Overcoming the obstacles to promoting SMEs
Ahmed Showkat Masud | Tuesday, 15 July 2008
THE South Asia Enterprise Development Fund (SEDF) has been working with a programme to promote small & medium enterprises (SMEs) in Bangladesh. The Bangladesh Bank (BB) and the SEDF have conducted workshops to promote the concept of SMEs in the country. In this connection, it may be noted here that among all other banks, the BRAC is the pioneer in this specific area. Their SME units have been working almost all over the country to disburse loans among the SME entrepreneurs.
Since poverty alleviation and creating employment opportunities in the country are the vital issues for promoting SME loans, it is relevant to focus on how such SME loans could accomplish the goals of the programme.
Generation of employment opportunities for the low-skilled workers and creation of linkages of SMEs with small traders/suppliers are the prime purposes for disbursing SME loans to entrepreneurs in order to help alleviate poverty. The relation between disbursing SME loans and poverty alleviation as well as creation of employment opportunities is a relevant issues for the purpose. The socio-economic relationships, in matters of loans to be disbursed among people, do need to be considered for having a look into linkages involving the processes relating to production, distribution, marketing and consumption. Capital is needed for setting up SMEs. This is related to loan disbursement. From buying cotton to producing cloths/textiles in the related sector, one, to cite here an instance only, has to go through a production process. In every step of production process, value will be added to the produced products. For example, cotton will require to be converted to thread. Thread will be converted to fabrics/textiles. These are the linkages -- linkages among cotton producers with thread producers and then thread producers with textile/fabric producers. In each step, value addition will be there. This will help accumulate capital. This will happen when the SMEs would be financed properly. Wherefrom would this financing need be met?
The financial institutions -- banks, leasing companies and non-banking financial institutions or NBFIs -- provide here the answer. Value addition will come after a small or medium enterprise gets the fund/loan. This value addition will then help alleviate poverty and create employment opportunities. By this way, the SMEs could be flourished and economic growth would be fostered.
For small enterprises, number of employees will have to be less than twenty five (25) people. This is the guideline of the Bangladesh Bank. The central bank, however, said this number below 25 employees is not mandatory. The number can vary, depending upon the nature of business, for examples, services, trading and manufacturing sectors. For small enterprises, the capital will vary between Tk. 50,000/- and Tk. 50,00,000/-. For medium enterprises, this may vary between Tk 5.0 million (50.00 lakh) and Tk. 20 million (2.00 crore), depending on the nature of business -- that is, whether those businesses relate to services, trading or manufacturing sector. The number of employees could vary between 50 persons and 150 persons, depending on the nature of business. All such criteria have been set, considering developmental stage of the economy. If the country is to reach its goal of becoming a middle income one, the guideline may require to be changed. That would be logical. The questions that are pertinent to the sustainable growth of SMEs are shortages of skilled workers, capital and technology, promotional tools and support services.
We have enough of human resources. But we need more vocational polytechnical institutes. Capital can be provided by financial institutions. The problem of technological backwardness can be addressed by vocational poly-technical institutes. For promotional activities, the domestic market has to be created first, by adopting a door-to-door marketing policy. Then comes the question of exporting the products. Here our missions working abroad and business leaders can jointly launch promotional campaign. For that matter, support-services will have to be provided by, first of all, the government and the trade promotion bodies.
Trained employees of the banks will be of greater help to the SME entrepreneurs than the untrained ones, in order to help overcome the problems in areas for preparing project profiles and balance sheets, filling documentations and, finally, for giving ideas as trouble shooters.
Personal guarantee is vitally important for meeting the banks' demand for documentation concerning SME financing. We can recall here the instance of the Kabuli Wallas. They used to give loans without any security/collateral. But banks can not follow this track.
(The writer works with ONE Bank Ltd., Khatunganj Branch, Chittagong)
Since poverty alleviation and creating employment opportunities in the country are the vital issues for promoting SME loans, it is relevant to focus on how such SME loans could accomplish the goals of the programme.
Generation of employment opportunities for the low-skilled workers and creation of linkages of SMEs with small traders/suppliers are the prime purposes for disbursing SME loans to entrepreneurs in order to help alleviate poverty. The relation between disbursing SME loans and poverty alleviation as well as creation of employment opportunities is a relevant issues for the purpose. The socio-economic relationships, in matters of loans to be disbursed among people, do need to be considered for having a look into linkages involving the processes relating to production, distribution, marketing and consumption. Capital is needed for setting up SMEs. This is related to loan disbursement. From buying cotton to producing cloths/textiles in the related sector, one, to cite here an instance only, has to go through a production process. In every step of production process, value will be added to the produced products. For example, cotton will require to be converted to thread. Thread will be converted to fabrics/textiles. These are the linkages -- linkages among cotton producers with thread producers and then thread producers with textile/fabric producers. In each step, value addition will be there. This will help accumulate capital. This will happen when the SMEs would be financed properly. Wherefrom would this financing need be met?
The financial institutions -- banks, leasing companies and non-banking financial institutions or NBFIs -- provide here the answer. Value addition will come after a small or medium enterprise gets the fund/loan. This value addition will then help alleviate poverty and create employment opportunities. By this way, the SMEs could be flourished and economic growth would be fostered.
For small enterprises, number of employees will have to be less than twenty five (25) people. This is the guideline of the Bangladesh Bank. The central bank, however, said this number below 25 employees is not mandatory. The number can vary, depending upon the nature of business, for examples, services, trading and manufacturing sectors. For small enterprises, the capital will vary between Tk. 50,000/- and Tk. 50,00,000/-. For medium enterprises, this may vary between Tk 5.0 million (50.00 lakh) and Tk. 20 million (2.00 crore), depending on the nature of business -- that is, whether those businesses relate to services, trading or manufacturing sector. The number of employees could vary between 50 persons and 150 persons, depending on the nature of business. All such criteria have been set, considering developmental stage of the economy. If the country is to reach its goal of becoming a middle income one, the guideline may require to be changed. That would be logical. The questions that are pertinent to the sustainable growth of SMEs are shortages of skilled workers, capital and technology, promotional tools and support services.
We have enough of human resources. But we need more vocational polytechnical institutes. Capital can be provided by financial institutions. The problem of technological backwardness can be addressed by vocational poly-technical institutes. For promotional activities, the domestic market has to be created first, by adopting a door-to-door marketing policy. Then comes the question of exporting the products. Here our missions working abroad and business leaders can jointly launch promotional campaign. For that matter, support-services will have to be provided by, first of all, the government and the trade promotion bodies.
Trained employees of the banks will be of greater help to the SME entrepreneurs than the untrained ones, in order to help overcome the problems in areas for preparing project profiles and balance sheets, filling documentations and, finally, for giving ideas as trouble shooters.
Personal guarantee is vitally important for meeting the banks' demand for documentation concerning SME financing. We can recall here the instance of the Kabuli Wallas. They used to give loans without any security/collateral. But banks can not follow this track.
(The writer works with ONE Bank Ltd., Khatunganj Branch, Chittagong)