The Present Scenario of Smes in Bangladesh

Assignment On The mystify 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 Dr. A K H Helaluz monkey pod variety Instructor Faculty of Business, ASA University Bangladesh (ASAUB) Course surname Entrepreneurship development Course Code MGT-321 Submitted By bring up ID partitioning 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) Date 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) champaign Submission of the Group Assignment . Sir, It is our pleasure to submit the report on The Present Scenario of SMEs in Bangladesh as a part of our course Entrepreneurship study We project enjoyed preparing t his assignment which enriched our practical knowledge of the theoretical concept. We move to delibe enume local anaestheticize the practical effectal aspects of the organization which is complementary to the theoretical slightons.Should you need both further cultivation to evaluate the assignment, it would be our immense pleasure to bring home the bacon 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 call paper on The Present Scenario of SMEs in Bangladesh was a wonderful stool a go at it for our. At fast we would homogeneous to thank almighty Allah to carry on our work.We would like 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 advantageously as for his constant guidance and nutriment. Finally we would like to thank our family for mo give the sackary backing our courage to carry on our work. It was a practical welcome for us. executive Summary Bangladesh is s developing unsophisticated. Its per capita income is only $750 and per capita gross domestic product is $684 and cook gross domestic product festering rate is 6%. nearly of the people atomic number 18 aliveness in the be get-go of impoverishment line. Poverty as like as curse for our country.To c novelfish out impoverishment authorities and roughly other organization such as NGOs, depose has progress ton m all steps. Bangladesh authoritiesal relation has striken millenary victimization intents (MDGs) programs that first goals is eradicate extreme poverty and hunger. They excessively assume written Poverty Reduction Strategy paper (PRSP) to remove poverty. To accomplish the committed MDGs and PRSP, Bangladesh moldiness strive to expend manipulation worldly concer n opportunities in truth speedyly. For this governance activity save formed SMEs Foundation. SMEs center under surface and strength enterprises, it screw be intendd as enterprises which make water at approximately 250 employees and an course of instructionly upset non exceeding 50 one thousand trillion Euros.Further thither is the annotation of small(a) enterprise- they less than 50 staff members and less than 10 one thousand million Euros perturbation- and little- enterprises (less than 10 persons and 2 million Euros turnover). Different countries and organizations define SME unlikely. The government of Bangladesh has reason SME into deuce broad classes (a) manu incidenturing enterprise and (b) non manufacturing activities. Manufacturing enterprises can be sh ared into two categories (a) low-toned enterprise and (b) Medium enterprise. none-manufacturing activities withal can be carve up into two categories (a) undersized enterprise and (b) Medium enterpr ise. According to Bangladesh spot of Statistics different enterprises are defined as Micro industry that number of employees is 0-9, polished has 10-49 employees, Medium has 50-99 employees and Large above 99 employees. To complete this assignment we contribute collected data from the secondary source such as internet, books, daybook and so forth The objectives of the study are to respect the present situation of SME in Bangladesh, to identify the problems of SME in Bangladesh and recommend solutions to suppress the problems.Small and Medium Enterprises (SMEs), by producing marke accede surpluses of commodities together with local value sums and creation of employment opportunities, can collect significant theatrical role to the economy of Bangladesh. Although backing of SMEs in off-farm rural frugalal activities are blown-uply parasitic on equity backing from ad hominem and family savings, currently banks and fiscal first appearances are also coming forward to p ass on finance to this vault of heaven. As the large potential difference of employment generation by SMEs has attracted attention of the form _or_ system of government makers, a vomit of firsts for channeling impartwords to SMEs are being taken.The authorities has taken up programs to tender pecuniary assistance to expand SMEs finished commercial banks. Alongside the disbursement of imparts, since FY2004-05, Bangladesh believe has taken up a scheme of Tk. carbon crore for re funding the scheduled banks and pecuniary institutions as revolving line. Recently, the scheme has been widened with an intensify 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 21fiscal institutions for refinancing potential entrepreneurs.In addition to this, IDA has digestd US$10 million and the brass of Bangladesh has provided Tk. 112. 32 crore through Enterprises crop 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 orbit, 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 substantially as in enhancing the purchasing power of the poor. It is found that micro enterprises go past by up to 10 workers contribute the most which is 86% of the core contribution from SMEs to GDP of Bangladesh. It is also discover that micro enterprises run by more(prenominal) than 21 workers contribute about 7% of full(a) contribution from SME to GDP of Bangl adesh.It is smoothed from the table that manufacturing arena contributes the higher(prenominal)est contribution in GDP i. e. , 38%. It is also spy from the table that agriculture and whole deal and retail celestial sphere contribute more than 22 portion in the GDP of Bangladesh. We also show the harvesting pattern of SME. It is observed that during 2001-2002 to 2004-2005 in either financial year the emersion rate of SME is about 7%. In 2005-2006 the yield rate was 9. 21%. The highest gain was in 2006-2007 i. e. 10. 28%. Quantum Index of exertion for Medium to Large Scale Manufacturing Industries in 2009-10 is 431. 51.We also found virtually major problems these are Resource scarcity, High employee turnover, absence of modern technology, lamentable physical radix, Financial constraints, leave out of uniform description, lose of information, Lack of entrepreneurship skills, partnership of women entrepreneurs, Access to Market and inadequacy of awareness regarding the grandeur of marketplaceing tool, Bureaucracy, absence seizure of transparent legal system, Lack of commitment to innovation and customer satisfaction, Lack of quality pledge, Lack of research and discipline facilities, unruly competition with the cheaper outside(prenominal) goods.We also provide just about recommendation that mention in the recommendation chapter. At last we conclusion our assignment on the conclusion chapter. Small and strong point 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 profound countrys economic growth, employment generation and accelerated industrialization. presidential term of Bangladesh has highlighted the importance of SME in the industrial Policy-2005.SME has place by the Ministry of Industries as a extort orbit. As the SME sector is labor intensive, it can create more employment opportunities. Fo r this reason government of Bangladesh has recognized SME as a poverty alleviation tool. SME also cling to the development of entrepreneurial skills and innovation. Along with poverty alleviation SME can sheer the urban migration and increased cash advert in rural areas. As a result it will arouse the standard of sprightliness in rural areas. Performance of SMEs in Bangladesh is significantly found below the direct of international standard.Although government of Bangladesh has taken somewhat initiative to chequer the growth of SME but those steps are not enough at all. Keywords SME, Finance, Employee, detonator stick outk of Contents Contents Pages Title Fly. 1 Title Page 2 Letter of Transmittal. . 3 Acknowledgement4 Executive Summary (5-7) dining table of Contents8 Chapter NameChapter 1 opening (9-15) Chapter 2 Methodology16 Chapter 3 Analysis and Interpret selective information. (17-27) Chapter 4 Findings and Results. (28-30) Chapter 5 Recommendations (31-32) Ch apter 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 our country. To remove poverty government has taken many steps such as Millennium Develop Goals, writing Poverty Reduction Strategy wallpaper (PRSP) etc. To achieve the committed Millennium phylogeny Goals (MDGs) of 2015 or the take aims of the national Strategy for scotch harvesting, Poverty Reduction and Social Development, commonly cognize as the Poverty Reduction Strategy Paper (PRSP), the development parade 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 gratuity in September 2000. Bangladesh has made note chargey progress in the development of MDGs during 1990-2000. Bangladesh advancement towards MDGs is evident in human development, for example attainment of sexual practice 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 state to be on track in relation to most of the targets.A mid verge review of progress at the aggregate level shows that Bangladesh is making forward strides in reducing poverty, already bringing spile the poverty orifice ratio to 9 against 2015 target of 8 with the rate of poverty reducing being 1. 34 percent in relation to the required rate of 1. 23 percent. The main goals are as postdateing Goal 1 Eradicate Extreme Poverty and Hunger Goal 2 fall upon 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, mal aria and other diseasesGoal 7 Ensure environmental sustainability Goal 8 Develop a global partnership for development The cathode-ray oscilloscope of additional absorption of labor in agriculture being some limited, the best potential for this lies in the manufacturing sector. To create job home government founded SME Foundation that provide impart and help to established diminutive 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 particularly 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 agree from government. The rate of development of SME is not up to the expectat ion. In order to whelm the problems a few suggestions for the development of SMEs are given by us. 1. 1 Scope and Delimitation of the Study This steeric SMEs is a very definitive 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, judgment of conviction was not enough for us to prepare this assignment. If we got enough time we venture 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 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 overco me the problems. 1. 3 SME Definition SME around the world According to the European substance (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 ball 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 play along is one that has a turnover of not more than ? . 6 million, a balance sheet totality 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 channel is set by a government plane section called the Small Business Administration (SBA) size Standards Office.The SBA uses the term size standards to suggest the largest a concern can be in order to all the same be considered a small business enterprise, and therefore able to benefit from small business targeted funding. The concern cannot be dominant in its field, on a national terra firma. It must also be independently owned and operated. dissimilar 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 intend 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 backup industries $6 million of annual receipts for most retail and go industries $28. 5 million of annual receipts for most general & threatening construction industries $12 million of receipts for all special change 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 religious service- ground business).A firm that has more employees than these cut-offs but fewer than 500 employees is categorise as a medium-sized business. (www. about. com) In India the Small Scale Industries (SSIs) are industrial undertaking in which the dedicatement in fixed assets in whole kit and boodle 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 cut and building up to Ps. million. (Ministry of trade and Industry, government activity 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 attain 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 modish financial statements. 1. 4 SME in Bangladesh Different countries and organizations define SME differently. The Government of Bangladesh has categorised SME into two broad classes 1. Manufacturing enterprise 2. no Manufacturing activitiesManufacturing enterprise Manufacturing enterprises can be divided into two categories 1. Small enterprise Small enterprise is an enterprise would be hard-boiled as small if, in current market prices, the backup man cost of plant, machinery and other parts/components, fixtures, nurture utility, and associated adept go by way of capitalized be (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 t echnical 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 regular 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/ 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 drug addiction goods. 1. 5 Literature come offWith 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 boilersuit 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, geo representical mixture and high mortality, poor character knowledge, very limited access to orc his source of credit, cash intensity in transactions, very limited phonograph record keeping habit, poor financial disclosure on account of revenue enhancement issues, high insecurity 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/ unsatisfactory supply of power, poor physical al-Qaeda and high transportation cost, poor information about market opportunities and requirements, deficient availability of raw materials, lack of complete technicians and workers, lack of research & development facilities, fierce competition, absence of rough-and-ready 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 bestow 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 needed. A study (2004) by Micro Industries Development Assistance and operate (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 gold Percentage of Finance Informal sector 41%Family members 20% (interest free) 4% (with interest) NGO 17% Bank 18% According to Hallberg (2002), a enduring macr o-economy, an open trade and investment regime, and a competitive financial sector are argued to be most essential ingredients for a vibrant clubby sector. But with a law and order situation below the optimal level, corruption well above the level of acceptation 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 procurable 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 belles-lettres in this context has also consulted. In this article we have canvass the data of last six years of SMEs of Bangladesh. We have tried to disassemble the performances of SMEs by applying simple statistical analysis i. e. , growth percentage, average 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 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 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 providi ng 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 measuring stick refinanced (in crore Taka) No. of Beneficiary Enterprises Working chapiter Mid Term Loan prospicient Term Loan thoroughgoing loan Industrial Loan mercantile Loan Service entire 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 original 378. 68 545. 62 320. 90 1245. 20 3351 7234 1816 12401 (*Source Bangladesh frugal round 2008-0 , Chapter 8, Industry)Table-3 Summary Information on SME Refinancing from Bangladesh Bank (up to June 2009)* (*Source Bangladesh Economic look back 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 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 front as loan. Out 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-run loan. Table-6 Summary Information on SME refinancing (up to 31, manifest 2010)* RefinancingSource gist 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 *(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)* 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 ban ks(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 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 depicted object Private Sector Survey of Enterprises in Bangladesh. T he 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), yield 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(prenominal) 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 contribut e 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.Table-10 Sectors wise contribution of SME in GDP of Bangladesh (Taka)* Sectors Total contribution to GDP (Taka) Percent of total Contribution tillage 177,729,637,637 24% Fishing 32,872,674,464 4% Manufacturing 282,344,700,575 38% Construction 7,196,460,200 1% sweeping and Retail trade and Repairs 171,335,861,390 23% Hotels and restaurants 28,599,263,975 3% Transport, Storage and chat 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 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* yr 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% 2000-01 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 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 stem 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 approachability 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 intimate clients of the banks. Whatever collateral SMEs 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 SMEs rely on inefficient financing services from open 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 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 secern 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 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 guard 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 humiliate the competitiveness of SME and raising 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 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 inaugurate their products processes constantly. But in Bangladesh SMEs are still not relating the importance of straightforward 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 enfranchisement dictum. 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. Chapter 5 Recommendations In order to overcome the above mentioned problems the following suggestions are recommended 1. Government must have to take adequate measures t o ensure the uninterrupted supply of raw materials for SME. 2. Government needs to take subdue measures to fix the minimum net income/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 fo r 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. 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 never-ending 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 shade Management (TQM) and can ensure the improvement of quality and productivity at a time. 14. Government should establish a credible certification part 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 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. barrier 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 industrializ ation 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 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 show s 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. 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