sme final assignment. 11-08-2010

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Report On

The Present Scenario of SMEs in Bangladesh

The Report Presented to the Faculty of Business Administration in Partial Fulfillment of the Requirements for Degree of Bachelor of Business Administration

Submitted To

Md. Jahirul Islam

Course Instructor

Faculty of Business, ASA University Bangladesh (ASAUB)

Course Title: Financial Accounting

Course Code: ACT-213

Submitted By

Name ID SectionMd. Ariful Islam 09-2-12-0010 7A

Noor-E-Haque Mejbahtuz Jahan 09-2-12-0029 7A

Abida Sultana 09-2-12-0035 7A

S.M. Joby Dul Islam 09-2-12-0032 7A

Md. Hasan Atikur Rahman 09-2-12-0031 7A

Tayeba Akter 09-2-12-0014 7A

ASA University Bangladesh (ASAUB)Date: 22/08/2010

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The Present Scenario of SMEs in Bangladesh

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Letter of Transmittal

Date: 19/08/2010

To

Md. Jahirul IslamCourse instructorFaculty of Business, ASA University Bangladesh (ASAUB)

Subject: Submission of the Report.

Sir,

It is our pleasure to submit the report on “The Present Scenario of SMEs in Bangladesh” as a part of our term paper in summer 2010.

We have enjoyed preparing this term paper which enriched my practical knowledge of the theoretical

concept. We tried to reflect the practical operational aspects of the organization which is

complementary to the theoretical lessons.

Should you need any further information to evaluate the term paper, it would be our immense pleasure

to furnish you the same.

Sincerely Yours

Sl. No

Name ID Section

Signature

1. Md. Ariful Islam 09-2-12-0010

7A

2. Noor-E-Haque Mejbahtuz Jahan

09-2-12-0029

7A

3. Abida Sultana 09-2-12-0035

7A

4. S.M. Joby Dul Islam 09-2-12-0032

7A

5. Md. Hasan Atikur Rahman 09-2-12-0031

7A

6. Tayeba Akter 09-2-12-0014

7A

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Acknowledgement

Preparing this term paper on “The Present Scenario of SMEs in

Bangladesh” was a wonderful experience for our. At fast we would like

to thank almighty Allah to carry on our work. We would like to thank our

faculty member, Md. Jahirul Islam, course instructor, Faculty of

Business ASA University Bangladesh for giving our this opportunity as

well as for his constant guidance and support. Finally we would like to

thank our family for supporting our courage to carry on our work. It was

a practical experience for us.

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Executive Summary

Bangladesh is s developing country. Its per capita income is only $750

and per capita GDP is $684 and present GDP growth rate is 6%. Most of

the people are living in the below of poverty line. Poverty as like as curse

for our country. To remove poverty government and other organization

such as NGOs, Bank has taken many steps. Bangladesh Government has

taken Millennium Development Goals (MDGs) programs that first goals is

eradicate extreme poverty and hunger. They also have written Poverty

Reduction Strategy paper (PRSP) to remove poverty. To achieve the

committed MDGs and PRSP, Bangladesh must strive to expend

employment creation opportunities very rapidly. For this government

have formed SMEs Foundation. SMEs means Small and Medium

enterprises, it can be defined as enterprises which have at most 250

employees and an annual turnover not exceeding 50 million Euros.

Further there is the distinction of Small enterprise- they fewer than 50

staff members and less than 10 million Euros turnover- and micro-

enterprises (less than 10 persons and 2 million Euros turnover). Different

countries and organizations define SME differently. The government of

Bangladesh has categorized SME into two broad classes (a)

manufacturing enterprise and (b) non manufacturing activities.

Manufacturing enterprises can be divided into two categories (a) Small

enterprise and (b) Medium enterprise. Non-manufacturing activities also

can be divided into two categories (a) Small enterprise and (b) Medium

enterprise. According to Bangladesh Bureau of Statistics different

enterprises are defined as Micro industry that number of employees is 0-

9, small has 10-49 employees, Medium has 50-99 employees and Large

above 99 employees.

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To complete this assignment we have collected data from the secondary

source such as internet, books, journal etc.The objectives of the study are

to appraise the present situation of SME in Bangladesh, to identify the

problems of SME in Bangladesh and recommend solutions to overcome

the problems. Small and Medium Enterprises (SMEs), by producing

exportable surpluses of commodities together with local value additions

and creation of employment opportunities, can make significant

contribution to the economy of Bangladesh. Although financing of SMEs

in off-farm rural economic activities are largely dependent on equity

financing from personal and family savings, currently banks and financial

institutions are also coming forward to provide finance to this sector. As

the large potential of employment generation by SMEs has attracted

attention of the policy makers, a range of initiatives for channeling loans

to SMEs are being taken.

The Government has taken up programmes to provide financial

assistance to expand SMEs through commercial banks. Alongside the

disbursement of loans, since FY2004-05, Bangladesh

Bank has taken up a scheme of Tk.100 crore for refinancing the

scheduled banks and financial institutions as revolving fund. Recently,

the scheme has been widened with an enhanced allocation of Tk.600

crore. Up to June 2009, Tk.716.44 crore and up to December 2009 Tk.

853.15 has been disbursed among 17 scheduled banks and 21financial

institutions for refinancing potential entrepreneurs. In addition to this,

IDA has provided US$10 million and the Government of Bangladesh has

provided Tk.112.32 crore through ‘Enterprises Growth and Bank

Modernization Project (EGBMP)’. With the stipulated revolving fund of

Tk.224.50 crore up to June 2009 and Tk. 244.14 crore up to December

2009 refinancing facilities among 2541 potential entrepreneurs have

been provided to 15 schedule banks and 14 financial institutions.

Moreover, in an attempt to provide incentives to the sector, ADB has

been providing an additional US$30 million to Bangladesh Bank and Tk.

334.94 up to December 2009 refinancing facilities among 3264 potential

entrepreneurs have been provided to 9 schedule banks and 7 financial

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institutions. These resources would contribute both in employment

generation as well as in enhancing the purchasing power of the poor. It is

found that micro enterprises run by up to 10 workers contribute the most

which is 86% of the total contribution from SMEs to GDP of Bangladesh.

It is also observed that micro enterprises run by more than 21 workers

contribute about 7% of total contribution from SME to GDP of

Bangladesh. It is reflected from the table that manufacturing sector

contributes the highest contribution in GDP i.e., 38%. It is also observed

from the table that agriculture and wholesale and retail sector contribute

more than 22 percent in the GDP of Bangladesh.

We also show the growth pattern of SME. It is observed that during

2001-2002 to 2004-2005 in every financial year the growth rate of SME is

about 7%. In 2005-2006 the growth rate was 9.21%. The highest growth

was in 2006-2007 i.e. 10.28%. Quantum Index of Production for Medium to

Large Scale Manufacturing Industries in 2009-10 is 431.51.

We also found some major problems these are Resource scarcity, High

employee turnover, Absence of modern technology, Poor physical

infrastructure, Financial constraints, Lack of uniform definition, Lack of

information, Lack of entrepreneurship skills, Participation of women

entrepreneurs, Access to Market and lack of awareness regarding the

importance of marketing tool, Bureaucracy, Absence of transparent legal

system, Lack of commitment to innovation and customer satisfaction,

Lack of quality assurance, Lack of research and development facilities,

Fierce competition with the cheaper foreign goods. We also provide some

recommendation that mention in the Recommendation chapter. At last

we conclusion our assignment on the conclusion chapter. Small and

medium enterprises (SMEs) act as a vital player for the economic growth,

poverty alleviation and rapid industrialization of the developing countries

like Bangladesh. SMEs are significant in underlying country’s economic

growth, employment generation and accelerated industrialization.

Government of Bangladesh has highlighted the importance of SME in the

Industrial Policy-2005. SME has identified by the Ministry of Industries

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as a ‘thrust sector’. As the SME sector is labor intensive, it can create

more employment opportunities. For this reason government of

Bangladesh has recognized SME as a poverty alleviation tool. SME also

foster the development of entrepreneurial skills and innovation. Along

with poverty alleviation SME can reduce the urban migration and

increased cash flow in rural areas. As a result it will enhance the

standard of living in rural areas. Performance of SMEs in Bangladesh is

significantly found below the level of international standard. Although

government of Bangladesh has taken some initiative to ensure the

growth of SME but those steps are not enough at all.

Keywords: SME, Finance, Employee, Capital

Table of Contents

Chapter Name Page no

Chapter 1

Introduction………………………………………………………………………………….1-2

1.1 Scope and limitation of the Study……………………………………………………2

1.2 Objectives of the Study…………………………………………………………...….2

1.3 SME Definition………………………………………………………….………...3-4

1.4 SME in Bangladesh……………………………………………………………......4-6

1.5 Literature Review………………………………………………………………….6-7

Chapter 2

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Methodology……………………………………………………………………………….….8

Chapter 3

3.1 Analysis and Interpret Data…………………………………………………….….9

3.2 Small and Medium Enterprises (SMEs) ..………………………………..……..9-15

3.3 Present Scenario of SME………………………………………………….…..15-19

Chapter 4

Findings and Results……………………………………………………….……...20-22

Chapter 5

Recommendations………………………………………………………………….23-24

Chapter 6

Conclusion……………………………………………………………………………….

…..25

References……………………………………………………………………………………26

Table List

Table-1: Survey Result of MIDAS…………………………………………………………..7

Table-2: Summary Information on SME refinancing (up to June 2009)…………………….10

Table-3: Summary Information on SME Refinancing from Bangladesh Bank (up to June 2009) …………………………………………………..…………………………………….11

Table-4: Summary information on SME Refinancing from IDA (up to June)……………....12

Table-5: Summary information on SME Refinancing from ADB (up to June 2009)………..13

Table-6: Summary information on SME Refinancing (up to June 2009)…………................13

Table-7: Summary Information on SME Refinancing from Bangladesh Bank (up to June 2010) ………………………………………………………..………………………………. 14

Table-8: Summary Information on SME Refinancing from IDA (up to June 2010)………..14

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Table-9: Summary Information on SME Refinancing from ADB (up to June 2010)………..14

Table-10: Sector wise contribution of SME in GDP of Bangladesh (Taka)………………....16

Table-11: Growth pattern of SME……………………………………………………………17

Table-12: Growth pattern of Manufacturing Sector………………………………………….18

Table-13: Size and Growth Rate of Manufacturing Sector…………………………………..19

Table-14: Quantum Index of Production for Medium to Large Scale Manufacturing Industries……………………………………………………………………………………..19

Figure List

Figure-1: Sector wise contribution of SME in GDP of Bangladesh ………………………...16

Figure-2: Growth pattern of SME…………………………………………………...……….17

Figure-3: Growth pattern of Manufacturing Sector………………………………………….18

Chapter 1

Introduction

Bangladesh is a developing country. Its per capita income is very low and its $750 and per

capita GDP is $684. Its present GDP is 6%. (Bangladesh economic review, 2009-10) Most of

the people are living in the below of poverty line. Poverty is the main problem of our country.

To remove poverty government has taken many steps such as Millennium Develop Goals,

writing Poverty Reduction Strategy Paper (PRSP) etc. To achieve the committed Millennium

Development Goals (MDGs) of 2015 or the targets of the National Strategy for Economic

Growth, Poverty Reduction and Social Development, commonly known as the Poverty

Reduction Strategy Paper (PRSP), the development process of Bangladesh must strive to

expand employment creation opportunities very rapidly. The MDGs reflect the actions and

targets contained in the Millennium Declaration that was adopted by 189 nations during the

UN Millennium Summit in September 2000. Bangladesh has made noteworthy progress in

the attainment of MDGs during 1990-2000. Bangladesh advancement towards MDGs is

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evident in human development, for example attainment of gender parity in primary and

secondary school enrolment. Mid-way through to the 2015 target of MDGs attainment,

Bangladesh has covered significant grounds and can safely be said to be on track in relation

to most of the targets. A midterm review of progress at the aggregate level shows that

Bangladesh is making progressive strides in reducing poverty, already bringing down the

poverty gap ratio to 9 against 2015 target of 8 with the rate of poverty reduction being 1.34

percent in relation to the required rate of 1.23 percent.

The main goals are as following:

Goal 1: Eradicate Extreme Poverty and Hunger

Goal 2: Achieve Universal Primary Education

Goal 3: Promote gender equity and Empower women

Goal 4: Reduce Child Mortality

Goal 5: Improve Maternal Health

Goal 6: Combat HIV/AIDS, malaria and other diseases

Goal 7: Ensure environmental sustainability

Goal 8: Develop a global partnership for development

The scope of additional absorption of labour in agriculture being somewhat limited, the best

potential for this lies in the manufacturing sector. To create job space government founded

SME Foundation that provide loan and help to established small and medium enterprise. In

the context of Bangladesh, the development of Small and Medium Enterprises (SMEs) can be

considered as a vital instrument for poverty alleviation and ensure the rapid industrialization.

In this paper we have tried to identify the problems of SMEs of Bangladesh. The performance

of SMEs of Bangladesh especially in terms of employee turnover rate, quality assurance,

allocation of funds, marketing activities have been found significantly below the international

standard. The sector gets negligible support from government. The rate of development of

SME is not up to the expectation. In order to overcome the problems a few suggestions for

the development of SMEs are given by us.

1.1 Scope and Delimitation of the Study

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This topic SMEs is a very important in the context of Bangladesh. It help us the gather

practical experience and we are to know that the role of SMEs, Problems, prospective and

their solution. But we have some limitation; it is we are collected data from secondary source,

basically internet using. We do not conduct face to face interview because, time was not

enough for us to prepare this assignment. If we got enough time we think it will be help to

prepare our assignment.

1.2 Objectives of the Study

In this paper we have tried to identify the factors that influence the development and growth

of the SME sector of Bangladesh. Thus the specific objectives of the study are as follows:

To appraise the present situation of SME in Bangladesh.

To identify the problems of SME in Bangladesh.

To recommend solutions to overcome the problems.

1.3 SME Definition

SME: around the world

According to the European Union (2003) SMEs are defined as enterprises which have at most

250 employees and an annual turnover not exceeding 50 million Euros. Further there is the

distinction of small enterprises — they have fewer than 50 staff members and less than 10

million Euros turnover — and micro-enterprises (less than 10 persons and 2 million Euros

turnover).

According to the World Bank (2006) medium enterprises are defined as enterprises which

have at most 300 employees and an annual turnover not exceeding 15 million US dollars.

Further there is the distinction of small enterprises — they have fewer than 50 staff members

and up to 3 million US dollars turnover — and micro-enterprises have up to 10 persons and

$100,000 turnover. In the UK, sections 382 and 465 of the Companies Act 2006 define a

SME for the purpose of accounting requirements.

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According to this a small company is one that has a turnover of not more than £5.6 million, a

balance sheet total of not more than £2.8 million and not more than 50 employees. A

medium-sized company has a turnover of not more than £22.8 million, a balance sheet total

of not more than £11.4 million and not more than 250 employees. It is worth noting that even

within the UK this definition is not universally applied.

In the USA, the definition of small business is set by a government department called the

Small Business Administration (SBA) Size Standards Office. The SBA uses the term “size

standards” to indicate the largest a concern can be in order to still be considered a small

business, and therefore able to benefit from small business targeted funding. The concern

cannot be dominant in its field, on a national basis. It must also be independently owned and

operated. Unlike the UK and the European Union which have simple definitions applied to all

industries, the US has chosen to set size standards for each individual NAICS coded industry.

This variation is intended to reflect industry differences in a better way. The most common

size standards are 500 employees for most manufacturing and mining industries 100

employees for wholesale trade industries $6 million of annual receipts for most retail and

service industries $28.5 million of annual receipts for most general & heavy construction

industries $12 million of receipts for all special trade contractors $0.75 million of receipts for

most agricultural industries.

Breaking down the SME definition, Industry Canada defines a small business as one that has

fewer than 100 employees (if the business is a goods-producing business) or fewer than 50

employees (if the business is a service-based business). A firm that has more employees than

these cut-offs but fewer than 500 employees is classified as a medium-sized business.

(www.about.com)

In India the Small Scale Industries (SSIs) are industrial undertaking in which the investment

in fixed assets in plant and machinery, whether held on ownership terms or on lease or by

hire purchase does not exceed Rs. 10 million. The Small Scale Service And Business

(Industry related) Enterprises (SSSBEs) are industry related service and business enterprises

with investment in fixed assets, excluding land and building up to Ps. 1 million. (Ministry of

trade and Industry, Government of India)

According to the SME bank of Pakistan, SME means an entity, ideally not a public limited

company, which does not employ more than 205 persons (if it is manufacturing concern) and

50 persons (if it is trading/service concern) and also fulfils the following criteria of either ‘a’

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and ‘c’ and ‘c’ or ‘b’ and ‘c’ as relevant; (a) A trading/service concern with total assets at

cost excluding land and buildings up to Rs 50 million. (b) A manufacturing concern with total

assets at excluding land and buildings up to Rs 100 million. (c) Any concern (trading, service

or manufacturing) with net sales not exceeding Rs 300 million as per latest financial

statements.

1.4 SME in Bangladesh

Different countries and organizations define SME differently. The Government of

Bangladesh has categorized SME into two broad classes

1. Manufacturing enterprise

2. Non Manufacturing activities

Manufacturing enterprise:

Manufacturing enterprises can be divided into two categories;

1. Small enterprise: Small enterprise is an enterprise would be treated as small if, in

current market prices, the replacement cost of plant, machinery and other

parts/components, fixtures, support utility, and associated technical services by way

of capitalized costs (of turn-key consultancy services, for example), etc, excluding

land and building, were to up to Tk. 15 million.

2. Medium enterprise: Medium enterprise an enterprise would be treated as medium if,

in current market prices, the replacement cost of plant, machinery and other

parts/components, fixtures, support utility, and associated technical services by way

of capitalized costs (of turn-key consultancy services, for example), etc, excluding

land and building, were to up to Tk. 100 million.

Non-manufacturing activities (such as trading or other services):

Non-manufacturing activities can be divided into two categories;

1. Small enterprise: Small enterprise is an enterprise should be treated as small if it has

less than 25 workers, in full-time equivalents.

2. Medium enterprise: Medium enterprise an enterprise should be treated as small if it

has between 25 and 100 employees.

According to Bangladesh Bureau of Statistics different enterprises are defined as:

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Name of Industry No. of employees

Micro 0-9

Small 10-49

Medium 50-99

Large Above 99

The Ministry of Industries, Government of Bangladesh has been identified following 11

booster sectors:

1. Electronics and electrical

2. Software-development

3. Light engineering and metal-working

4. Agro-processing/agro-business/plantation agriculture/ specialist farming/tissue-

culture

5. Leather-making and leather goods

6. Knitwear and ready-made garments

7. Plastics and other synthetics

8. Healthcare & diagnostics

9. Educational services

10. Pharmaceuticals/cosmetics/toiletries

11. Fashion-rich personal effects, wear and consumption goods.

1.5 Literature Review

With respect to the SME sector of Bangladesh, foreign and national experts undertook some

studies. Some of the notable ones are; Uddin (2008), Chowdhury (2007), Miah (2007),

Ahmed (2006), MIDAS (2004), ICG (2003), Hallberg (2002).

Uddin (2008) has stated that the economic efficiency and overall performance of the SMEs

especially in the developing countries are considerably dependent upon macroeconomic

policy environment and specific promotion policies pursued for their benefit.

Chowdhury (2007) highlighted that in context of Bangladesh SME is characterized by Low

capitalization and limited assets, geographical diversity and high mortality, poor credit

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knowledge, very limited access to formal source of credit, cash intensity in transactions, very

limited record keeping habit, poor financial disclosure on account of tax issues, high risk

perception has led to high borrowing costs.

In a study about SME sector of Bangladesh Miah (2007) stated that the major constraints for

SMEs are lack of adequate investment, lack of modern technology, high rate of interest on

bank loans, irregular/inadequate supply of power, poor physical infrastructure and high

transportation cost, poor information about market opportunities and requirements,

inadequate availability of raw materials, lack of skilled technicians and workers, lack of

research & development facilities, fierce competition, absence of effective and transparent

legal system, difficulties in accessing technology, credit constraints, low access to business

services, constraint of quality of human resources, low awareness, low lobbying capacity,

rapid changes in policy environment.

Ahmed (2006) observed that availability of finance is a major constraint to formation and

growth of SMEs in Bangladesh.

Banks are reluctant to expand their SME credit portfolio because they do not consider SME

lending an attractive and profitable undertaking. This is so because SMEs are regarded as

high risk borrowers because of their low capitalization, insufficient assets and their inability

to comply with collateral requirements of the banks. Administrative costs are also higher

because close monitoring and supervision the SME operation becomes necessary.

A study (2004) by Micro Industries Development Assistance and Services (MIDAS) revealed

that sources of finance are mostly friends and family member in case of SME. MIDAS tried

to identify the sources of funds of SMEs. These are:

Table-1: Survey Result of MIDAS

Source of Funds Percentage of Finance

Informal sector 41%

Family members 20% (interest free)

4% (with interest)

NGO 17%

Bank 18%

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According to Hallberg (2002), a stable macro-economy, an open trade and investment

regime, and a competitive financial sector are argued to be most essential ingredients for a

vibrant private sector. But with a law and order situation below the optimum level, corruption

well above the level of acceptance and unstable political situation, the domestic environment

of Bangladesh does not come to any help, rather hinders the prosperity of SME in this

country.

Chapter 2

Methodology

This is basically a library research. Most of the data have been collected from secondary

sources. So the research work has been based on published information and data available in

any form such as books, journals, magazines, newspapers etc. devoted to SME sector.

Secondary information has been collected from Ministry of Industries, SME foundation,

Bangladesh Bureau of Statistics, MIDAS, and Financial Institutions and from other SME

related organizations. Relevant articles and literature in this context has also consulted. In this

article we have analyzed the data of last six years of SMEs of Bangladesh. We have tried to

analyze the performances of SMEs by applying simple statistical analysis i.e., growth

percentage, average etc.

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Chapter 3

Analysis and Interpret Data

3.1 Small and Medium Enterprises (SMEs)

Small and Medium Enterprises (SMEs), by producing exportable surpluses of commodities

together with local value additions and creation of employment opportunities, can make

significant contribution to the economy of Bangladesh. Although financing of SMEs in off-

farm rural economic activities are largely dependent on equity financing from personal and

family savings, currently banks and financial institutions are also coming forward to provide

finance to this sector. As the large potential of employment generation by SMEs has attracted

attention of the policy makers, a range of initiatives for channeling loans to SMEs are being

taken.

The Government has taken up programmes to provide financial assistance to expand SMEs

through commercial banks. Alongside the disbursement of loans, since FY2004-05,

Bangladesh

Bank has taken up a scheme of Tk.100 crore for refinancing the scheduled banks and

financial institutions as revolving fund. Recently, the scheme has been widened with an

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enhanced allocation of Tk.600 crore. Up to June 2009, Tk.716.44 crore and up to December

2009 Tk. 853.15 has been disbursed among 17 scheduled banks and 21financial institutions

for refinancing potential entrepreneurs. In addition to this, IDA has provided US$10 million

and the Government of Bangladesh has provided Tk.112.32 crore through ‘Enterprises

Growth and Bank Modernization Project (EGBMP)’. With the stipulated revolving fund of

Tk.224.50 crore up to June 2009 and Tk. 244.14 crore up to December 2009 refinancing

facilities among 2541 potential entrepreneurs have been provided to 15 schedule banks and

14 financial institutions. Moreover, in an attempt to provide incentives to the sector, ADB has

been providing an additional US$30 million to Bangladesh Bank and Tk. 334.94 up to

December 2009 refinancing facilities among 3264 potential entrepreneurs have been provided

to 9 schedule banks and 7 financial institutions. These resources would contribute both in

employment generation as well as in enhancing the purchasing power of the poor.

Detailed refinancing of Bangladesh Bank to various financial institutions and banks is shown

at Table.

Table-2: Summary Information on SME refinancing (up to June 2009)*

Refinancing

Source

Amount refinanced (in crore Taka) No. of Beneficiary Enterprises

Working

Capital

Mid

Term

Loan

Long

Term

Loan

Total

loan

Industrial

Loan

Commercial

Loan

Service Total

Bangladesh

Bank

178.48 336.40 201.56 716.44 1724 4150 1127 7001

IDA 61.51 96.40 66.59 224.50 899 1220 358 2477

ADB 138.68 112.82 52.75 304.25 728 1864 331 2923

Total 378.68 545.62 320.90 1245.20 3351 7234 1816 12401

(*Source: Bangladesh Economic Review 2008-0, Chapter 8, Industry)

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Table-3: Summary Information on SME Refinancing from Bangladesh Bank (up to June

2009)*

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(*Source: Bangladesh Economic Review 2008-09)

Table-4: Summary information on SME Refinancing from IDA (up to June 2009)*

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(*Source: Bangladesh Bank & Bangladesh Economic Review 2008-09)

Table-5: Summary Information on SME Refinancing from ADB (up to June 2009)*

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*(Source: Bangladesh Bank & Bangladesh Economic Review 2010)

Table 8.3 shows that up to June 2009, Bangladesh Bank and IDA have distributed Tk.940.94

crore as refinancing to 17 banks and 22 non-bank financial institutions. It may be mentioned

that the fund has been disbursed (by the mentioned banks and financial institutions) to a total

of 9478 SMEs earlier as loan. Out of the total loan, Tk.239.99 crore has been provided as

working capital, Tk.432.79 crore as medium-term loan and Tk.268.15 crore as long-term

loan.

Table-6: Summary Information on SME refinancing (up to 31, March 2010)*

Refinancing

Source

Amount of Refinancing (In Tk. Crore) Number of financing enterprise (Sector wise)

Working

capital

Mid

term

loan

Long

term

loan

Total

loan

Industria

l loan

Commercial

loan

Service Total

1. Bangladesh

Bank Fund

224.80 493.79 235.70 954.28 2443 5844 1537 9824

2 IDA Fund 63.71 100.74 87.26 251.71 924 1258 402 2584

3 ADB Fund 144.48 132.27 58.19 334.94 800 2096 368 3264

Total 432.99 726.80 381.15 1540.98 4167 9198 2307 15672

*(Source: Bangladesh Bank & Bangladesh Economic Review 2009-10, Chapter 8, Industry)

Table-7: Summary information on SME Refinancing from Bangladesh Bank (up to June 2010)*

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Name of

Banks/FIs

Refinanced

Amount of Refinancing (In Tk. Crore) No. of Beneficiary enterprises (Sector wise)

Working

capital

Mid

term

loan

Long

term

loan

Total

loan

Industrial

loan

Commercia

l loan

Service Total

1. Private

banks(17)

201.43 226.43 65.98 493.84 1257 4469 562 6288

2 Financing

Institutes

(22)

23.37 267.35 169.72 460.45 1186 1375 975 3536

Total 224.80 493.79 235.70 954.28 2883 5844 1537 9824


Table-8: Summary information on SME Refinancing from IDA (Up to June 2010)*

Name of

Banks/FIs

Refinanced


Working

capital

Mid

term

loan

Long

term

loan

Total

loan

Industria

l loan

Commercial

loan

Service Total

1. Private

banks(15)

57.48 67.07 24.73 149.27 688 1167 79 1934

2 Financing

Institutes

(14)

6.23 33.67 62.53 102.44 236 91 323 650

Total 63.71 100.74 87.26 251.71 924 1258 402 2584


Table-9: Summary information on SME Refinancing from ADB (Up to June 2010)*

Name of

Banks/FIs

Refinanced


Working

capital

Mid

term

loan

Long

term

loan

Total

loan

Industria

l loan

Commercial

loan

Service Total

1. Private

banks(9)

144.32 90.95 34.17 269.44 657 1893 155 2705

2 Financing

Institutes

(7)

0.16 41.32 24.02 65.50 143 203 213 559

Total 144.48 132.27 58.19 334.94 800 2096 368 3268


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Table 8.3 shows that up to March 2010, Bangladesh Bank and IDA have distributed

Tk.1205.99 crore as refinancing to 17 banks and 22 non-bank financial institutions. It may be

mentioned that the fund has been disbursed (by the mentioned banks and financial

institutions) to a total of 12408 SMEs earlier as loan. Out of the total loan, Tk.272.70 crore

has been provided as working capital, Tk.519.79 crore as medium-term loan and Tk.304.80

crore as long-term loan.

3.2 Present Scenario of SME

In 2003 the International Consultancy Group (ICG) of the UK, in collaboration with the

Micro Industries Development Assistance and Services (MIDAS), conducted the National

Private Sector Survey of Enterprises in Bangladesh. The survey results drew the conclusion

that there were approximately 6 million Small and Medium Enterprises (SMEs), which

included enterprises with up to 100 workers employing a total of 31 million people,

equivalent to 40 per cent of the population of the country of age 15 years and above. The

survey also found that the industrial structure of SMEs consisted of primarily wholesale and

retail trade and repairs (40 per cent), production and sale of agricultural goods (22 percent),

services (15 percent), and manufacturing only (14 per cent). Thus the survey brought out the

fact that the large untapped potential for expansion in manufacture and production could be

exploited (or contributing more significantly to the national economy. Another vital findings

of the survey under discussion was that SMEs contributed BDT 741 ($ 12.5) billion i.e.

nearly 25 per cent of the GDP (BDT 2,996 billion) in 2003. It is reflected from this survey

that enterprises employing 2-5 workers contribute 51 percent share of the total SME

contribution to the economy, followed by 26 percent by those having only one worker and 10

per cent by those having 6-10 workers. For LDCs like Bangladesh, SMEs are a highly cost-

effective route for industrial development.

It is observed from Table-1 that micro enterprises run by up to 10 workers contribute the

most which is 86% of the total contribution from SMEs to GDP of Bangladesh. It is also

observed that micro enterprises run by more than 21 workers contribute about 7% of total

contribution from SME to GDP of Bangladesh.

Page

Table-10: Sectors wise contribution of SME in GDP of Bangladesh (Taka)*

Sectors Total contribution to GDP

(Taka)

Percent of total Contribution

Agriculture 177,729,637,637 24%

Fishing 32,872,674,464 4%

Manufacturing 282,344,700,575 38%

Construction 7,196,460,200 1%

Wholesale and Retail trade

and Repairs

171,335,861,390 23%

Hotels and restaurants 28,599,263,975 3%

Transport, Storage and

Communication

8,950,171,356 1%

Real state, Renting and

Business activities

13,771,436,794 2%

Education 151,808,506 1%

Health and Social work 2,743,049,893 1%

Others Service activities 15,632,094,785 2%

Total 741,327,159,609 100%

*(Source: ICG/MIDAS Survey, 2004)

Figure-1: Sector wise contribution of SME in GDP of Bangladesh

24%

4%

38%1%

23%3%

1%

2%1% 1% 2%

Sector wise contribution of SME in GDP of Bangladesh

Agriculture FishingManufacturing ConstructionWholesale and Retail trade and Repairs

Hotels and restaurants

Transport, Storage and Commu-nication

Real state, Renting and Business ac-tivities

Education Health and Social workOthers Service activities

Page

Table & graph 2; provides the information regarding sector wise contribution of SMEs to

GDP. It is reflected from the table that manufacturing sector contributes the highest

contribution in GDP i.e., 38%. It is also observed from the table that agriculture and

wholesale and retail sector contribute more than 22 percent in the GDP of Bangladesh.

Table-11: Growth pattern of SME*

Year Growth rate of Large &

Medium enterprise

Growth rate of Small

enterprise

1999-00 4.35% 5.80%

2000-01 6.55% 7.02%

2001-02 4.60% 7.69%

2002-03 6.56% 7.21%

2003-04 6.95% 7.45%

2004-05 8.30% 7.93%

2005-06 11.41% 9.21%

2006-07 9.74% 9.69%

2007-08 7.26% 7.10%

2008-09 6.58% 6.90%

2009-10 5.64% 6.61%

*(Source: Bangladesh Economic Review 2009-2010, Chapter -8, Industry)

Figure-2: Growth rate of SMEs

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

Growth rate of SMEs

Growth rate of Large & Medium en-terpriseGrowth rate of Small enterprise

Page

Table 3 shows the growth pattern of SME. It is observed that during 2001-2002 to 2004-2005

in every financial year the growth rate of SME is about 7%. In 2005-2006 the growth rate

was 9.21%. The highest growth was in 2006-2007 i.e. 10.28%.

Table-12: Growth pattern of Manufacturing Sector *

Year Growth percentage of Manufacturing Sector

1999-00 4.76%

2000-01 6.68

2001-02 5.48

2002-03 6.75

2003-04 7.10

2004-05 8.19

2005-06 10.77

2006-07 9.72

2007-08 7.21

2008-09 6.68

2009-10 5.92


Figure-3: Growth rate of Manufacturing Sector

1999-004.76%

2000-016.68%

2001-025.48%

2002-036.75%

2003-047.1%

2004-058.19%

2005-0610.77%

2006-079.72%

2007-087.21%

2008-096.68%

2009-105.92%

Growth percentage of Manufacturing Sector

Page

Table shows the growth pattern of manufacturing sector. It is observed that the average

growth during 1972 to 2005 was 6.4%. During 2001-2002 to 2006-2007 the highest growth

was in year 2006-07 i.e., 11.19%. It is also observed that during 2002-2003 to 2005-2006 in

every financial year the growth of manufacturing sector was more than 6%.

Table-13: Size and Growth Rate of Manufacturing Sector*

(At constant prices of 1995-96) (Taka in Core)

Year Large & Medium

enterprise

Small enterprise Total manufacturing

1999-00 21709 8659 30368

2000-01 23130 9267 32398

2001-02 24194 9980 34174

2002-03 25781 10700 36481

2003-08 27572 11897 39069

2004-05 29861 12409 42269

2005-06 33268 13552 46820

2006-07 36507 14865 51372

2007-08 39157 15920 55077

2008-09 41735 17019 58754

2009-10 44087 18144 62232


Table-14: Quantum Index of Production for Medium to Large Scale Manufacturing Industries*

FY2000-01 to FY2008-09 (1988-89=100)

Medium

to large

scale

industries

2000-

01

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

2009-10

(Up to

October,

09)

228.43 238.75 254.45 272.13 294.72 328.35 360.33 384.82 413.42 431.51


Page

Chapter 4

Findings and Results

At present SME sector is facing a lot of problems in Bangladesh. Some major problems are

as follows:

1. Resource scarcity:

In Bangladesh scarcity of raw materials hinder the ability of SME to be export oriented and

limits its ability to reach more advanced stages of international business.

2. High employee turnover:

Due to limited growth of SME most of the skilled employees leave SMEs. Levy (2003)

observed that SMEs are knowledge creators but poor at knowledge retention.

3. Absence of modern technology:

One of the main barriers for the development of SME in Bangladesh is inadequate

technologies. Many SMEs have failed to adopt modern technology.

4. Poor physical infrastructure:

Inadequate supply of necessary utilities like electricity, water, roads and highways hinder the

growth of SME sector. Moreover unfavorable geographical conditions increase the

transportation cost.

5. Financial constraints:

Availability of finance hinders the growth of SMEs in Bangladesh. Bangladeshi bank

considers SMEs as high risk borrowers because of their inability to comply with the bank’s

collateral requirements. Only about 15-20% of the owners of SMEs own any immovable

property. Bankers issue loan on the basis of ownership of immovable property as collateral

risk. As a result it automatically excludes rest 80% SME’s from the list of privileged clients

of the banks. Whatever collateral SME’s can manage gets used up in talking the term loan

leaving them with no means to seek working capital loans from banks. Because of low access

to institutional financing SME’s rely on inefficient financing services from informal sources.

Lack of uniform definition:

In Bangladesh the definition of SME has changed overtime in different industrial policy

announced by the government in different year. Absence of uniform definition makes the

formulation and implementation of SME policy difficult.

7. Lack of information:

Miah (2006) has observed that SMEs have very limited use of information technology (IT).

Accounting package is used by 1-2% of the SMEs. The use of computers is revealed by say

15% of the SMEs, while the use of the Internet for business purposes applies to say 8-10% of

SMEs.

8. Lack of entrepreneurship skills:

Conservative attitude towards risk, lack of vision, ability to make plan and implementing

those hinder the growth of SME in Bangladesh.

9. Participation of women entrepreneurs:

Equality of opportunity is a major problem for SME. Female entrepreneurs are treated

discriminately. They are not well represented in business organization. Government does not

provide adequate institutional assistance for women entrepreneurs.

10. Access to Market and lack of awareness regarding the importance of marketing

tool: For SME, owing a retail space is very expensive in the major cities in Bangladesh. As a

result many customers are not interested to buy products and services from SMEs. Because

they can’t judge the quality until they physically examined the product.

Most of the cases SMEs in Bangladesh are not able to use the Integrated Marketing

Communication (IMC) tools. But these tools play the role of important stimulus to motivate

the customers and retain them. The country does not have enough marketing capability and

resources to invest in marketing.

11. Bureaucracy:

Wang (1995) observed that the inadequate government supports are top ranking constraints

for SMEs. Unnecessary layers of Bureaucracy and red-taps reduce the competitiveness of

SME and raising the cost of transactions and operations.

Absence of transparent legal system:

The absence of an effective and transparent legal system discourages SMEs in exploring into

risky ventures of business. There are a number of unnecessary formal requirements to start

and run business that create high compliance costs and become barriers to SME development,

growth and market entry.

13. Lack of commitment to innovation and customer satisfaction:

Ernesto (2005) stated that to keep in pace with international competition, firms of all size are

challenged to improve and innovate their products processes constantly. But in Bangladesh

SMEs are still not relating the importance of satisfying and retaining customers by offering

novel and desired benefits.

14. Lack of quality assurance:

Govt. has failed to frame a national quality policy, provide adequate support systems and

establish a national quality certification authority. As a consequence SME of Bangladesh has

failed to ensure the quality of their products and services both in local and international

market.

15. Lack of research and development facilities:

It is observed that investment in R&D is still negligible in.

16. Fierce competition with the cheaper foreign goods:

Fierce competition with the cheaper goods of China, Taiwan, Korea, India, and Thailand also

pose threat to SME in Bangladesh.

Page

Chapter 5

Recommendations

In order to overcome the above mentioned problems the following suggestions are

recommended;

1. Government must have to take adequate measures to ensure the uninterrupted supply of

raw materials for SME.

2. Government needs to take appropriate measures to fix the minimum salary/wages of the

employees of SME. That will help to minimize the employee turnover.

3. Government and financial institution may provide adequate finance for modernization and

technological advancement.

4. Development of infrastructure is essential for the optimum growth of SME. So government

of Bangladesh needs to take appropriate policy strategy for the infrastructure development of

Bangladesh.

5. Government, financial institutions and Non Government Organizations (NGOs) may take

necessary steps to ensure uninterrupted financial support to the prospective SMEs in

Bangladesh.

6. Due to the absence of uniform definition the policy formulation and implementations are

not possible. Government should take initiative to develop a uniform definition of each

category of SMEs.

7. Govt. of Bangladesh should take the initiative to develop web pages exclusively for SME

and an integrated SME database. It will reduce the barriers to SME access to global market.

8. In order to ensure the retention of skilled workforce the government should make the

entrepreneurial career attractive by minimizing the uncertainty.

9. In order to encourage women entrepreneurship govt. may; involve women entrepreneurs in

policy formulation and implementation. Arrange funds for women entrepreneurs. Provide

necessary training to women entrepreneurs in rural and urban area of Bangladesh.

10. SME foundation may take appropriate marketing tools to popularize their products.

For minimizing red tapes and accelerating the growth of SME government may provide

one roof service under the SME foundation.

12. Appropriate legal framework is necessary to ensure the development of SME of

Bangladesh.

13. In this era of intense competition continuous planning and quality improvement act as a

prerequisite for the survival of SMEs. In order to improve the quality SMEs can follow the

Just in Time (JIT) philosophy and use Total Quality

Management (TQM) and can ensure the improvement of quality and productivity at a time.

14. Government should establish a credible certification authority especially for SMEs. So

that this sector can obtain a technical evaluation of the quality of their products within a

shortest possible time. The certification of the authority should be world wide accepted. Govt.

may also provide assistance to SMEs during the certification process and promote the

importance of product certification for international acceptance among the SMEs.

15. Research and Development (R&D) is must for the development and growth of SME. So

government must have to invest in R&D for ensuring the intensification of SME of

Bangladesh.

16. Restriction may be imposed on import of SMEs’ products which are available in

Bangladesh.

Page

Chapter 6

Conclusion

Small and medium enterprises (SMEs) act as a vital player for the economic growth, poverty

alleviation and rapid industrialization of the developing countries like Bangladesh. SMEs are

significant in underlying country’s economic growth, employment generation and accelerated

industrialization. Government of Bangladesh has highlighted the importance of SME in the

Industrial Policy-2005. SME has identified by the Ministry of Industries as a ‘thrust sector’.

As the SME sector is labor intensive, it can create more employment opportunities. For this

reason government of Bangladesh has recognized SME as a poverty alleviation tool. SME

also foster the development of entrepreneurial skills and innovation. Along with poverty

alleviation SME can reduce the urban migration and increased cash flow in rural areas. As a

result it will enhance the standard of living in rural areas.

Performance of SMEs in Bangladesh is significantly found below the level of international

standard. Although government of Bangladesh has taken some initiative to ensure the growth

of SME but those steps are not enough at all. But government shows its positive attitude

towards this sector. Bangladesh government should continue to give more focuses on some

areas, such as arrangement of finance, provide infrastructure facilities, frame appropriate

legal framework, establish national quality policy etc.

From the sequence of our analysis it seems that for the economic development of Bangladesh

SME can play a vital role. We are quite optimistic that if the above mentioned suggestions

are implemented then the growth of SME sector in Bangladesh will be accelerated.

Page

References

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sme final assignment. 11-08-2010

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