SMEs and balanced development
Thursday, 10 December 2009
WHAT the Prime Minister suggested at the small and medium enterprises (SMEs) fair last Tuesday now requires to be formulated neatly as policies and implemented efficiently to attain various goals that would vitally include balanced development of the country. This would provide equitable opportunities for jobs and income to the entire population. If economic growth and establishment of industries and services get concentrated in a few cities the fruits of economic opportunities bypass the greater number of people. On the other hand, dispersal of entrepreneurship to areas away from the present clusters of industrial and business concentrations can be most fruitfully attempted through SMEs utilising the vast number of educated but unemployed and underemployed people in the country. Thus, there has to be a blending of policies essentially in two areas : maximum promotion of the SMEs in various ways and creation of incentives for these SMEs away from areas which are presently the major beneficiaries of industrialisation and economic growth.
Comprising numerous small and medium scale industries, the SMEs are the biggest employer of industrial workers in the country. This fact alone points to its potential. In a situation, where capital intensive large scale production would not particularly be so much useful for Bangladesh from the perspective of employment creation, promotion of SMEs seems to be the ideal course, as they can be more labour intensive in character. Furthermore, the exit costs of capital intensive large scale enterprises are far bigger than SMEs. The consequences of shut-downs of some SMEs, in terms of losses, can be smaller than the closure of even one big capital intensive industry. Besides, SMEs can also adapt better and re-tool and redesign their outlays to change over to different forms of enterprise. This is not easy in the case of larger industries.
For most of the SME operators, the non-government organisations (NGOs) are the only ones near at hand from whom they can seek credits. But the NGOs are not much active about extending credits to SMEs on favourable terms. Some NGOs do reportedly take as much as 30 per cent interest plus service charges on loans they provide . Some policy measures were taken in recent years to improve the supply of credits to SMEs. Bangladesh Bank, for example, initially created a special fund for refinancing SMEs, the size of which was later increased. But much enthusiasm is not noted to utilise the facility, the banks are not logistically positioned yet to efficiently finance SME operations throughout the country. The lending rates charged by the banks for funding the SMEs do also call for still some downward revisions. Policies also need to be there to encourage the development of SMEs through fiscal measures. The small entrepreneurs can be selectively exempted from paying duties and taxes on their imported raw materials and value additions. The fiscal measures do certainly need to create strong incentives for more potential SME entrepreneurs to become actively interested.
Government also needs to adopt a broader framework of regional development by creating development promoting zones under a framework of specially 'assisted areas'. Assistance from the government can be extended to private entrepreneurs in these backward areas for buying lands, building and machineries. Special fiscal incentives can be given to SME enterprises located in such areas. SMEs to be set up in these areas can be offered government's preferences in the buying of their products. All of these concessions and more, will likely create adequate incentives for potential SME investors to opt out of making their investments in the already congested few enterprise zones of the country .
Comprising numerous small and medium scale industries, the SMEs are the biggest employer of industrial workers in the country. This fact alone points to its potential. In a situation, where capital intensive large scale production would not particularly be so much useful for Bangladesh from the perspective of employment creation, promotion of SMEs seems to be the ideal course, as they can be more labour intensive in character. Furthermore, the exit costs of capital intensive large scale enterprises are far bigger than SMEs. The consequences of shut-downs of some SMEs, in terms of losses, can be smaller than the closure of even one big capital intensive industry. Besides, SMEs can also adapt better and re-tool and redesign their outlays to change over to different forms of enterprise. This is not easy in the case of larger industries.
For most of the SME operators, the non-government organisations (NGOs) are the only ones near at hand from whom they can seek credits. But the NGOs are not much active about extending credits to SMEs on favourable terms. Some NGOs do reportedly take as much as 30 per cent interest plus service charges on loans they provide . Some policy measures were taken in recent years to improve the supply of credits to SMEs. Bangladesh Bank, for example, initially created a special fund for refinancing SMEs, the size of which was later increased. But much enthusiasm is not noted to utilise the facility, the banks are not logistically positioned yet to efficiently finance SME operations throughout the country. The lending rates charged by the banks for funding the SMEs do also call for still some downward revisions. Policies also need to be there to encourage the development of SMEs through fiscal measures. The small entrepreneurs can be selectively exempted from paying duties and taxes on their imported raw materials and value additions. The fiscal measures do certainly need to create strong incentives for more potential SME entrepreneurs to become actively interested.
Government also needs to adopt a broader framework of regional development by creating development promoting zones under a framework of specially 'assisted areas'. Assistance from the government can be extended to private entrepreneurs in these backward areas for buying lands, building and machineries. Special fiscal incentives can be given to SME enterprises located in such areas. SMEs to be set up in these areas can be offered government's preferences in the buying of their products. All of these concessions and more, will likely create adequate incentives for potential SME investors to opt out of making their investments in the already congested few enterprise zones of the country .