Micro-retailing 2nd-biggest sector

Operators mainly borrow from non-bank sources

With an estimated $18.42 billion in sales, micro-merchants constitute the second-biggest market in Bangladesh after the ready-made garment (RMG), according to a study released last week.

The study conducted by the United Nations Capital Development Fund said almost 50,000 new micro-merchants enter the retail sector each year with a median income of Tk 90,000 a month.

They are all involved in the fast-moving consumer goods (FMCG) trading at the retail market, the study said.

For the purpose of this research, micro-merchants were identified as those "employing no more than 15 employees and/or holding assets worth less than Tk 1.0 million, excluding land and buildings", as per the National Industrial Policy 2016.

In addition to this definition, micro-merchants sampled for this study needed to be exclusively engaged in retail trade in the FMCG sector.

"While individually their businesses are small, together micro-merchants transact more than $18.42 billion annually and interact with millions of customers every day," the report said.

It also said they are an underserved cash-based group largely left out of modern digital payments and other financial services.

There are 2.0 million people are involved in the sector in some way - as business owners, employees or labourers.

The mostly-sold item is cigarette. The other items are edible oil, rice, packet biscuit, flour, pulse, chips, betel leaf and eggs.

Some 73 per cent of micro merchants sell their products on credit to the customers in the corners.

In contrast, nearly 65 per cent procure products on credits from suppliers.

Nearly 28 per cent merchants maintain savings bank accounts just for depositing their money.

But they lack current or business account, with making up less than 10 per cent accounts with the commercial banks, the study said.

The report estimated that micro-merchant credit market could be approximately $ 778 million.

The average business loan was $ 1,116 and the average personal loan size was $ 872.

Many are bank clients, but they mostly borrow from micro-finance institutions: only one in 10 micro-merchants borrows from banks.

Bankers said that the segment of trading is risky and they need to be formalised for increased access to formal finances.

However, BRACK Bank CEO Selim RF Hussain told the FE his bank has been working with the segment for long as they believe it is potential.

"We are probably the first to pay attention to the micro merchants," he said.

He said the non-performing loans in the segment remain much lower in the market. "The non-performing loan in the trading is less than 3.0 per cent," Mr Hussain added.

The BRAC Bank CEO identified some challenges in the market. "Many of them have not even trade licence, let alone maintaining proper accounting."

"Our marketing team has been pushing them for becoming formalised," he said.

Business leaders say there is a need for long term planning to help such traders graduate.

"We don't have any plan on the micro merchants industry, not at the government level nor at the level of business bodies," said Shafi ul Islam (Mohiuddin), president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).

Mr Mohiuddin said if they graduate from the micro segments the tax mobilisations will grow. "The tax network will automatically be broadened."

The banks will have funding opportunities in the segment, he noted.

He suggested that government bodies, especially the National Board of Revenue (NBR), the ministry of finance and the ministry of commerce and the business bodies should act together for the segment's development.

However, the merchants use their intrinsic knowledge to predict FMCG inventory requirements and determine product sales and turnaround time.

• The Financial Express/ Oct 21,2018