The Present Scenario of Smes in Bangladesh

Assignment On The Present Scenario of SMEs in Bangladesh The Report Presented to the qualification of backup Administ ration in Partial Fulfillment of the Requirements for Degree of Bachelor of business Administration Submitted To Dr. A K H Helaluz Zaman cartroad Instructor Faculty of Business, ASA University Bangladesh (ASAUB) Course Title Entrepreneurship uprisement Course Code MGT-321 Submitted By Name ID Section Al-amin 101-12-0054 9B Md. Alauddin Al Mahdi 101-12-0064 9B Hyder Hossain 101-12-0062 9B Nilufa Yesmin 101-12-0067 9B Rashiduzzaman 093-12-0035 9B ASA University Bangladesh (ASAUB) catch 07 August 2012 Letter of Transmittal Date 07/08/2012 To Dr. A K H Helaluz Zaman Course instructor Faculty of Business, ASA University Bangladesh (ASAUB) Subject Submission of the multitude Assignment . Sir, It is our pleasure to submit the report on The Present Scenario of SMEs in Bangladesh as a tell apart of our course Entrepreneurship ontogenesis We earn enjoyed preparing th is assignment which enriched our hardheaded knowledge of the theoretical concept. We tried to reflect the concrete operational aspects of the organization which is complementary to the theoretical slightons.Should you need any further cultivation to evaluate the assignment, it would be our immense pleasure to furnish you the same. Sincerely Yours Name ID Section Signature Al-amin 101-12-0054 9B Md. Alauddin Al Mahdi 101-12-0064 9B Hyder Hossain 101-12-0062 9B Nilufa Yesmin 101-12-0067 9B Rashiduzzaman 093-12-0035 9B - - Acknowledgement Preparing this name paper on The Present Scenario of SMEs in Bangladesh was a wonderful experience for our. At fast we would analogous to thank almighty Allah to carry on our work.We would a handle(p) to thank our faculty member, Dr. A K H Helaluz Zaman , course instructor, Faculty of Business ASA University Bangladesh for giving our this opportunity as well as for his invariable guidance and corroboration. Fin anyy we would like to than k our family for supporting our courage to carry on our work. It was a practical experience for us. decision maker outline Bangladesh is s farming country. Its per capita income is only $750 and per capita GDP is $684 and stick GDP emersion tempo is 6%. Most of the people ar living in the down the stairs of beggary line. need as like as curse for our country.To extract poverty government and other organization such as NGOs, shore has suck upn many stairs. Bangladesh political relation has taken Millennium instruction Goals (MDGs) programs that first goals is exterminate extreme poverty and hunger. They overly bugger off written Poverty Reduction Strategy paper (PRSP) to remove poverty. To achieve the committed MDGs and PRSP, Bangladesh must(prenominal) strive to expend calling creation opportunities in truth rapidly. For this government defecate formed SMEs Foundation. SMEs means shrimpy and specialty go-aheads, it bottom vote out be defined as enterprisin gnesss which redeem at much or less 250 employees and an annual de leanment non transcendent 50 one million million Euros.Further thither 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). contrasting countries and organizations define SME differently. The government of Bangladesh has categorized SME into devil broad classes (a) manufacturing enterprise and (b) non manufacturing activities. Manufacturing enterprises sewer be divided into cardinal categories (a) Small enterprise and (b) Medium enterprise. nary(prenominal)-manufacturing activities also can be divided into two categories (a) Small enterprise and (b) Medium enterprise. According to Bangladesh Bureau of Statistics different enterprises be defined as Micro industry that spot of employees is 0-9, small has 10-49 employees, Medium has 50-99 employees and gargantuan above 99 employees. To complete this assignment we have collected data from the secondary source such as meshing, books, journal and so forth The objectives of the study be to appraise the grant situation of SME in Bangladesh, to target the occupations of SME in Bangladesh and recommend solutions to overcome the problems.Small and Medium endeavors (SMEs), by producing exportable surpl mappings of commodities together with local value additions and creation of employment opportunities, can make significant plowsh be to the economy of Bangladesh. Although pay of SMEs in off-farm rural economical activities are greatheartedly dependent on fairness financing from individual(prenominal) and family savings, currently banks and financial institutions are also coming forward to declare oneself pay to this vault of heaven. As the large potential of employment generation by SMEs has attracted attention of the policy makers, a range of initiatives for channeling brings to SMEs are mac rocosm taken.The Government has taken up programs to can financial assistance to expand SMEs by dint of commercial banks. aboard the disbursement of brings, since FY2004-05, Bangladesh believe has taken up a scheme of Tk. snow crore for refinancing the schedule banks and financial institutions as revolving fund. Re cently, 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 send off 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 with Enterprises yield 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 financi al institutions. Moreover, in an attempt to provide incentives to the sphere, ADB has been providing an additional US$30 million to Bangladesh Bank and Tk. 34. 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. It is found that micro enterprises run by up to 10 workers contribute the al close to which is 86% of the add together function from SMEs to GDP of Bangladesh. It is also spy that micro enterprises run by more than 21 workers contribute around 7% of positive office from SME to GDP of Bangladesh.It is reflected from the table that manufacturing empyrean contributes the blueest contribution in GDP i. e. , 38%. It is also detect from the table that agriculture and sweeping and retail sphere of influence contribute more than 22 percent in the GDP of Ban gladesh. We also show the process linguistic rule of SME. It is observe that during 2001-2002 to 2004-2005 in every financial year the branch 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 business for Medium to Large Scale Manufacturing Industries in 2009-10 is 431. 51.We also found some major problems these are resourcefulness scarcity, High employee turnover, absence of modern engineering, Poor physical infrastructure, Financial chastenesss, pretermit of uniform definition, Lack of information, Lack of entrepreneurship skills, Participation of women entrepreneurs, introduction to Market and lack of awareness regarding the importance of selling tool, Bureaucracy, absence seizure of transparent lawful system, Lack of trueness to innovation and customer satisfaction, Lack of quality assurance, Lack of research and growth facilities, Fierce rival with the cheaper contrasted goods. We also provide some recommendation that mention in the Recommendation chapter. At last we decision our assignment on the conclusion chapter. Small and medium enterprises (SMEs) act as a vital instrumentalist for the economic growth, poverty embossment and rapid industrialization of the developing countries like Bangladesh. SMEs are significant in underlying countrys economic growth, employment generation and intensify 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 dig 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 conquer the urban migration and increased cash flow in rural areas. As a result it leave al hotshot e nhance the standard of living in rural areas. Performance of SMEs in Bangladesh is significantly found down the stairs the train of inter matter standard.Although government of Bangladesh has taken some initiative to check the growth of SME but those steps are not enough at all. Keywords SME, Finance, Employee, Capital Table of Contents Contents Pages Title vaporise. 1 Title Page 2 Letter of Transmittal. . 3 Acknowledgement4 Executive Summary (5-7) Table of Contents8 Chapter NameChapter 1 Introduction (9-15) Chapter 2 Methodology16 Chapter 3 Analysis and Interpret Data. (17-27) Chapter 4 Findings and Results. (28-30) Chapter 5 Recommendations (31-32) Chapter 6 Conclusion. .. 33 References34 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 ou r 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 observeed by 189 nations during the UN Millennium spinning top in September 2000. Bangladesh has made noteworthy progress in the attainment of MDGs during 1990-2000. Bangladesh advancement towards MDGs is 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 undermentioned Goal 1 Eradicate Extreme Poverty and Hunger Goal 2 Achieve Universal Primary fosterage Goal 3 Promote gender equity and Empower women Goal 4 Reduce small fry Mortality Goal 5 Improve Maternal Health Goal 6 Combat human immunodeficiency virus/AIDS, malaria and other diseasesGoal 7 Ensure surroundal sustain mightiness Goal 8 Develop a global confederacy for development The scope of additional absorption of labor in agriculture being somewhat limited, the stovepipe potential for this lies in the manufacturing sector. To create job space government founded SME Foundation th at provide loanword and do to certifyed small and medium enterprise. In the circumstance 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, trade 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 distinguish to overcome the problems a few suggestions for the development of SMEs are attached by us. 1. 1 Scope and Delimitation of the claim 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, potential and their solu tion. 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 beca engagement, 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. thusly the specific bjectives 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 creation 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 Euro s 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. According to this a small company is one that has a turnover of not more than ? . 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 app lied. In the USA, the definition of small avocation 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 ost 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 constructio n industries $12 million of receipts for all special trade contractors $0. 75 million of receipts for most agricultural industries. Breaking down the SME definition, intentness 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 ad as a medium-sized business. (www. about. com) In India the Small Scale Industries (SSIs) are industrial undertaking in which the enthronisation in fixed assets in plant and machinery, whether held on ownership terms or on deal or by hire purchase does not exceed Rs. 10 million. The Small Scale assist And Business (Industry related) Enterprises (SSSBEs) are industry related service and business enterprises with investment in fixed assets, excluding play and building up to Ps. million. (Ministry of trade and Industry, G overnment 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 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 activitiesManufacturing enterprise Manufacturing enterprises can be divided into two categories 1. Small enterprise Small enterprise is an enterprise would be handle as small if, in current market prices, the backup man cost of plant, machinery and other parts/components, fixtures, support utility, and associated technical operate by way of capital letterized 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 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/ medical specialist farming/tissue-culture 5. Leather-making and leather goods 6. Knit labour 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 check outWith respect to the SME sector of Bangladesh, foreign and national experts undertook some studies. Some of the s toried 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 course credit knowledge, very limited access to formal source of credit, cash intensity in transactions, very limited shew 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 satisfactory investment, lack of modern technology, high rate of interest on bank loans, guerilla/ina dequate supply of power, poor physical infrastructure and high transportation cost, poor information about market opportunities and requirements, inadequate availability of raw materials, lack of consummate technicians and workers, lack of research & development facilities, impetuous competition, absence of effective and transparent judicial 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 pay 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 economic aid and returnss (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 blood lines Percentage of Finance Informal sector 41%Family members 20% (interest free) 4% (with interest) NGO 17% Bank 18% According to Hallberg (2002), a perpetual 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 embarrasss the prosperity of SME in this country. Ch apter 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-spot eld of SMEs of Bangladesh. We have tried to analyze the performances of SMEs by applying simple statistical analysis i. e. , growth percentage, second-rate etc. Chapter 3 Analysis and Interpret Data 3. Small and Medium Enterprises (SMEs) Small and Medium Enterprises (SMEs), by producing exportable surpluses of commodities together with local value additions and creation of employmen t 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 programs 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 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 show n at Table. Table-2 Summary Information on SME refinancing (up to June 2009)* Refinancing Source total refinanced (in crore Taka) No. of donee Enterprises Working Capital Mid full term contribute 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)Table-3 Summary Information on SME Refinancing from Bangladesh Bank (up to June 2009)* (*Source Bangladesh Economic Review 2009-2010) Table-4 Summary information on SME Refinancing from IDA (up to June 2009)* (*Source Bangladesh Bank & Bangladesh Economic Review 2009-2010) Table-5 Summary Information on SME Refinancing from ADB (up to June 2009)* *(Source Bangladesh Bank & Bangladesh Economic Review 2010) Table 8. 3 shows th at 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 antecedent as loan. protrude of the total loan, Tk. 239. 9 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)* RefinancingSource Amount of Refinancing (In Tk. Crore) Number of financing enterprise (Sector wise) Working capital Mid term loan Long term loan Total loan Industrial 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. 8 4167 9198 2307 15672 *(Sou rce Bangladesh Bank & Bangladesh Economic Review 2009-10, Chapter 8, Industry) Table-7 Summary information on SME Refinancing from Bangladesh Bank (up to June 2010)* 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 Commercial 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. 8 2883 5844 1537 9824 *(Source Bangladesh Bank & Bangladesh Economic Review 2009-10, Chapter 8, Industry) Table-8 Summary information on SME Refinancing from IDA (Up to June 2010)* 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 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 *(Source Bangladesh Bank & Bangladesh Economic Review 2009-10, Chapter 8, Industry) Table-9 Summary information on SME Refinancing from ADB (Up to June 2010)* 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 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 *(Source Bangladesh Bank & Bangladesh Economic Review 2009-10, Chapter 8, Industry) 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 mentio ned 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 p 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), performance and sale of ag ricultural 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. early 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 ent erprises run by more than 21 workers contribute about 7% of total contribution from SME to GDP of Bangladesh.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 sell 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 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 contri bution 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 conventionalism of SME* course of study 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% 003-04 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 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% 20 00-01 6. 68 001-02 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 *(Source Bangladesh Economic Review 2009-2010, Chapter -8, Industry) Figure-3 Growth rate of Manufacturing Sector 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 *(Source Bangladesh Economic Review 2009-2010, Chapter -8, Industry) 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 *(Source Bangladesh Economic Review 2009-2010, Chapter -8, Industry) 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 creator s 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 banks 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% SMEs from the list of privileged clients of the banks. Whatever collateral SMEs can manage gets used up in talking the term loan leav ing them with no means to seek working capital loans from banks. Because of low access to institutional financing SMEs rely on inefficient financing services from informal sources. 6. 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 execution 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 strength 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 SM E. female person 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 cant 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 stay fresh 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 lift the cost of transactions and operations. 12. 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 approach and run business that create high compliance costs and become barriers to SME development, growth and market entry. 13.Lack of loading 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 refreshing 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 affirmation authority. As a con sequence 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. 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 call for to take appropriate measures to fix the minimum net/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 governmen t 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 alone 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 go on women entrepreneurship govt. may involve women entrepreneurs in policy formulation and implementation. Arrange funds for women entrepreneurs. Provide necess ary raising to women entrepreneurs in rural and urban area of Bangladesh. 10. SME foundation may take appropriate marketing tools to propagate their products. 11. 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 readying 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 look 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. ay also provi de 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. 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 countrys economic growth, employment generation and accelerated industrialization.Government of Bangladesh has highlighted the importance of SME in the Industrial Policy-2010. 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 reaso n 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 affirmatory that if the above mentio ned suggestions are implemented then the growth of SME sector in Bangladesh will be accelerated. References 1. Ahmed, M. U. , Mannan, M. A. , Razzaque, A. , and Sinha, A. (2004).Taking trite and Charting a Path for SMEs in Bangladesh, Bangladesh Enterprise Institute, Dhaka. 2. Alam, M. S. and Ullah, M. A. (2006). SMEs in Bangladesh and Their Financing An Analysis and Some Reccomendations. The Cost and Management, Vol. 34, No. 3. 3. Hossain, N. (1998). Constraints to SME Development in Bangladesh, Seminar Proceedings, University of Maryland at College Park, USA. 4. Miah, M. A. (2006). Key Success Factors for National SME Development Program Lessons for OIC particle Countries from Bangladesh Experience, SME Foundation, Dhaka, Bangladesh. 5. Mintoo, A. A. (2006). SMEs in Bangladesh. CACCI Journal, Vol. 1. 6. Report of Asian Development Bank (ADB). (2002).Strategic Issues and Potential Response Small and Medium Enterprise Development and Export Expansion. Asian Development Bank (ADB) , Dhaka. 7. SME Cell. (2005). Policy Strategies for Development of SME, Ministry of Industries, Government of Peoples Republic of Bangladesh. 8. SME Policy Strategies. (2005). Publication of Government of Peoples Republic of Bangladesh. 9. Uddin, S. M. N (2008). SME Development and regional Economics Integration, Seminar Proceedings, Joint Regional Workshop held in Tokyo, Japan. 10. Ahmed, Kashfia & Chowdhury, Tanvir Ahmed (2009). Performance Evaluation of SMEs of Bangladesh, International Journal of Business and Management, Vol. 4 No. 7.