When the Bangladesh Bank raises interest rates on bank borrowing in its battle against stubbornly high inflation, the ripple effects reach small and medium businesses run by Faridpur's Paritosh Kumar Malo or Chuadanga's Md Oli Ullah.

Already squeezed by slumping sales in response to an upward inflationary curve over the past three years, Malo and Ullah promptly shelved their business expansion plans that depend on bank loans.

If that is not enough to survive, they now go for cutting their workforce just to keep their businesses afloat.

But even desperation has its limits.

If the macroeconomic stress does not ease soon, these small ventures, which contribute 32 percent of the country's GDP and employ 85 percent of the industrial workforce, face closure.

According to the Small and Medium Enterprise (SME) Foundation, there are around 79 lakh SMEs in the country. These ventures are considered as the economic backbone of the country. But most of the businesses are struggling due to inflation and macroeconomic headwinds.

Amid the economic turmoil, the political changeover through a mass uprising last year has led to slower spending on development projects, adding another layer to the SME crisis.

Take the case of Paritosh Kumar Malo, who runs RK Metal in Faridpur. His workshop, which once employed 25 workers, produces farming machinery.

Malo said government projects were his steady clients, but as work has been halted in the past six months, he has not received any new orders.

To make matters worse, he supplied equipment worth Tk 20 lakh to a USAID-funded project. The payment is now uncertain after the new US administration announced cuts in foreign aid.

Just six to eight months ago, Malo said, his factory generated Tk 30 lakh in revenue, but that has now fallen to Tk 3 lakh.

Of that, he must repay around Tk 80,000 per month in bank loans.

Demand for small agricultural machines, once the backbone of his sales, has dropped by nearly 70 percent.

Dealers hesitate to place orders, while farmers struggle to afford new equipment. "If they don't have money, how will they buy it?" he asked.

Unable to sustain his full workforce, Malo had to lay off 15 employees. "Letting them go was painful. They have families to feed."

DEPLETING CAPITAL, LOOMING LAYOFFS

Md Oli Ullah, owner of Janata Engineering in Chuadanga, manufactures agricultural machinery such as corn threshers and mustard oil extraction machines.

Like Malo, he said demand has plummeted as farmers and small entrepreneurs are delaying purchases.

He employs more than 100 workers but fears layoffs.

"I took a Tk 5 crore loan from Agrani Bank in 2020, when the interest rate was 9 percent. Now it has risen to 17 percent, significantly increasing my quarterly repayments."

Ullah said his capital is depleting, and after Eid, he may have to lay-off some workers just to keep the business running.

Despite efforts to sustain operations, he fears that businesses like his will be forced to shut down if conditions do not improve.

Loan disbursement data from Bangladesh Bank also reflects the financial struggles of small ventures.

Loan disbursement to small enterprises dropped by 16.05 percent year-on-year in the July-September period of fiscal year 2024-25, compared with a 1.89 percent increase in the same period of FY24, according to central bank data.

Meanwhile, the cost of financing for SMEs surged to 12.12 percent in December 2024 from just 6.17 percent in June 2023, further straining businesses.

UNEXPOSED TO LOANS, YET STRUGGLING

In contrast to Malo and Ullah, Rubina Akter Munni, owner of Design By Rubina, does not have any bank loans.

She manufactures leather goods such as travel bags and jackets.

She said online, corporate, and export orders have almost disappeared over the past three months.

"Consumers are probably not spending on luxury products," she added.

"Earlier, I received export orders from expatriates and local leather exporters, but they are delaying payments due to their own business downturns," she said.

With revenue sharply down, she is struggling to pay her 71 employees. "This tough situation affects not just me but many small entrepreneurs," she added.

Some businesses have already postponed orders.

Although she finds relief in having no bank loans, running day-to-day operations is becoming increasingly difficult.

A SILVER LINING IN GOLDEN FIBRE

Ajit Kumar Das, owner of Creative Jute Textile in Narsingdi, has managed to sustain his business thanks to the steady demand for eco-friendly bags made of jute -- dubbed the "golden fibre" of Bangladesh.

While other businesses struggle, his company supplies various shops in tourist areas, and some of his bags are indirectly exported abroad.

"Basic Bank has supported me financially, and even private banks have shown interest in providing loans. As long as I maintain quality and attractive designs, there will always be demand," Das said.

His company currently employs more than 100 workers and remains one of the few thriving SMEs.

SME FOUNDATION FOR LOAN DEFERMENT

M Masrur Reaz, chairman and CEO of Policy Exchange Bangladesh, cited the Purchasing Managers' Index (PMI), which signalled a downturn in the SME sector.

He identified three main challenges: high production costs driven by inflation, disruptions to raw material imports due to the US dollar crisis, and declining consumer demand as the cost of living rises.

Anwar Hossain Chowdhury, managing director of the SME Foundation, acknowledged these challenges and emphasised that SMEs often operate with limited capital, making them vulnerable.

The foundation has urged Bangladesh Bank to grant a three-month loan deferment for SMEs.

"We are also working to create collaboration among stakeholders through fairs and conferences," he said.

 "Our goal is to ease access to bank loans by connecting the banking sector, corporates, and entrepreneurs, ensuring their progress."