideration and thus come up with some special measures supporting the business community. Firstly, It may instruct all lending banks to identify the borrowers who are in business but need support to survive and grow. Bankers will have to thoroughly review the borrowers’ files, physically visit the business firm and directly discuss to properly identify who will be able to run the business and repay the loan if special support is provided. Secondly, interest rates on loans should be slashed considerably and, if possible, should be brought down to a single digit. If interest rate cuts cannot be allowed to all types of loans, at least corporate or business loans may be given preferential interest rates. Thirdly, outstanding debt should be kept set aside with a repayment option commensurate with the borrower's cash flow generation. This is not typical rescheduling but rather a special arrangement which will allow the borrower to repay the amount that is supportive of the borrowers’ revenue and cash flow generation, and for doing so, if needed, repayment tenor may be extended up to twenty / twenty-five years. 

These measures may seem to be unusual, and bankers may have to concede revenue falls because of these measures. This is obvious because a very unusual situation is prevailing in the country’s businesses, so usual or standard measures will not work. When the situation is grave, there is no other alternative but to take out-of-the-box measures, which in the present situation would be working capital support and resolving outstanding debt matching with borrowers’ ability. Bangladesh Bank should move fast towards extending special support to the business community because it is already too late, so there is no scope for further delay.

The writer is a certified anti-money laundering specialist based in Toronto, Canada. He can be reached at [email protected]