SME Development and Challenges in Bangladesh

SMEs (Small & Medium Enterprises) occupy a unique position in the economy of Bangladesh. They play an important role in Bangladesh socially as well as economically. Lasting private sector development depends on them. In the present era, SMEs have emerged as the cornerstone of economic development in Bangladesh providing the platform for job creation and economic growth. They provide over 87% of the total industrial employment and is also responsible for creation of over 33% of industrial value-added goods. There are the following sub-groupings among the small sectors, namely Cottage Industries, Handloom Industries, Small Enterprise, and Medium Enterprise.

 

If only the number of Small Industries is compared with that of the large and medium firms, it is found that over 94 per cent units fall into the category of the SMEs sector. Even in the employment size of 10 or more, most recent information indicates that over 78 per cent of the total industrial units are from 10 to 49 employment band, and about 56 per cent fall in the 10-19 employment bracket in the manufacturing sector of Bangladesh (GOB, 1993f:xi). The SMEs sector – as a whole – provides over 87 per cent of the total industrial employment in Bangladesh (GOB, 2001). This sector is also responsible for creation of over 33 per cent of industrial value added (GOB, 2001).

 

Definition of Different Types of On industries

There is no universally accepted definition of small and medium industries. They are defined to suit the particular purpose that the authorities or the analysts have in mind. The industrial policy 1999 provides the following size classification scheme of the industries:

 

Large Industry: Large Industries with 100 and more workers of having capital of over Taka 300 million.

 

 

Medium Industry: Medium Industries with employees between 50-99 with a fixed capital investment between Taka 100-300 million.

 

 

Small Industry: Small Industries employing fewer than 50 workers with a fixed capital investment of less than Taka 100 million and cottage industry covering household based units operated mainly with family labour.

 

Present Industrial Scene of Bangladesh:

 In the present industrial scene of Bangladesh, barring a small number of large fertilizer factories, composite textile mills, some modern basic chemicals and pharmaceutical factories or specialized paper mills, no grave mistake would be made if we notionally consider the bulk of our industries to be of either ‘medium’ or ‘small’ category in global scale. This is also indicated by the fact that our industrial goods, according to economic end-use classification, have maximum weight age for consumer goods as may be seen below:

 

Finished consumer goods                                 62.098%

Intermediate consumer goods                           28.899%

Finished capital goods                                        2.248%

Intermediate capital goods                                  6.755%

100.00%

(source: c.m.i, statistical year book 1999,bbs).

 

Similar picture emerges also from the weightages of our general industrial production statistics seen as follows at the 3-digit level of codes:

Table 1

 

Code	Industry	Weightage
311-314	Food & beverages	23.295%
321-325	Textiles including leather	37.419%
331-332	Wood products & furniture	0.221%
341-342	Paper & paper products	4.562%
351-357	Drugs, chemicals etc	23.567%
361-369	Glass & non-metallic products	2.719%
371	Basic metal products	2.028%
381-385	Mfg of metal products	6.189%
		100.00%

(source: cmi, statistical year book 1999,bbs).

 

The “thrust sectors” identified by the industrial policy, 1999 include at present 16(sixteen) industries namely,

• Agro-based industries
• Artificial flower making
• Computer software and information technology
• Electronics
• Frozen food
• Floriculture
• Gift items
• Infrastructure
• Jute goods
• Jewelry and diamond cutting & polishing
• Leather
• Oil and gas
• Sericulture and silk industry
• Staffed toys
• Textiles
• Tourism

 

Except oil and gas, a few composite textiles, some large infrastructure, all other activities in the thrust sectors can be classified as SMEs at the present state of our industrial development.

                                                                          

 Industrial Development in Perspective

The development of the industrial sector was overlooked or biased towards the colonial powers during the British colonial regime. Consequently, no significant progress was made during the colonial period in this sector. During the Pakistani rule, 1947-71 when Bangladesh was a part of Pakistan as East Pakistan, whatever industrialisation took place was in and around the Karachi region because it was the capital city of Pakistan. Moreover, political and administrative factors were a major consideration for developing industries there. As a result, West Pakistan was industrialised substantially within a short period of time, while East Pakistan remained far behind. This is vividly clear from Table 2. Despite owning about three-quarters of the total industrial units, the Bangladeshi entrepreneurs had control over less than a fifth of total assets of this sector before independence. This picture reveals not only the weak position of the Bangladeshi entrepreneurs but also the West Pakistan oriented industrialisation of the Pakistani government.

 

After independence in 1972, all major industries were nationalised including banks and insurance companies and were brought under the control and ownership of the government. Only small industries up to a total investment value of Tk. 2.5 million were allowed to function under private ownership. Although the government owned only 13 per cent of the industrial units, it was in control of nearly 92 per cent of the total fixed assets. Very soon after independence, the country’s inherited structural weaknesses were aggravated by mismanagement, inefficiency, corruption and labour trouble in the industrial sector. As such, the industrial scenario until 1975 was in a chaotic situation reflecting a blocked and stagnant economy. In fact, during the first few years after liberation, the country’s industrialisation meant re-organisation of the existing production capacity and resuming activities in the ­industries stopped during the liberation war.

 

 

                                                                     Table 2

Basic Indicators of Industrial Statistics in Bangladesh: 1985-93

Characteristics	1985-86a	1988-89b	1991-92	1995-96
Total Establishments (No.) Ownership: Government Private Joint-Venture Fixed Assets (Million Tk.) Total Employment (Person in ‘000) Gross Value Added (Million Tk)	4 519 174 4 274 25 30 293 497.6 31 954	23 752 NA     83 279 1 175.3 60 663	26 446 NA   102 414 1327.2 222868	28920 167 28708 46 206831 2023.8 182222

a       Includes manufacturing units having 10 or more workers registered with Chief Inspector of

Factories;

 

b       Includes manufacturing units employing 10  or  more  workers registered or not with Chief

Inspector of Factories.

 

Source: GOB (1993:6 & 252), Table 1, (1993f:xi), Table 1 & 2, (1998) and (2001)

 

 

Industrial Contribution to GDP

When the country’s national accounts are used as a benchmark for comparison, the share of manufacturing industrial value added in GDP is found to be only around 10.5 per cent, as shown in Table 3, with a situation of stagnation or declining trend during 1972-98.

 

 

Table 3

Sectoral Share of GDP in Bangladesh: 1999-2003 (% of GDP)

Economic Sectors	1999-00	2000-01	2001-02	2002-03
Agriculture Industry (Manufacturing: -Large scale -Small scale) Others Total =	25.58 15.40   (11.01) (4.39) 59.20 100.0	25.03 15.59   (11.13) (4.46) 59.38 100.0	23.98 15.76   (11.16) (4.60) 60.26 100.0	23.46 15.91   (11.20) (4.71) 60.63 100.0

a          Shows provision figure;  b Figures in  percentage.

Source: Bangladesh Economic Review 2003

 

 

However, the industry sector is the second largest contributor to GDP in the economy of Bangladesh.

 

Industrial Contribution to Employment

In terms of employment, the share of manufacturing industrial enterprises was estimated at about 13.9 per cent in 1989, as shown in Table 5. This sector historically contributed not more than 6 per cent of total employment before 1984. However, it is presently the second largest provider of employment after agriculture. While the employment share of the agriculture sector gradually fell from 84.61 per cent in 1961 to 64.94 per cent in 1989, the share of the manufacturing sector showed a consistently increasing trend during the last three decades. There has been a noticeable increase in manufacturing employment from 4.80 per cent in 1974 to 13.91 per cent in 1989, and 11.10 percent in 1995-96.

 

 

Table 4

Employment by Major Economic Sectors in Bangladesh

 

Sectors	LFS-1990-91	LFS-1995-96	LFS-1999-2000
Agriculture Industry (Manufacturing, Gas,Electricity) Others Total    =	66.40 11.81     21.79 100.00	63.20 7.40     29.4 100.00	62.30 7.60     30.10 100.00

a    Figure in percentage

Source:      Calculated from GOB (1993 & 1998)

 

                                                                     Table 5

Growth of Small Enterprise in Bangladesh: 1961-2001

Year	Number of Units			Employment (in ‘000 persons)			Value added (in million Tk. at constant 1980-81 price)
	Small	Cottage	Hand-loom	Small	Cottage	Hand-loom	Small	Cott-age	Hand-loom
1961 1978 1981 1990 1991 2001 (June)	16331 24005 24590 38104 38294 55280	234934 280000 321000 403237 NA 511621	137304 197280 205874 NA NA	143.8 322.1 NA NA 523.0 808.9	653.1 NA 855.2 1331.0 NA 1664.7	521.2 847.6 897.4 NA NA	2513 2772  NA NA NA	1401.8  NA 3146.1  NA NA	NA NA NA NA NA
Growth1 (%)	5.96	2.94	2.49	11.56	3.87	3.60	0.57	4.12	–

• Growth (average annual) rates are calculated based on the available figures of the first and last

years;   NA  Not available

Source: Ahmed (1987:16), Table 1.2,  GOB (1993d:1 & 2001)

                                                                                                                                      

 Relative Importance of Various Sizes of SME

The relative numerical significance of the SMEs sector in the industrial structure of Bangladesh can be understood in terms of the number of units, of employment and value added as depicted in Table 6. Clearly, there is a superabundance of SMEs in numerical terms in the total industrial structure.

 

For instance, if only the number of Small Industries is compared with that of the large and medium firms, it is found that over 94 per cent units fall into the category of the SME sector. Even in the employment size of 10 or more, most recent information indicates that over 78 per cent of the total industrial units are from 10 to 49 employment band, and about 56 per cent fall in the 10-19 employment bracket in the manufacturing sector of Bangladesh (GOB, 1993f:xi). The SME sector – as a whole – provides over 87 per cent of the total industrial employment in Bangladesh (GOB, 2001). This sector is also responsible for creation of over 33 per cent of industrial value added (GOB, 2001). According to World Bank (1992), it was estimated that the real contribution of MVA would be much higher, from 30 to 50 per cent higher than the Census of Manufacturing Industries (CMI) and 10 to 20 per cent higher than Bangladesh Bureau of Statistics (BBS), if underestimation in the official statistics is accounted for. One study recently reported that the contribution of SMEs appeared to be over 52 per cent of the total MVA in the year 1989-90 (Microenterprise News, 1993:2).

 

 Table 6

                                  Sectoral Distribution of SMEs in Bangladesh:1978-1993

 

Industry Sectors	Small Industry Survey-19781 No.        %	Directory of Man.Ind.-19932 No.      %	Small Industry Survey-19933 No.       %	SMEs listed with BSCIC4 No.       %
Food & allied Textile & apparels Forest & Furniture Paper, printing etc. Chemical, Rubber etc. Glass, ceramics etc. Basic metal/engineering Fabricated metal/electrical. Others Total  =	17 358     72 1 391       5 886      4 1 092       5 527      2 218      1 1 743       7 646      3 144      1 24 005   100	7 623    31 5 714    23 1 804     7 1 078     4 1 903     8 2 359     9 483     2 3 455   14 526     2 24 945  100	21 080    55 3 196      8 1 745      5 2 385      6 2 864      7 1 113      3 3 078      8 1 880      5 953      3 38 294   100	8 152     46 741      4 1 794     10 590      3 1 026     6 124      1 2 987     7 1 989    11 245      2 17 648   100

Source: Compiled from 1 GOB (1981);  2 GOB (1993f); 3 GOB (1993d) and 4 GOB (1993e).

 

 The Birth and Death Scenario of SME

There is no data covering the entire SME sector concerning the birth or death of enterprises. From information shown in Table 9, however, a partial picture can be formed about SMEs between 20 and 49 employment size. Using the entrants and exciters from the CMI during the period 1974-75 to 1983-84, it was found that about 59 per cent of the net addition in the number of new enterprises were from the SME sector.

 

Table 7

Birth and Death of Manufacturing Enterprises in Bangladesh:

Employment Size	Entrants No.        %	Exiters No.        %	Net Addition No.        %
20 – 49 50 & above Total      =	674      60.2 446      39.8 1120    100.0	186      64.4 103      35.6 289    100.0	488      58.6 343      41.4 831    100.0

Source: Calculated from Reza et al. (1990:81), Table 1.6.

 

 

It was also estimated that there was one death per four new births in the economy during the period under consideration. Expectedly, birth rate was found relatively high in the 20-49 employment size, while death rates vary even more markedly, the 20-49 and 50-99 employment size classes, having even more disproportionately high percentages of deaths compared with the large size class (Reza et al., 1990:81).

 

Market Coverage and Backward and Forward Linkages

One of the very important functions of SME is to serve the needs of local consumers by supplying a wide range of products. In Bangladesh, over 90 per cent of SME serve the local needs of the people (Rahman et al., 1979:83), and thus, work every day in every economic sphere of the Bangladeshi society. Moreover, it is revealed that there are strong backward and forward linkages between the SME and other sectors – such as agriculture – of the economy in Bangladesh.

 

The foregoing discussion clearly indicates the numerical significance, one dimension of the role of small firms in the economy of Bangladesh. The other dimension, what Kohlo (1991:34) called the ‘subjective dimension‘, is that SME also provide productive outlets for individuals with independent and enterprising minds. This sector, thus, provides opportunities for developing the ‘seedbed’ of indigenous entrepreneurship. In Bangladesh, small enterprises are also regarded as ‘engines’ of technological innovation, leading to industrial transformation and modernisation in the economy.

 

It is, therefore, evident that small enterprise is a vital element in the economic legacy of Bangladesh, and that there is much development potentiality in this sector (Sarder, 1990:191-202). However, every year numerous small firms are developed, while unfortunately many of them disappear, abandoning the potential role they could have played in economic development (Reza et al., 1991:81). To combat this undesirable failure, and to accelerate rapid growth, it is necessary to clearly understand the growth prospects as well as the problems faced by the SME sector, to take appropriate remedial measures This is the content of the following section.

 

 

The Growth Prospects of SME 

The growth prospect of the sample enterprises was assessed by exploring the perception of the entrepreneurs about future growth potential of their enterprises. As expected, most respondents gave multiple answers, which are summarized in Figure -1. These appear to be, as replied by the respondents, prospect of bright, 28.9 percent, export oriented,23.7 percent, large market, 23.7 percent, employment potential, 13.2 percent, positive,7.9 percent and environmentally conscious projects, 2.6 percent. As such, the study findings suggest a growth prospect of the C sector in Bangladesh.

 

Problems of SME

Most SME in Bangladesh face a number of interrelated problems/difficulties in their business. The most acute of them include server shortage of short and long-term finance, marketing problems, lack of technology and lack of research and development facilities (Rahman et al., 1979; Ahmed, 1999; Sarder, 2001). As revealed in a recent study depicted in Figure 2, those problems appear to be lack of modern technology, 13.2 percent, low investment, 13.2 percent, irregular/inadequate supply of power (electricity), 13.2 percent, high interest, 13.2 percent, lack of government. subsidy, 10.5 percent, unavailability of raw materials, 10.5 percent, no clear government policy,10.5 percent, high competition, 7.9 percent, lack of skilled workers, 5.3 percent and lack of research and development, 2.6 percent.

 

Need of SME for Assistance

Against of problems faced by small entrepreneurs, possible need of assistance that could help solve those problems faced was also explored. As expected, the small entrepreneurs in Bangladesh express their need (multiple) for various type of assistance. Based on the findings of a recent study, those needs are displayed in figure 3.3. As shown in the figure, expectedly most responds, 35.8 percent expressed their need for financial help. The second cited pressing need appears to be technological assistance,25.6 percent, followed by low interest rate, 10.3 percent, help for improving quality of their products/services, 10.3 percent  research and development facilities , 7.7 percent , political stability, 5.1 percent and others(environmental consciousness, and solution of port problems), 5.6 percent. As such the findings suggest the pressing need of financial as well as technological assistance.

 

To recap, it is clearly evident that most entrepreneurs face a member of interrelated problems. These include, among others, insurmountable hindrance to access to finance, lack of modern technology, irregular supply of electricity, low investment facilities. To overcome those problems, as expected, the express their need for several types of assistance, both financial and non-financial. These include mainly adequate supply and easy access to financial assistance, technological help, support to improve quality of products, formulation of small firm friendly policy, measures to prevent illegal imports, and providing research and development facilities. The SME sector appears to have a very good growth prospects. This is clearly evident from multiple answers of the respondents: ‘prospect is bright’, ‘export oriented’, ‘large market’, ‘employment potential’, ‘profitable’ and so on. As such, the study findings suggest a bright growth prospect of the SME sector in Bangladesh.

Recommendations for Development of SMEs

1          Definite Policy for SMEs: Fortunately, most SMEs in our country develop and survive even in an environment having no policy. Since this sector comprises of a diverse variety of species having myriad characteristics in Bangladesh, we should have a separate policy for this sector. Treating ‘unequal’ – the SMES, on equal footing with the large industries, will accelerate the existing policy induced constraint to the development of small firms.

 

2. Development of Networks: The SME sector in Bangladesh needs to develop networks. They should also participate in and influence the contents of Government policies and programmes developed in their interest.

 

3. Government Policy: Policies geared toward boosting small firm development should not be confined to the SME sector per se. The government commitment to sustained economic progress must ensure that all aspects of economic system are conducive to and supportive of increased levels of SME activity. This includes mainly minimizing taxation, ensuring access to labour, lowering interest rate, reducing the regulatory burden, neutralizing policy induced constraints, preventing unfair competition form illegal imports, formulating small firm friendly policy, and developing a real private-public sector partnership.

 

4. Seed Money, Leasing, Venture Capital and Investment Funding: There is a great need for improving different aspects of financial services of SMEs, such as seed money, leasing, venture capital and investment funding. There is a lack of long term loans, interest rates are high, Guarantee/Security issues, exchange risks etc. All these limit the development of SMEs. Finance, both short and long term, should be provided at market cost of capital.

 

5. Extensive Financial Support to SMEs: Various banks, financing institutions, NGOs may further increase its technical and financial support to SMEs through its various financing facilities and windows, which may significantly contribute to the creation and development of SMEs.

 

6. Alleviating Poverty through SMEs Development: There is great scope of alleviating poverty through SMEs development. So poverty alleviation strategies and policies for SMEs should be developed, in order to provide job opportunities and enhance living standards for large segment of this poverty ridden country.

 

7. Priority Sectors or Thrust Sectors: Since some sectors like Metal Engineering, Cottage Enterprises, IT sectors, Agro-based & Agro-supportive businesses got special suitability for development, special attention should be given to promote such sub-sectors by providing necessary support.

 

8. Penetration of SMEs into New Markets: Special attention should be paid to the penetration of SMEs into new markets through E-commerce, as well as the possibilities of accessing foreign markets. Greater trading co-operation with other countries should be developed. Perhaps, such cooperation is most urgently needed now in the changed global political environment of the world.

 

9. Training on Different Aspects of SMEs Activities For Entrepreneurs: Training on different aspects of SMEs activities for entrepreneurs is crucial to the development of an entrepreneurial spirit in Bangladesh. Entrepreneurial education could be given for grater long-term impact.

 

10. Information Network & Central Data Bank: Information technology can be very effective tool for swift collection of different markets demand pattern, price trends and changing policies structures in various trading partners. For this purpose, it is important to create an information network for SMEs in Bangladesh, creating a Central Data Bank in collaboration with the IDB, ICCI and business associations of the Islamic countries.

 

11. Comprehensive Package of Assistance: A comprehensive package of assistance will have much desired long-term impact on the development of this sector. It should be comprised of both financial and non-financial components and should be tailor-made to the needs of SMEs.

 

12. Technology Assessment, Diffusion and Dissemination: Technology assessment, diffusion and dissemination around country should be given top priority. Thus, technology R&D Center (Research, Training and Development) should be developed. Transfer of technology and know-how from advanced market economies could be important part of developing R&D capacity in Bangladesh.

 

13. Expansion and Diversification of SMEs: Bangladesh’s industrial sector needs expansion and diversification. For this purpose, growth of SMEs is essential. However, SMEs have to equip themselves with modern technologies and effectively use them to raise their production efficiency.

 

14. Seeking International Financing: Various international donor agency/bank extends financing to SMEs through National Development Financing Institutions (NDFIs). It is found that they are not explored properly. The procedure of those donor agencies/banks for loan facilities to SMEs through NDFIs may be reviewed and term and conditions may be examined in order to make international financing more accessible to SMEs in the country.

 

15. Inter-Firm Linkages: In order to develop sub-contracting among large and small enterprises around the country and between Bangladesh and other SAARC or OIC countries, Sub-contracting Exchange Schemes can be launched. Professional associations and National Chambers can set-up such establishment. They may collect information about engineering industries components, and what vendor industries can provide such components. In this way, inter-firm linkages could be expanded at home and abroad. The activities of these organizations for inter-linkages among SMEs and assistance to SMEs should be properly identified. Thereafter, programme of maximum utilization of their services may be formulated. This will lay a strong foundation for promoting effective cooperation among small and medium enterprises at home and abroad.

 

 

16. Establishment of Separate Micro Bank: The country should start with ‘something effective’ for industrial development in general and the SME sector in particular. Such a step, for example, could be the establishment of a separate Micro Bank. To make the proposed initiative effective in achieving its goals, experts and resources should be gathered around the Islamic countries.

 

17. Mitigation of Problems of SMEs: SMEs are of diverse categories facing myriad problems in the country. However, there also do exist specific problems of SMEs in individual sector. Such specific problems require special support in some cases. As such, specific problems should be dealt with the context of that sector.

 

18. Uniform Definition of SMEs: There should be a consensus on developing a uniform definition of SMEs around the country. It should be given standard industrial code (SIC).

 

19. Trade Fairs, Exhibitions, Symposiums, Seminars and Workshops: Trade fairs, exhibitions, symposiums, seminars, workshops etc. on SMEs should be organized on a regular basis. Publications of all these events should made available for all SME establishments. Chambers around the country can arrange exhibitions for SMEs products, so that larger number of consumers may gain awareness about the diversity and quality of SMEs products.

 

20. Interlinkages among SMEs: The activities for interlinkages among SMEs and assistance of SMEs should be properly identified. Thereafter programme of maximum utilization of their services may be formulated. This will lay a strong foundation for promoting effective cooperation among small and medium enterprises around the country

 

21        Service to Define Problems and Devise a Package of Measures: SMEs often cannot identify and define their own needs clearly enough to seek the best remedies. Thus, a service that can reach out, help SMEs to define their problems and devise a package of measures that deals with the above identified problems has the best chance of success.

 

22. Proactive Policy to Promote SMEs: Proactive policy is needed to promote SMEs competitiveness. The first step in this regard is to make firms fully aware of the competitive challenges they have to face. The next step is to help SMEs prepare to meet the challenge, by understanding their strengths and weaknesses and providing the inputs they need to help them upgrade. The main inputs are finance, market information, training, management tools, technology, skills and links with support institutions.

 

23. Business Environment Should Be Conducive: The business environment should be conducive to SMEs development, with minimal transaction costs, clear and transparent rules and a stable macroeconomic environment.

 

24. Public and Private Sectors Cooperation: For strengthening SMEs in the country the public and private sectors will have to cooperate effectively. In this connection various suggestions are provided herein. They need full consideration for cooperation among various organizations of the country.

 

25. Production Structure of SMEs: SMEs’ production structure should be flexible and dynamic. Due to relatively smaller size they can change their machinery or add new plant at relatively less cost. Similarly, they can retrain their workforce in new technologies. Hence SMEs can adopt modern technologies more quickly compared to large enterprises. Their productivity is relatively high, hence they can be more competitive in domestic and foreign markets.

 

26. Internet facilities and Web Site of SMEs: There should be greater access to information through internet of SMEs. In this connection, FBCCI can take initiative to create web site of SMEs. Computers, scanners and diskettes can be used for providing necessary information to SMEs as well as member chamber. Information through this device can be provided on identification around the country as well as other countries such as SAARC and intra-OIC countries. Trading opportunities and assistance to SMEs can be diversified through these opportunities. Analysis of trade data in various regions within and outside the country can be undertaken to identify products which have the greatest potential for Trade. This data can be disseminated through internet or other tools for transfer of electronic information. This is urgently needed for various reasons, developing a network with on-line connection with international website, if we really mean business and want to survive in the new millennium of information super high way.

 

27. E-Commerce: Electronic Commerce has also great potential for development around the country and abroad. Through this device, matching of buyers orders to sellers can be done in such products in which SMEs are dealing. Such exchange of information about sellers and purchasers shall be most useful for Agro products, leather products, textiles and clothing, IT and metal products as well as raw materials and intermediate goods.

 

28. Periodical Professional Training Courses for SMEs: Periodical professional training courses should be arranged for technical staff of SMEs. Moreover training in management of small enterprises and efficient marketing can also provided. Islamic Chamber regularly organizes training workshops on management, marketing, procurement of technologies, quality control system and financing of SMEs, for the benefit of representatives of private enterprises and staff of member chambers in different regions of the Islamic World. Training programme/workshop should be organized for the development of SMEs capabilities to acquire enhanced knowledge and skills about how to choose, use and improve technology.

 

29. Community Development Programmes through SMEs: There is a great scope for human and social development. A large section of our community is below poverty line, who are underprivileged . They have no income for educating their children and have not even access to such employment which can generate sufficient income for their living. Those families are compelled to put their children on odd jobs in informal sector or in SMEs. Here community developed programmes can be organized, in which members of the distressed communities can be employed on reasonable wages. In such programmes of community development, Islamic Chamber can be approached to affiliate such programmes with Islamic Development Bank (IDB) and the Islamic Corporation for Development of private Sector (ICD).

 

30. Assistance for SMEs from Board of Investments and Export Development Centres: Public sector agencies like Board of Investments and Export Development Centres can also provide useful information to SMEs. They can provide necessary information about trade fairs in member countries as well as training in organization of exhibitions. They can identify foreign buyers and assist local SMEs in establishing contacts with them. Information on changing demand conditions in various international markets can be provided and advisory services on exploring trade opportunities can be provided to prospective exporters.

 

 

31. Credit Guarantee Scheme & Financing to SMEs: Financing to SMEs can be successful, if two arrangements can be undertaken: (1) Separate institutions dealing with SMEs loans should be established around the country. They can provide adequate volume of finance, on less strict terms and can supervise the loan repayment process as well. (ii) Credit guarantee schemes. Credit guarantee schemes for SMEs can be an effective means of supporting small enterprises development, especially in our country where access to credit is constrained for small borrowers.

 

32. BSCIC to be Reorganized: BSCIC to be reorganized so that SMEs can grow in the country in a better manner. Alternatively, a separate organization such as Small and Medium Enterprise Development Authority (SMEDA) may be established to act as a one-stop consultancy Agency to: (a) act as a body for facilitating policy making for SMEs, (b) provide and facilitate support services for SMEs, (c) act as a resource base for the SMEs, and (d) represent SMEs on domestic and international forums. The authority may be state supported, private or jointly supported organization.

 

33.       Sub-Contracting Exchange Schemes among large and small enterprises: In order to develop sub-contracting among large and small enterprises among member countries, Sub-Contracting Exchange Schemes can be launched. Professional Associations and Chambers can set-up such an establishment. They may collect information about engineering industries components, and what vendor industries can provide such components. this way inter-firm linkages can be expanded around the country.

 

34. Implementation and Monitoring of Policy Measures for SMEs. Only policy prescription is not the end, if it is not implemented through different measures timely and properly. How far policy measures are implemented, along with, what effect – desired or not – such policy measures has had on the development of SMEs should also be monitored from time to time. This monitoring will provide feed back for taking corrective actions, if necessary, to ensure desired effect of the policy adopted. Of course, an independent body should do the monitoring of implementation of the policy measures, and possible impact.

 

35. Rationalization of Exiting Policy Induced Constraints: Rationalization of Exiting Policy Induced Constraints to the development of SME. There has been evidence on constraints, created by existing policies, to the development of SME in Bangladesh. A thorough review of the existing policies should be made, along with empirical study, to clearly identify such policy induced constraints so that appropriate measures could be implemented for correcting such constraints.

 

36. Conducive Policies for Boosting Enterprise and Entrepreneurship: Policies geared toward boosting enterprise and entrepreneurship should not be confined to the entrepreneurship sector per se. Since the process of enterprise development is being influenced by a myriad variety of variables, policies relating to other sectors and having influence on enterprise development should be carefully designed.

 

37. Developing Institutional Network through Public-Private Partnership: The design of most government agencies appears to be overly bureaucratic and unsuitable for effectively supporting SMEs in Bangladesh. As such, re-organization of the design of these agencies has for long been overdue. Public-private sector partnership, by redesigning the existing public agencies, could be developed, developing appropriate institutional network. The objective behind this would be to utilize the strengths of public and private agencies, while neutralizing the limitations, if any, inherent in their existing organizational design.

 

38. Development of Entrepreneurs: The perceived social legitimacy of entrepreneurs should be encouraged. Entrepreneurs are the architects of the modern socio-economic development. Therefore, the society should recognise the contribution of entrepreneurs and value their activities so that they feel encouraged, if anyone fails anywhere, for taking further initiatives for future success. This is very important because only few – not everybody – could be successful in entrepreneurial endeavors.

 

39. Conducive Infrastructure Facility: Water, gas, telephone and electricity connection to be given on priority basis. Stable power supply facility to be ensured. Cost of various capacities of generators to be reduced by reducing duty and other taxes on generators.

 

40. Separate Financing Institution for SMES: Finance is the main obstacle to the SMEs sector, with no sign of immediate improvement of the situation in Bangladesh. Therefore, a separate financing institution could be developed, with joint ownership of the public and private sector. No concessional but the principle of market rate of cost of capital should be applied in lending procedure. Another source of finance could be raising fund from share market by flotation of IPO by SME under ‘Group IPO Scheme (GIPS)’. In the case of GIPS, a group of SME would utilize their assets for issuance of public shares to be managed by an independent agency. Finally, fund should be made available through encouragement for setting up ‘Venture Capital’ organisation in Bangladesh. The concept of venture capital (VC) has successfully operating in the USA, EU countries, and Canada.

 

41. Establishment of R&D Institute for Enterprise and Entrepreneurship Development, Training and Research Institute: In a country like Bangladesh, where entrepreneurial initiative is rare and shy, a separate institute for enterprise and entrepreneurship development, training and research should be developed. Presently, there exists no such institution except a project of the BSCIC called ‘SCITI’ (Small and Cottage Industries Training Institute). Presently, the SCITI has ended its contact period, and has been struggling for survival. Once again public-private partnership should be developed. To make it a ‘centre of excellence’ in SMEs development, it should be designed, involving educational institutions, business associations, relevant government bodies, private research agencies, and individual consultants having experience in SMEs development.

 

42. Tchnology Transfer: Technology transfer is of vital importance for development of SMEs. Technology transfer through various means and Reverse Engineering to be arranged through Government and private levels.

 

43. ISO Standards: Quality Assurance & Environmental Friendliness: Compliance to quality assurance & environmental friendliness to be ensured through Standards such as ISO9000 & ISO14000. Quality is the totality of features and characteristics of a product or service that bear on its ability to satisfy implied or stated needs (ANSI/ASQC Standard A3-1987). Conformance of the product or service to these specifications is measurable and provides a quantifiable and operational definition of quality.

 

44.       Women Entrepreneurship: Women entrepreneurship should be encouraged. In our economy, we have nearly 50 percent women population, while an insignificant proportion of women is entrepreneur. No country can be developed without proper participation of such a big community in the entrepreneurial activity. As such, policy should be designed to encourage more and more women to be involved in entrepreneurial endeavors.

 

SME DEVELOPMENT & CHALLENGES IN BANGLADESH: SME DEVELOPMENT & CHALLENGES IN BANGLADESH: SME DEVELOPMENT & CHALLENGES IN BANGLADESH

Developing Bangladesh          Md. Joynal Abdin            Read More…