Swiss Capacity Building Facility (SCBF) and MSC (MicroSave Consulting) conducted a webinar and workshop titled “Assessment of the impact of COVID-19 on MSMEs in Asia and Africa.” In the workshop, MSC launched the findings of a multi-country assessment study on the impact of the pandemic on MSMEs and women in Asia and Africa.
Esteemed panel members present in the workshop included Mike McCaffrey, East and Southern Africa Regional Manager of UNCDF; Payal Dalal, Senior Vice President, Social Impact, International Markets of Mastercard Center for Inclusive Growth; Evelyn Stark, Financial Health Strategy Lead of MetLife Foundation; and Mark Napier, CEO of FSD Africa. Graham A.N. Wright, Group Managing Director of MSC, moderated the workshop.
“The COVID-19 pandemic has had a devastating impact on low- and moderate-income populations, micro, small, and medium enterprises, farmers, and CICO agents around the world,” according to new reports published by MSC . With limited net worth and savings to fall back on coupled with a squeeze on access to finance, these segments have faced severe disruptions in demand and payment cycles. Business continuity has been the greatest hurdle and responses at all levels will be critical to support the recovery of these sectors in the aftermath of the crisis.
In this context, MSC conducted an extensive research exercise to assess the impact of the COVID-19 pandemic with support from our generous donors—the Bill & Melinda Gates Foundation, MetLife Foundation, Swiss Capacity Building Facility, and Mastercard Foundation.
The research examined the needs, attitudes, perceptions, and behaviors of micro and small enterprises, farmers, and CICO agents in several countries including Kenya, Uganda, India, Indonesia, Bangladesh, Senegal, and the Philippines. The research involved an assessment of the impact of COVID-19 on key segments of the economy in these countries and the response of the governments and the private sector as they dealt with the pandemic.
At the launch, Evelyn Stark of MetLife Foundation remarked that one of the biggest coping mechanisms of people observed during the pandemic is the increase in savings into more formal products like mobile wallets and credit unions. Meanwhile, the demand for credit from the masses has decreased. Yet the demand for credit from the MSME side increased in a bid to re-start business.
“42% of MSMEs and small businesses are in direct risk of failure in the next six months. Irrespective of an economy’s level of development, size, or geographical location, women have been disproportionately more vulnerable to the economic consequences of this pandemic,” remarked Payal Dalal of MasterCard Center for Inclusive Growth.
Status of the MSME sector
Reports from Kenya indicate that across the country, MSMEs were showing signs of recovery once the markets reopened. Businesses have seen a gradual increase in the number of customers. 57% of enterprises surveyed in December, 2020 reported a decrease in customer footfall compared to 60% of enterprises surveyed in September, 2020, and 86% in July, 2020
The report from Bangladesh indicates that 96% of MSMEs reported a decrease in income, with a median loss in business of 82% during the “national holidays.” Customer footfall decreased by 67% on average among the respondents. COVID-19 massively disrupted the supply chain. MSMEs in the rural areas now must travel to collect supplies from the central depot.
Moreover, a third of the suppliers do not offer credit due to the fear of not being paid by their end customers during the pandemic. 36% of MSMEs have reported that they have been suffering from a decline in the availability of supplier credit. Combined with pending receivables, this has hurt the cash flows of MSMEs as 58% of them have reported a reduction in household expenses. Due to the inflated cost of living in urban areas, 68% of urban MSMEs have reduced their household expenses compared to 33% of rural MSMEs.
Measures to support MSMEs
The MSME sector in Africa and Asia will need a three-pronged approach to kick start the road to recovery. The three pronged support need will come from governments, regulators, and financial service providers, as well as private sector players. In Kenya, we have some steps that the government has already taken. For example, it has reduced SME turnover tax from 3% to 1%, increased the cap for those liable to pay the levy from KES 5 million to KES 50 million per year (from USD 50,000 to USD 500,000 per year), and exempted small-scale businesses with annual sales <KES 500,000 (USD 5,000).
In Bangladesh, the government has extended the moratorium period to one year for the disbursement of the stimulus loan. Recently, the Bangladesh Bank also set up a refinancing fund worth USD 590 million (BDT 50 billion) for three years to provide a credit facility to owners of cottage, micro, and small enterprises (CSMEs).
The COVID-19 pandemic has been a huge test on financial inclusion. Donors, private sectors, and governments must now focus on supporting the low- and moderate-income populations and MSMEs on their journey back to recovery to avoid the risk of them falling back to the vicious cycle of poverty and indebtedness.