THE ongoing lockdown enforced to contain the coronavirus pandemic from spreading and overwhelming the country’s inadequate healthcare facilities has taken a very heavy toll on businesses, particularly micro, small and medium enterprises (MSMEs).

Such businesses have suffered enormously because of the shuttered economy owing to the contagion and a significant number of enterprises with low cash reserves fear insolvency over the next several weeks as they are already facing difficulty in maintaining their payroll, and paying their rent and utility bills. Most of them are laying off their temporary employees and furloughing others to cut their losses because of the closure.

The government last week launched a Rs50.7 billion support programme – Chota Karobar-o-Sanat Imdadi Package – to inject cash into the micro to small commercial and industrial enterprises through the prepaid electricity bills for three months. The government says the programme should benefit about 3.5 million businesses when they restart after the lockdown restrictions are lifted. The facility will remain available for six months and support 95 per cent or 3.2 million of the entire commercial consumers with the connected load of up to 5kW and 72pc or around 400,000 of the total industrial enterprises with the connected load of up to 70kW. The commercial consumers will be given the support of up to Rs100,000 and industrial consumers up to Rs450,000 for three months under the scheme. In addition, the government has also launched a Rs75bn ‘Mazdoor ka Ehsas’ programme to transfer Rs12,000 a month to workers who have lost jobs due to the virus pandemic.

‘The first thing you notice about the SBP schemes is that these do not distinguish between the industries that are exempt from the lockdown and the ones that are not’

However, it is yet not clear if the government will be in a position to successfully help the businesses because approximately 75pc of MSMEs are part of the country’ informal economy that is estimated to contribute 75pc cent of the total economic output. Similarly, a vast majority of workers or daily wage-earners who have lost their jobs are not registered anywhere.

Federal industries minister Hammad Azhar says the government is also working on an interest-free loan package for the MSME sector.

In addition to the support programmes launched by the government, the State Bank of Pakistan (SBP) has announced measures to support the small and medium enterprises (SMEs) in distress. According to the bank, about 700 firms have applied for cheap loans of Rs65bn under its temporary refinance scheme initiated to support wage bills of companies that will maintain their payroll for three months of Covid-19 lockdown. That will save half a million jobs, according to the bank.

Moreover, the bank says 303,000 borrowers, mostly small ones, have applied for the deferment of their principal loan payments to the tune of Rs236bn for one year.

Small and Medium Enterprise Development Authority (SMEDA) chairman Hashim Raza, who led the team that put together the two programmes to support MSMEs and jobless workers, told Dawn that a survey conducted last month showed the MSMEs faced three issues because of the Covid-19 lockdown. First, the businesses are suffering from financial losses because of cancellation of orders and the damage done to their raw materials or stocks. Second, they are incurring fixed losses owing payments they have to make on rentals, utilities and wages despite the closure of businesses. Third, the majority of them are worried about cash flow as they will be required to make payments to their creditors and procure raw materials and stocks when the restrictions are lifted and they allowed to resume their businesses.

“Many will not be able to resume their businesses if they don’t get support from the government,” Mr Raza argued, conceding that the electricity bills package was meant for micro or cottage businesses and not for SMEs. “These are the businesses hit hardest by the health crisis. They needed immediate support and we have tried to help them stay afloat.”

He said the government was also devising a cash flow support plan to help businesses restart. Under the plan, the banks will provide low cost, clean loans to the enterprises. “As much as the government would want to support the businesses through wage grants and interest-free loans, it does not have unlimited resources,” he concluded.

However, the SME owners aren’t much impressed with the relief actions taken by the government so far. A medium-sized industry owner was of the view that the SME utility bills support package must be appreciated but it will benefit only micro and cottage enterprises. “The SME’s generally range from 100kW to 400kW as defined by the SBP and the Small and Medium Enterprises Development Authority. Probably the government doesn’t want to breach the limit of Rs50bn for this purpose and hence has left SMEs out of it,” he argued refusing to give his name.

Others expressed dissatisfaction over the SBP wage support and principal loan deferment schemes, saying only large firms would benefit from the concessions. “The first thing you notice about the SBP schemes is that these do not distinguish between the industries that are exempt from the lockdown and the ones that shut down since the enforcement of the Covid-19 restrictions,” an auto parts supplier pointed out.

Then, he added, banks were avoiding extending the facilities to the sectors that have been hit hard due to closures and are unlikely to recover as swiftly as some others. “Besides, our collateral limits are already choked and the banks are not ready to take more exposure against the same collaterals,” he said.

He was of the view that the government should give wage grants to the SMEs, which have been shuttered owing to the lockdown, equal to their three-month salary bills from April onwards to help them bear their losses and keep their payroll. Moreover, the SBP should also announce concessions for borrowers of short-term running finance.

An SME researcher said the SBP schemes will benefit only 5pc of the total SMEs in the country unless it encourages commercial banks to expand their outreach to firms that are not currently included in the formal financial system. This will also help document the sector that contributes approximately a third to the country’s output and employs 80pc cent of the non-agri workforce.

The MSMEs with limited financial resources to absorb such shocks as the one thrown by the health crisis face a major challenge in terms of shrinking demand, falling revenues and rising costs. It is hard to imagine most small companies will be able to survive without support from the government and the SBP. In addition to short-term support, they need medium- to long-term measures to resume their businesses.

Published in Dawn, The Business and Finance Weekly, May 4th , 2020