A great array of over 11.8 million smaller enterprises across Bangladesh are a pivot to its economy, all together contributing around 30 per cent to the country's gross domestic product (GDP). However, they get a negligible amount as loans from the banks and financial institutions, which people in this sector consider main constraint to the flourishing of the small and medium enterprises in this South Asian nation, as assessed by foreign agencies besides local think-tanks.
Central bank data show ebbing financial flows into these economic units. In 2024, the banks and financial institutions disbursed some Tk 2.144 trillion to the cottage, micro, small, and medium enterprises (CMSMEs) in a fall from Tk 2.293 trillion in 2023. In 2022, they had disbursed Tk 2.204 trillion to the CMSMEs compared to Tk 1.854 trillion in the previous year.
The small enterprises are deprived of necessary funding despite the fact that the government requires banks and financial institutions to disburse 25 per cent of total loans and advances to CMSME sector by the end of 2025.
Finance Adviser Dr Salehuddin Ahmed recently asked the central bank to expedite fund disbursement in favour of CMSMEs as they were allegedly not getting adequate loans for expansion.
According to a World Bank study on SME financing in Bangladesh, US$2.8 billion worth of financing gap prevails in the MSME sector, where 60 per cent of women SMEs' financing needs are unmet, and a lack of access to collateral is one of the key hindrances.
"Bangladesh lacked a single policy with systemic plan to enhance SME finance," it noted.
The smaller enterprises employ millions of people but their access to fund is limited, holding back their development, conducting research activities, and adopting latest technologies.
Moreover, tax burden on SMEs is also rising in the recent years, hurting their prospective advances. In the next fiscal year, now round the corner, revenue officials will realise 1.0-percent turnover tax on individual taxpayers operating CMSMEs, up from the current rate of 0.25 per cent. This increase means the taxpayers' gross revenue will be taxed irrespective of business profitability.
The interim government, while presenting budget for fiscal year 2025-26 earlier this month, announced that it will provide Tk 10 billion in loans to 10,000 CMSMEs aiming to help their expected development. Thereafter, the SME Foundation urged the government to distribute the funds to the smaller enterprises through the Foundation itself using its own lending mechanisms, most effectively.
While the SMEs do not get required loans to make products and expand business, they also fail to adopt new technologies that the fourth industrial revolution offers prolifically. The adoption of high-cost artificial intelligence like technologies remains a daydream for them.
Industry people are of the opinion that when SMEs in other countries adopting 4IR-related technologies, Bangladeshi SMEs have yet to embrace the benediction of previous industrial revolutions. Though technology is upgraded every passing day, Bangladeshi SMEs are far off from adopting the updates to keep themselves abreast with the fast-moving outer world.
Suggestions are there that the government should play proactive roles to give a much-needed shot in the arm of SMEs. The products of Bangladeshi SMEs need to be introduced on the global market to enhance their demand abroad, which can help strengthen the financial condition of the small enterprises and thereby pave the way for them to adopt latest technologies.
A study titled 'The Fourth Industrial Revolution: Opportunities and Challenges for SMEs in Bangladesh' identified various challenges limiting the use of 4IR-related tools and technologies in the cottage, small and medium enterprises that, economists say, could be the backbone of a vibrant economy of the country with necessary care.
The study found many SME owners having lacked knowledge about the existing 4IR tools and technologies and how to integrate them into their businesses. Also found is that 4IR-related tools and technologies are often expensive, posing financial challenges to the SMEs.
The owners also lack requisite training on how to use the 4IR tools in their businesses. They are also concerned about the safety and security implications of adopting 4IR technologies.
Researchers think that SMEs in Bangladesh are yet to be linked with the 4IR mechanisms-automation, digitisation, and Internet of Things etc. They are even not a part of mainstream of fourth industrial revolution, let alone reaping benefit by using the tools. Except those few working in the export-oriented sectors, most of the SMEs are still using traditional technologies, operating factories manually, almost there is no use of digital technology, and they are, in most cases, not a part of global supply chains.
Most of the SMEs have almost no industrial compliance, social compliance, and human- related compliance either in their manufacturing units other than those linked with the export-oriented sector. The way the SMEs are developed in Bangladesh, a moot question arises whether they will be able to take benefit of fourth industrial revolution or not.
The researchers suggest making SMEs ready to become part of mainstream supply chains. They have to be able to produce raw materials, intermediate goods, and finished goods and actively participate in their distribution. They have to attain capability to export goods alongside selling on the local market.
The spending on research and development-related activities for the expansion of SMEs is also very poor. The SME Foundation earmarks some Tk 15 million annually for this purpose--too tiny to promote study and research on this sector.
The government itself hardly has any programme or funds to conduct required research and studies on the SME sector. The SME Policy 2019 set a strategic plan to institutionalise SME statistics and conduct research and development on this sector. It mentioned that in order to institutionalise the important contribution of the SME sector to the achievement of economic growth, necessary measures ought to be taken to ensure authentic statistics of SME sector. It further said SME-related research activities, technology-related research, and SME development activities will also be more expedited.
Also, publications on different types of technological know-how and research activities in the SME sector will be strengthened through the increase in funding and substantial research initiatives. The Ministry of Industries will establish an SME databank, which will work as a research and data centre and will be associated with the main stakeholders. It will also coordinate the activities of all SME-related organisations.
Things did not, however, advance as planned. The Ministry of Industries did not set up an SME databank, while no steps were taken to conduct research activities. None of the research-related activities, planned in the SME Policy 2019, has been implemented so far due to the non-allocation of specified funds for the same.
The SME sector needs huge supports for expansion. If promoted properly, the SME sector can employ thousands of students coming out from the educational institutions every year. To this end, proper SME policy has to be formulated and the government has to ensure their easy access to funds, preferably low- cost funds.
syful-islam@outlook.com
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