Encouraging small and medium enterprises
Wednesday, 13 February 2008
Mahbubur Rahman
SMALL and medium Enterprises (SMEs) are specially suited for Bangladesh, a country with a vast workforce with a large number of them remaining unemployed or underemployed. Large industries, geared to achieve the economies of scale, in most cases, involve high establishment and operating costs. In other words, these can be capital intensive. For this factor potential investors are likely to shy away from such capital intensive ventures notwithstanding their viability or profitability.
For SMEs, in contrast investors need not worry so much about capital mobilisation on that scale. SMEs are within the affordable range of equity investments of many potential investors. Besides, in the broader interests of the Bangladesh economy, SMEs are desirable because they can be expected to generate more employment. Unemployment is a big problem in Bangladesh. It should be obvious that entrepreneurship that can create comparatively more employment compared to ones that create less employment would be preferable in this country. For example, a big enterprise with an investment of over Taka 100 million and creating only 50 jobs should be less preferable to another with investment of Taka 10 million producing as many or more jobs. The latter provides greater all-round benefits to the economy.
Big enterprises with big investments to build and operate make exit difficult, should they start losing. Investors of such enterprises cannot abruptly close them down once they become losing concerns. The SMEs do not face similar exit problems as their initial investments and operating costs are much smaller. Their owners do not stand to risk so much.
The SMEs need banking and other facilities at their doorsteps. Sophisticated entrepreneurs, in many cases, default on bank loans but hesitate to show any deference to the unglamorous and hard working workshop owners at Dholai Khal. But the manufacturers of modest means are all self-made entrepreneurs. They don't wait for institutional credit. They don't borrow from the banks for their working capital. But they would probably do better by expanding their businesses to employ more people, given such institutional support on flexible terms and conditions.
The entrepreneurs of the Dholai Khal area are making a valuable contribution to the national economy. They are a dynamic breed and not parasites. They are not creating problems of classified loans. They are not burdens on the country's financial institutions. On their own strength, they have been creating employment. More importantly, they produce a wide range of small machine parts and machinery which would be imported if these enterprises did not exist. This is import substitution for the economy. Entrepreneurs of Dholai Khal and other places having similar enterprisers deserve all support from the government.
SMALL and medium Enterprises (SMEs) are specially suited for Bangladesh, a country with a vast workforce with a large number of them remaining unemployed or underemployed. Large industries, geared to achieve the economies of scale, in most cases, involve high establishment and operating costs. In other words, these can be capital intensive. For this factor potential investors are likely to shy away from such capital intensive ventures notwithstanding their viability or profitability.
For SMEs, in contrast investors need not worry so much about capital mobilisation on that scale. SMEs are within the affordable range of equity investments of many potential investors. Besides, in the broader interests of the Bangladesh economy, SMEs are desirable because they can be expected to generate more employment. Unemployment is a big problem in Bangladesh. It should be obvious that entrepreneurship that can create comparatively more employment compared to ones that create less employment would be preferable in this country. For example, a big enterprise with an investment of over Taka 100 million and creating only 50 jobs should be less preferable to another with investment of Taka 10 million producing as many or more jobs. The latter provides greater all-round benefits to the economy.
Big enterprises with big investments to build and operate make exit difficult, should they start losing. Investors of such enterprises cannot abruptly close them down once they become losing concerns. The SMEs do not face similar exit problems as their initial investments and operating costs are much smaller. Their owners do not stand to risk so much.
The SMEs need banking and other facilities at their doorsteps. Sophisticated entrepreneurs, in many cases, default on bank loans but hesitate to show any deference to the unglamorous and hard working workshop owners at Dholai Khal. But the manufacturers of modest means are all self-made entrepreneurs. They don't wait for institutional credit. They don't borrow from the banks for their working capital. But they would probably do better by expanding their businesses to employ more people, given such institutional support on flexible terms and conditions.
The entrepreneurs of the Dholai Khal area are making a valuable contribution to the national economy. They are a dynamic breed and not parasites. They are not creating problems of classified loans. They are not burdens on the country's financial institutions. On their own strength, they have been creating employment. More importantly, they produce a wide range of small machine parts and machinery which would be imported if these enterprises did not exist. This is import substitution for the economy. Entrepreneurs of Dholai Khal and other places having similar enterprisers deserve all support from the government.