Well deserved support for SMEs
Enamul Haque | Tuesday, 8 July 2008
THE small and medium enterprises (SMEs) ideally meet the employment strategy in Bangladesh where capital intensive large enterprises would create employment for a lesser number of people. The SMEs, by contrast, being labour intensive can be employ a greater number of workers. A smaller enterprise also enjoy better exit conditions from business. If it fails to run viably, it can be more easily remodelled for something else as the costs to the entrepreneur is less compared to any large enterprise. A large enterprise cannot so easily decide to close down when it turns obsolete and needs recapitalisation.
The SMEs should be suitable for the Bangladesh economy in all respects. But there is no well-consistent and pro-active policy yet effectively operational in the country to promote its SMEs. That's why the sector is lagging behind. The Bangladesh Bank (BB) in recent years has been provisioning substantial resources for the establishment of SMEs in far greater numbers. But the funds have been efficiently used. The scheduled banks in many cases not able to adopt effective policies to support the SMEs. The banks need be more dynamic in both adopting and implementing their policies to support the SMEs.
The SMEs are yet to benefit from Bangladesh Bank's (BB's) refinance scheme for such enterprises. The central bank in 2004 introduced a SME refinance scheme of Taka 1.0 billion to increase SMEs' access to bank finance at a lower lending rate. Later, the fund was increased to 3.0 billion in fiscal year 2006-7 and to 5.0 billion for 2007-8. The BB at the outset imposed 4.0 per cent interest on its refinance scheme, which was later raised to 6.0 per cent. But none of the banks followed the rate and the BB was finally compelled to allow the banks to decide the rate on their own. Ever since this facility was extended, the banks started charging the entrepreneurs some 20 to 24 per cent rate of interest on the loans. So, it should be clear to all that the SMEs are not growing at the desired rate due to the heavy debt servicing liabilities the entrepreneurs would have to bear.
A foreign private sector bank in alliance with the apex chamber body, FBCCI, declared earlier a programme for giving awards to SME sector entrepreneurs. The purpose of it, no doubt, was to inspire the entrepreneurs in this field. This foreign bank has taken an SME promotion plan. And it is extending loans to the small producers and service providers. It has been able to maintain a viable credit programme for the SMEs at 16 per cent interest rate on the loans. This contrasts sharply with similar loans offered by many NGOs at 35 per cent. The NGOs are able to do this because of their proximity to the borrowers and the insufficiency of support to the sector from the banks.
For a solution, the banks need to extend their services wider across the country, particularly in rural and semi-urban areas. The banks need to be guided by a policy of lending at a reasonable rate of interest to the SMEs. If a foreign bank can do this without loss, there is no reason why the local banks cannot do it? The local banks are particularly expected to do well in the SME sphere because of their longer experience about local conditions.
The SME sector also needs official supports in the form of availability of selective subsidies, scaling down of duties on their raw materials, advisory and technical services, better supply of energies, etc. It needs the recognition that the SMEs are currently employing the larger part of the country's industrial labour force and account for substantial amounts of export earnings as well. Considering such aspects, the SME sector deserves better support from all the sources on fair terms and conditions.
The SMEs should be suitable for the Bangladesh economy in all respects. But there is no well-consistent and pro-active policy yet effectively operational in the country to promote its SMEs. That's why the sector is lagging behind. The Bangladesh Bank (BB) in recent years has been provisioning substantial resources for the establishment of SMEs in far greater numbers. But the funds have been efficiently used. The scheduled banks in many cases not able to adopt effective policies to support the SMEs. The banks need be more dynamic in both adopting and implementing their policies to support the SMEs.
The SMEs are yet to benefit from Bangladesh Bank's (BB's) refinance scheme for such enterprises. The central bank in 2004 introduced a SME refinance scheme of Taka 1.0 billion to increase SMEs' access to bank finance at a lower lending rate. Later, the fund was increased to 3.0 billion in fiscal year 2006-7 and to 5.0 billion for 2007-8. The BB at the outset imposed 4.0 per cent interest on its refinance scheme, which was later raised to 6.0 per cent. But none of the banks followed the rate and the BB was finally compelled to allow the banks to decide the rate on their own. Ever since this facility was extended, the banks started charging the entrepreneurs some 20 to 24 per cent rate of interest on the loans. So, it should be clear to all that the SMEs are not growing at the desired rate due to the heavy debt servicing liabilities the entrepreneurs would have to bear.
A foreign private sector bank in alliance with the apex chamber body, FBCCI, declared earlier a programme for giving awards to SME sector entrepreneurs. The purpose of it, no doubt, was to inspire the entrepreneurs in this field. This foreign bank has taken an SME promotion plan. And it is extending loans to the small producers and service providers. It has been able to maintain a viable credit programme for the SMEs at 16 per cent interest rate on the loans. This contrasts sharply with similar loans offered by many NGOs at 35 per cent. The NGOs are able to do this because of their proximity to the borrowers and the insufficiency of support to the sector from the banks.
For a solution, the banks need to extend their services wider across the country, particularly in rural and semi-urban areas. The banks need to be guided by a policy of lending at a reasonable rate of interest to the SMEs. If a foreign bank can do this without loss, there is no reason why the local banks cannot do it? The local banks are particularly expected to do well in the SME sphere because of their longer experience about local conditions.
The SME sector also needs official supports in the form of availability of selective subsidies, scaling down of duties on their raw materials, advisory and technical services, better supply of energies, etc. It needs the recognition that the SMEs are currently employing the larger part of the country's industrial labour force and account for substantial amounts of export earnings as well. Considering such aspects, the SME sector deserves better support from all the sources on fair terms and conditions.