Finance adviser sees SMEs’ role vital to cut regional income gap

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FE Report
Finance and Planning Adviser Mirza Azizul Islam Tuesday said small and medium enterprises (SMEs) could play a vital role in narrowing down the growing regional income disparity.
"Regional income disparity has increased in our country … SMEs can contribute to closing the regional income gap," Islam told a function marking the launch of the SME Foundation in the city.
"Large industrial units are predominantly based in Dhaka and Chittagong. So, SMEs should be fanned out across the country, as they are labour-intensive, but require small capital base," he added.
According to a World Bank study, poverty reduction in the country's eastern region has been "impressive," while the situation exacerbated in the western part.
Calling the trend "East-West divide," the bank study noted that poverty in Dhaka, Chittagong and Sylhet showed a significant fall, thanks mainly to the robust growth in inflow of remittances and access to microfinance, but the number of poor increased in Rajshahi and Khulna regions.
The present caretaker government scaled up budgetary allocations for Khulna, Rajshahi and Barisal regions in the current fiscal (2007-08) with a view to boosting development in the long-neglected areas.
He said the government has declared the SMEs a "thrust sector" and set up the SME Foundation in order to identify the problems of small and medium enterprises, ensure access to finance and formulate relevant policies.
Mentioning the figures released by the Bangladesh Bureau of Statistics (BBS), the finance adviser noted that the growth of the SME sector increased to 9.4 per cent in fiscal 2006-07 from 7.2 per cent in fiscal 2000-01.
Islam expressed the hope that if the growth momentum of the SME sector could be maintained, Bangladesh would be able to achieve the Millennium Development Goal (MDG) by 2015.
Although the SME sector contributes to growth, the lack of finance remains an Achilles' heel, an issue raised by both the finance adviser and the Bangladesh Bank governor.
Islam urged upon the commercial banks to provide loans to the small businessmen, particularly women entrepreneurs, on the basis of quality of projects and the potential loan repayment capability of the recipients, not on collateral.
"You (bankers) need to move away from the traditional collateral-based lending system. You should provide loans to the small and medium entrepreneurs, particularly the women entrepreneurs, considering the quality of projects and the potential capability of repaying the credit," he told the bankers, who attended the programme.
While the government is encouraging the women to engage in business through gender budgeting, the finance adviser said that the commercial banks remained reluctant to extend credits to the women entrepreneurs on the pretext of lack of collateral.
"They (women entrepreneurs) alleged that they were often deprived of bank loans, as they could not show collateral. The women cannot show the collateral as land and housing properties are often registered in favour of their male counterparts," he said, referring to his recent meeting with some women entrepreneurs.
Chairing the session, industries adviser Geeteara Shafiya Choudhury said the banks should provide loans on easy and flexible terms and workable interest rates.
In his speech, BB governor Salehuddin Ahmed also took note of the issue, saying that the majority of SMEs are deprived of bank loans.
He urged the banks to provide loans on the basis of cash flow-based lending system instead of collateral-based loan system.
The central bank chief noted the contribution of SMEs to development and industrial de-centralisation is "enormous."
Ahmed suggested that the regulatory regime should be friendlier to the small and medium entrepreneurs.
Among others, industries secretary Md Nurul Amin, president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCC) Mir Nasir Hossain, country director of the Asian Development Bank Hua Du and additional secretary of the Industries Ministry Mohammad Ayub Miah spoke at the launching ceremony.