A right step that needs follow-up supports
Friday, 20 July 2007
Syed Ishtique Reza
FINALLY the long-awaited Small and Medium Enterprise Foundation has been launched. Finance Adviser Mirza ABM Azizul Islam launched it last Tuesday in the presence of the country's front-ranking business leaders, policy planners and representatives of think tanks.
Aziz said at the SME Foundation launching function that regional income inequality is severe in the country while highlighting the need for a balanced and facilitated growth of small and medium enterprises (SMEs) to help reduce significantly this disparity. The finance adviser urged the central bank and commercial banks to provide collateral-free loans for SMEs. He expressed the hope that the SME Foundation would deliver services like an international expert organisation.
All concerned would like to share the views of the finance adviser about the pivotal role that the SME Foundation can play as a low-cost credit agency to tap the potentials of the SMEs. In an industrially developed country, Bangladesh needs an acceleration of the process for promotion of SME development, with the support of the Foundation.
As the SME Foundation has been launched with full government and donor supports, it is hoped that the government would provide assistance to it in its efforts to develop the SME sector with special focus on making integrated efforts for encouraging and involving the potential rural entrepreneurs, having skill, capacity and talent, for undertaking related ventures. The rural women should particularly receive a priority attention for the purpose.
It is known that Bangladeshi entrepreneurs as a class are traditionally involved in the management of SMEs. With the beginning of economic reform programmes and trade liberalisation programmes in the 1990s, the country started getting ready managers and entrepreneurs with practical experience. The role of the SMEs in promoting economic growth of a country is well recognised. The SMEs do also play a vital role in the industrial development of any society.
The country for the last few years has been pursuing a SME-focused growth strategy, considering the immense potential for providing opportunities for large-scale employment and its higher labour-capital ratio. Small capital, a shorter gestation period and comparatively smaller market to be economically viable are some other key features of the SMEs for their successful operation.
In view of all these favourable factors, there is an urgent need for development of the SMEs in this country where both capital shortage and unemployment problem are still acute. The SMEs are categorised on the basis of size, investment and employment in most countries across the world. Here small enterprises are those which individually do employ less than 50 persons and have an investment of less than Tk 250 million. On the other hand, medium industrial enterprises are those which have investments between Tk 250 million and Tk 500 million per unit with the number of employed workers thereof ranging between 50 and 99.
Generally, food processing, handloom factories, leather and tannery, ceramic, light engineering, electrical and electronics, handicrafts, specialised textiles and garment units fall in the category of medium and small enterprises. Information from various sources suggest that around 87 per cent of the country's total industrial workforce is employed in the SMEs and the sector contributes to about one third of industrial value addition. Although there is no concrete information about the number and types of SMEs operating in Bangladesh, an estimate of the Bangladesh Small and Cottage Industries Corporation (BSCIC) suggests that there are over 40,000 small industrial units in the country. Of the total, the number of light engineering units is estimated at 12,500.
There are also tens of thousands of cottage industrial units and a large number of handloom and power loom factories in the country. Despite having huge potential for flourishment, the growth of the SMEs in Bangladesh is being impeded by multifarious problems, at both micro and macro levels. The major problem is access to finance due to rigid collateral requirements by the traditional banking system and irregularities involved in loan sanctioning process. Other problems include lack of material testing facilities -- required for quality production -- and inadequate skilled labour force as well as poor marketing know-how.
Inadequate knowledge of many entrepreneurs about the existing lending system and the absence of necessary training facilities for small enterprises are some of the obstacles to sustained growth of the SME sector. Widespread corruption and extortion and high rates of value added tax (VAT) and unnecessary harassment by the concerned personnel and law enforcing agencies did also impede the growth of the SMEs.
Furthermore, absence of modern technology transfer policy, lack of necessary infrastructure and support services like ports, power, gas and telephone facilities, poor law and order and inadequate legal framework and policy lapses have been identified as the key macro-level problems. In fact, such problems are faced by all industrial ventures.
The SMEs of Bangladesh do not have enough exposure to the international market. Besides, the government's frequent policy changes also affect the prospective SME sector. Considering the overall situation, the government with the support of the donor community took some measures over the years to support the growth of the SMEs. But so far, all such measures could hardly be operationalised at the field-level. Seminars and workshops were held but the recommendations thereof had little impact on the ground-level realities. Various institutions including the BSCIC, the Board of Investment (BOI), commercial banks and financial institutions have been working to promote the SMEs, but their services and supports are still inadequate. All these institutions do need to build up capacity and change their attitudes in order to provide better and quick services to the SME entrepreneurs. The government has otherwise given a special attention to the promotion of the SME sector in the country. Reduction of interest rate and offering of some incentive packages for some particular SMEs have, thus, been its key policy initiatives.
Though the government and some other development agencies have been making efforts for the promotion of the SMEs in Bangladesh, the contribution of non-governmental organisations (NGOs) to this sector is still not significant.
Since the NGOs are generally engaged in micro or small credits to the poor segment of the population, such credits are not helpful for the development of the SME sector. Notwithstanding the vast scope for development of the SME sector, the NGOs are yet to come forward with their meaningful credit supports for it. The NGOs can also focus their activities on medium-sized investment in order to help develop entrepreneurship in this vital sector. As most of the NGOs are in operation in the rural areas, they can play a significant role in promoting the development of the SMEs across the country. This will ultimately help NGOs achieve, in a better way, their poverty alleviation goals. In this backdrop, the linkage between the SME Foundation and the NGOs should be forged for coordinated efforts to help expand the operational base of small and medium enterprises on a sustained basis.
FINALLY the long-awaited Small and Medium Enterprise Foundation has been launched. Finance Adviser Mirza ABM Azizul Islam launched it last Tuesday in the presence of the country's front-ranking business leaders, policy planners and representatives of think tanks.
Aziz said at the SME Foundation launching function that regional income inequality is severe in the country while highlighting the need for a balanced and facilitated growth of small and medium enterprises (SMEs) to help reduce significantly this disparity. The finance adviser urged the central bank and commercial banks to provide collateral-free loans for SMEs. He expressed the hope that the SME Foundation would deliver services like an international expert organisation.
All concerned would like to share the views of the finance adviser about the pivotal role that the SME Foundation can play as a low-cost credit agency to tap the potentials of the SMEs. In an industrially developed country, Bangladesh needs an acceleration of the process for promotion of SME development, with the support of the Foundation.
As the SME Foundation has been launched with full government and donor supports, it is hoped that the government would provide assistance to it in its efforts to develop the SME sector with special focus on making integrated efforts for encouraging and involving the potential rural entrepreneurs, having skill, capacity and talent, for undertaking related ventures. The rural women should particularly receive a priority attention for the purpose.
It is known that Bangladeshi entrepreneurs as a class are traditionally involved in the management of SMEs. With the beginning of economic reform programmes and trade liberalisation programmes in the 1990s, the country started getting ready managers and entrepreneurs with practical experience. The role of the SMEs in promoting economic growth of a country is well recognised. The SMEs do also play a vital role in the industrial development of any society.
The country for the last few years has been pursuing a SME-focused growth strategy, considering the immense potential for providing opportunities for large-scale employment and its higher labour-capital ratio. Small capital, a shorter gestation period and comparatively smaller market to be economically viable are some other key features of the SMEs for their successful operation.
In view of all these favourable factors, there is an urgent need for development of the SMEs in this country where both capital shortage and unemployment problem are still acute. The SMEs are categorised on the basis of size, investment and employment in most countries across the world. Here small enterprises are those which individually do employ less than 50 persons and have an investment of less than Tk 250 million. On the other hand, medium industrial enterprises are those which have investments between Tk 250 million and Tk 500 million per unit with the number of employed workers thereof ranging between 50 and 99.
Generally, food processing, handloom factories, leather and tannery, ceramic, light engineering, electrical and electronics, handicrafts, specialised textiles and garment units fall in the category of medium and small enterprises. Information from various sources suggest that around 87 per cent of the country's total industrial workforce is employed in the SMEs and the sector contributes to about one third of industrial value addition. Although there is no concrete information about the number and types of SMEs operating in Bangladesh, an estimate of the Bangladesh Small and Cottage Industries Corporation (BSCIC) suggests that there are over 40,000 small industrial units in the country. Of the total, the number of light engineering units is estimated at 12,500.
There are also tens of thousands of cottage industrial units and a large number of handloom and power loom factories in the country. Despite having huge potential for flourishment, the growth of the SMEs in Bangladesh is being impeded by multifarious problems, at both micro and macro levels. The major problem is access to finance due to rigid collateral requirements by the traditional banking system and irregularities involved in loan sanctioning process. Other problems include lack of material testing facilities -- required for quality production -- and inadequate skilled labour force as well as poor marketing know-how.
Inadequate knowledge of many entrepreneurs about the existing lending system and the absence of necessary training facilities for small enterprises are some of the obstacles to sustained growth of the SME sector. Widespread corruption and extortion and high rates of value added tax (VAT) and unnecessary harassment by the concerned personnel and law enforcing agencies did also impede the growth of the SMEs.
Furthermore, absence of modern technology transfer policy, lack of necessary infrastructure and support services like ports, power, gas and telephone facilities, poor law and order and inadequate legal framework and policy lapses have been identified as the key macro-level problems. In fact, such problems are faced by all industrial ventures.
The SMEs of Bangladesh do not have enough exposure to the international market. Besides, the government's frequent policy changes also affect the prospective SME sector. Considering the overall situation, the government with the support of the donor community took some measures over the years to support the growth of the SMEs. But so far, all such measures could hardly be operationalised at the field-level. Seminars and workshops were held but the recommendations thereof had little impact on the ground-level realities. Various institutions including the BSCIC, the Board of Investment (BOI), commercial banks and financial institutions have been working to promote the SMEs, but their services and supports are still inadequate. All these institutions do need to build up capacity and change their attitudes in order to provide better and quick services to the SME entrepreneurs. The government has otherwise given a special attention to the promotion of the SME sector in the country. Reduction of interest rate and offering of some incentive packages for some particular SMEs have, thus, been its key policy initiatives.
Though the government and some other development agencies have been making efforts for the promotion of the SMEs in Bangladesh, the contribution of non-governmental organisations (NGOs) to this sector is still not significant.
Since the NGOs are generally engaged in micro or small credits to the poor segment of the population, such credits are not helpful for the development of the SME sector. Notwithstanding the vast scope for development of the SME sector, the NGOs are yet to come forward with their meaningful credit supports for it. The NGOs can also focus their activities on medium-sized investment in order to help develop entrepreneurship in this vital sector. As most of the NGOs are in operation in the rural areas, they can play a significant role in promoting the development of the SMEs across the country. This will ultimately help NGOs achieve, in a better way, their poverty alleviation goals. In this backdrop, the linkage between the SME Foundation and the NGOs should be forged for coordinated efforts to help expand the operational base of small and medium enterprises on a sustained basis.