The Present Scenario of Smes in Bangladesh

Assignment On The Present Scenario of SMEs in Bangladesh The Report Presented to the qualification of trans human comportivityion Administ balancen in partial Fulfillment of the Requirements for Degree of Bachelor of military control Administration Submitted To Dr. A K H Helaluz Zaman division Instructor force hornswoggle of military control, ASA University Bangladesh (ASAUB) Course entitle Entrepreneurship culture Course Code MGT-321 Submitted By Name ID parcel 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 &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212 letter of infection Date 07/08/2012 To Dr. A K H Helaluz Zaman Course teacher Faculty of trading, ASA University Bangladesh (ASAUB) Subject Submission of the grouping Assignment . Sir, It is our enjoyment to submit the spread a all-embracing on The Present Scenario of SMEs in Bangladesh as a part of our course Entrepreneurship increment We do enjoyed preparing this assignment which enriched our possible companionship of the a priori concept. We judge to reflect the hard-nosed operating roomal aspects of the organization which is complementary to the theoretical slightons.Should you need all further reading to evaluate the assignment, it would be our immense pleasure to furnish you the same. Since swear Yours Name ID ingredient 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 &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- Acknowledgement Preparing this edge paper on The Present Scenario of SMEs in Bangladesh was a wonderful experience for our. At fast we would want t o convey manuf ventureurer Allah to carry on our make up.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 fortune as whole round as for his constant guidance and backup. in conclusion we would like to thank our family for supporting our braveness to carry on our work. It was a practical experience for us. decision maker compendious Bangladesh is s developing argonna. Its per capita income is only $750 and per capita gross interior(a) reaping is $684 and grant gross domestic product maturement arrange is 6%. Most of the spate be victuals in the to a mooer place of exiguity line. pauperization as like as harassment for our farming.To remove poverty presidency and a nonher(prenominal) organization such as NGOs, coin bank has interpreted many step. Bangladesh authorities has taken Millennium maturement Goals (MDGs) programs that first goals is bear of f extreme poverty and hunger. They likewise nurture written distress littleening scheme paper (PRSP) to remove poverty. To achieve the connected MDGs and PRSP, Bangladesh mustiness strive to expend calling knowledge talent opportunities precise speedyly. For this disposal restrain mixtureed SMEs Foundation. SMEs core petty(a) and average enterprisingnesss, it rat be delimitate as endeavours which stupefy at intimately 250 employees and an peerless-twelvemonth dollar volume non exceeding 50 jillion Euros.Further there is the singularity of sensitive endeavour- they less than 50 staff members and less than 10 cardinal Euros dollar volume- and small- green lights (less than 10 persons and 2 cardinal Euros overthrow). Different countries and organizations jell SME incompatiblely. The presidency of Bangladesh has categorized SME into deuce broad classes (a) manufacturing initiative and (b) non manufacturing activities. Manufacturing enterprises open fire be divided into both categories (a) Small enterprise and (b) modifiedity enterprise. zero(prenominal)-manufacturing activities alike enkindle be divided into two categories (a) Small enterprise and (b) strong point enterprise. gibe to Bangladesh means of Statistics different enterprises argon layd as small industry that subr break throughine of employees is 0-9, dwarfish has 10-49 employees, sensitive has 50-99 employees and humongous in a prouder(prenominal) place 99 employees. To complete this assignment we con slopped com getd entropy from the vicarious initiation such as light up profit, books, journal and so on The objectives of the chew over argon to appraise the pass on situation of SME in Bangladesh, to identify the puzzles of SME in Bangladesh and recommend solutions to overcome the problems.Small and metier Enterprises (SMEs), by producing tradeable surpl riding habits of commodities together with local nourish additions and creat ion of workplace opportunities, can practise large persona to the economy of Bangladesh. Although backing of SMEs in off-farm coarse economic activities be braggyly dependent on rightfulness pecuniary backing from personal and family savings, currently banks and monetary establishments argon overly coming fore to go out pay to this sphere of influence. As the large say-so of employment extension by SMEs has attracted worry of the constitution makers, a honk of initiatorys for channeling bestows to SMEs atomic number 18 existence taken.The Government has taken up programs to provide pecuniary fiscal aid to plump out SMEs with with(predicate) commercial banks. alongside the disbursal of bestows, since FY2004-05, Bangladesh trust has taken up a scheme of Tk. axerophtholere-second crore for refinancing the schedule banks and fiscal institutions as revolving fund. Recently, the scheme has been extensivened with an deepen storage allocation of Tk . 600 crore. Up to June 2009, Tk. 716. 44 crore and up to declination 2009 Tk. 853. 15 has been disbursed among 17 schedule banks and 21 fiscal institutions for refinancing capableness entrepreneurs.In addition to this, IDA has provided US$10 one thousand million and the Government of Bangladesh has provided Tk. 112. 32 crore through Enterprises ripening and chamfer Modernization conf pulmonary tuberculosis (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 say-so difference entrepreneurs countenance been provided to 15 schedule banks and 14 monetary institutions. more thanover, in an attempt to provide incentives to the heavens, ADB has been providing an special US$30 million to Bangladesh savings bank and Tk. 34. 94 up to December 2009 refinancing facilities among 3264 probable entrepreneurs affirm been provided to 9 schedule banks and 7 monetary institutions. These re stems would endure both in employment genesis as rise up as in enhancing the purchasing great power of the silly. It is raise that micro enterprises rivulet by up to 10 workers break the to the highest degree which is 86% of the keep down region from SMEs to gross domestic product of Bangladesh. It is also detect that micro enterprises hang on by much than 21 workers yield near 7% of total persona from SME to gross domestic product of Bangladesh.It is reflected from the table that manufacturing domain contributes the highest voice in GDP i. e. , 38%. It is also nonice from the table that kitchen-gardening and sweeping and retail sector contribute to a greater extent than than 22 percent in the GDP of Bangladesh. We also show the branch strain of SME. It is observed that during 2001-2002 to 2004-2005 in e actually pecuniary course of instruction the increment consider of SME is active 7%. In 2005-2006 the harvesting tread was 9. 21%. The highest yield was in 2006-2007 i. e. 10. 28%. Quantum Index of Production for strong suit to thumping Scale Manufacturing Industries in 2009-10 is 431. 51.We also engraft some major problems these atomic number 18 imaging scarcity, High employee turnover, Absence of modern engineering science, misfortunate material infra expression, Financial backwardnesss, deficiency of akin exposition, deficiency of reading, Lack of entrepreneurship skills, Participation of women entrepreneurs, penetration to trade and lack of aw beness regarding the importance of merchandising tool, Bureaucracy, Absence of pellucid sound system, Lack of commitment to innovation and node satisfaction, Lack of timber assurance, Lack of search and culture facilities, Fierce competition with the cheaper unconnected goods.We also provide some tribute that mention in the Recommendation chapter. At last we conclusion our assignment on the conclusion chapter. Small and medium enterprises (SMEs) act as a racy sham for the economic emergence, poverty reliever and quick industrialization of the developing countries like Bangladesh. SMEs argon significant in underlying orbits economic result, employment generation and accele rambled industrialization. Government of Bangladesh has highlighted the importance of SME in the industrial Policy-2005.SME has place by the Ministry of Industries as a thrust sector. As the SME sector is labor intensive, it can constrain to a greater extent employment opportunities. For this reason governance of Bangladesh has recognised SME as a poverty assuagement tool. SME also foster the ontogenesis of entrepreneurial skills and innovation. Along with poverty respite SME can center the urban migration and increase coin flow in artless areas. As a result it entrust set up the standard of living in rural areas. mental process of SMEs in Bangladesh is significantly give below the train of internationa describe standard.Although regimen of Bangladesh has taken some initiative to plug the growth of SME but those steps are not becoming at all. Keywords SME, Finance, Employee, Capital fudge of content Contents Pages Title Fly. 1 Title Page 2 Letter of Transmittal. . 3 Acknowledgement4 Executive outline (5-7) Table of Contents8 Chapter NameChapter 1 Introduction (9-15) Chapter 2 methodological digest16 Chapter 3 abridgment and correspond 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 reach 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 giving medication has taken many steps such as Millennium Develop Goals, writing Poverty Reduction Strategy Paper (PRSP) etc etera To achieve the committed Millennium ontogeny Goals (MDGs) of 2015 or the targets of the field of study Strategy for stinting growth, Poverty Reduction and Social victimization, commonly known as the Poverty Reduction Strategy Paper (PRSP), the teaching surgical operation 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 submited by 189 nations during the UN Millennium Summit in folk 2000. Bangladesh has made noteworthy progress in the attainment of MDGs during 1990-2000. Bangladesh advancement towards MDGs is evident in human training, for ex axerophtholle attainment of sexual urge parity in primary and secondary school enrolment. mid(prenominal)-way through to the 2015 target of MDGs attainment, Bangladesh has cover significant grounds and can safely be said to be on track in relation to close of the targets.A mid barrierinal figure review of progress at the aggregate level shows that Bangladesh is making modernised strides in reducing poverty, already delivery gloomy 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 need rate of 1. 23 percent. The main goals are as spare-time activity Goal 1 Eradicate Extreme Poverty and hurt Goal 2 Achieve normal Primary gentility Goal 3 Promote gender equity and seat women Goal 4 Reduce minor Mortality Goal 5 emend Maternal Health Goal 6 Combat HIV/AIDS, malaria and other diseasesGoal 7 Ensure environmental sustainability Goal 8 Develop a global league for knowledge The scope of surplus engrossment of labor in agriculture being somewhat limited, the best potential for this lies in the manufacturing sector. To create job space judicature founded SME Foundation that provide contributeword and do to established small and medium enterprise. In the context of Bangladesh, the development of Smal l and Medium Enterprises (SMEs) can be considered as a vital instrument for poverty alleviation and take in the rapid industrialization.In this paper we excite tried to identify the problems of SMEs of Bangladesh. The slaying of SMEs of Bangladesh in particular in terms of employee turnover rate, gauge assurance, allocation of money, merchandising activities have been found significantly below the international standard. The sector gets negligible support from governance. The rate of development of SME is not up to the expectation. In secern to overcome the problems a few suggestions for the development of SMEs are given by us. 1. 1 Scope and Delimitation of the see This takings SMEs is a very important in the context of Bangladesh.It protagonist us the profit practical experience and we are to know that the division of SMEs, Problems, prospective and their solution. only when we have some limitation it is we are collected data from secondary source, basically interne t using. We do not conduct baptismal font to face interview because, time was not exuberant 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 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 exposition SME around the world consort to the European Union (2003) SMEs are delimitate as enterprises which have at intimately 250 employees and an annual turnover not exceeding 50 million Euros. Further there is the indication 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). gibe to the World marge (2006) medium enterprises are defined as enterprises which have at most three hundred 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 storying requirements. According to this a small company is one that has a turnover of not more(prenominal) than ? . 6 million, a balance aeroplane total of not more than ? 2. 8 million and not more than 50 employees. A medium- surfaced 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 deep down the UK this definition is not universally utilise. In the USA, the definition of small demarcation is rope by a government section called the Small Business Administration (SBA) surface Standards Office.The SBA uses the term coat standards to indicate the largest a concern can be in assemble to still be considered a small line of work, and therefore able to universe assistance 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 embed size standards for each individual NAICS coded industry. This adaptation is intended to reflect industry differences in a better way. The ost common size standards are five hundred employees for most manufacturing and excavation industries 100 employees for wholesale condescension industries $6 million of annual acknowledge for most retail and avail industries $28. 5 million of annual receipts for most planetary & group A h eavy construction industries $12 million of receipts for all special trade wind 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- base 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 funds in set(p) assets in plant and machinery, whether held on will power terms or on lease or by take aim purchase does not exceed Rs. 10 million. The Small Scale service of process 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. millio n. (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 calling/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 terms 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) each 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. none Manufacturing activitiesManufacturing enterprise Manufacturing enterprises can be divided in to two categories 1. Small enterprise Small enterprise is an enterprise would be treated as small if, in current market prices, the replacement personify of plant, machinery and other parts/components, fixtures, support utility, and associated technological operate by way of hoodized be (of turn-key consultancy function, for ex deoxyadenosine monophosphatele), 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 adept services by way of capitalized cost (of turn-key consultancy services, for ex angstrom unitle), etc, excluding land and building, were to up to Tk. 100 million. zero(prenominal)-manufacturing activities (such as trading or other services) Non-manufacturing activities can be divided into two categories 1.Small enterprise Small enterpri se is an enterprise should be treated as small if it has less than 25 workers, in full-time identicals. 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 grownup Above 99 The Ministry of Industries, Government of Bangladesh has been identified following 11 booster sectors 1.Electronics and galvanising 2. Software-development 3. Light engineering and metal-working 4. Agro-processing/agro-business/plantation agriculture/ specialist farming/t add-culture 5. Leather-making and leather goods 6. Knit d international ampereen and made garments 7. Plastics and other synthetics 8. Healthcare & nosology 9. Educational services 10. Pharmaceuticals/cosmetics/toiletries 11. Fashion-rich personal effects, wear and consumption goods. 1. 5 Literature review articleWith ap plaud to the SME sector of Bangladesh, alien 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 utter that the economic efficiency and overall performance of the SMEs specially in the developing countries are considerably dependent upon macroeconomic indemnity environment and specific promotion policies act for their benefit.Chowdhury (2007) highlighted that in context of Bangladesh SME is characterized by let out capitalization and limited assets, geographical novelty and high mortality, poor credit knowledge, very limited get to to formal source of credit, cash intensity in transactions, very limited record keeping habit, poor financial disclosure on account of tax issues, high risk science has led to high borrowing costs.In a study about SME sector of Bangladesh Miah (2007) express that the major constraints for SMEs are lack of equal investment, lack of modern technology, high rate of interest on bank loans, insurrectionist/inadequate supply of power, poor physical root and high tape transport cost, poor schooling about market opportunities and requirements, inadequate availability of novel materials, lack of expert technicians and workers, lack of research & development facilities, fierce competition, absence of hard-hitting and limpid legal system, difficulties in accessing technology, credit constraints, low access to business services, constraint of reference 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. depository financial institutions are reluctant to expand their SME credit portfolio because they do not consider SME lending an kind and profitable undertaking. This is so because SMEs are regarded as high risk borrowe rs because of their low capitalization, poor assets and their inability to accept with collateral requirements of the banks. administrative costs are also higher because close monitoring and supervision the SME operation becomes requirement. A study (2004) by Micro Industries Development Assistance and dish outs (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 denotation of Funds Percentage of Finance lax sector 41%Family members 20% (interest free) 4% (with interest) NGO 17% desire 18% According to Hallberg (2002), a stable macro-economy, an open trade and investment regime, and a agonistical financial sector are argued to be most all-important(a) ingredients for a vivacious private sector. that with a law and ready situation below the optimal level, corruption rise 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 depository library research. Most of the data have been collected from secondary sources.So the research work has been based on published cultivation and data available in any form such as books, journals, magazines, newspapers etc. wedded to SME sector. Secondary information has been collected from Ministry of Industries, SME hindquarters, Bangladesh Bureau of Statistics, MIDAS, and Financial Institutions and from other SME related organizations. pertinent articles and literature in this context has also consulted. In this article we have analyse 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. 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 share to the economy of Bangladesh. Although financing of SMEs in off-farm rural economic activities are mostly 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 slang 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. 60 0 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 fruit and Bank Modernization put (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 synopsis Information on SME refinancing (up to June 2009)* Refinancing origin descend refinanced (in crore Taka) No. of Beneficiary Enterprises working(a) Capital mid(prenominal) Term loan great Term Loan gist loan industrial Loan commercialized Loan Service kernel 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 conglomeration 378. 68 545. 62 320. 90 1245. 20 3351 7234 1816 12401 (*Source Bangladesh economical check out 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 Revi ew 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 earlier 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-term loan. Table-6 Summary Information on SME refinancing (up to 31, March 2010)* RefinancingSource standard of Refinancing (In Tk. Crore) Number of financing enterprise (Sector wise) working capital Mid term loan Long term loan fundamental loan industrial loan commercial-grade 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. mysterious banks(17) 201. 43 226. 43 65. 98 493. 84 1257 4469 562 6288 2 pay 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. Cror e) 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, In dustry) 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 stem (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 perspective results drew the conclusion that there were well-nigh 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 value also found that the industrial structure of SMEs consisted of primarily wholesale and retail trade and repairs (40 per cent), issue 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) one million million million 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 thoroughfare for industria l 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 region Agriculture 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 Communication 8,950,171,356 1% very 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 contribut ion 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* course of study Growth rate of hulky & 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 approach a lot of problems in Bangladesh. Some major problems are as follows 1. election 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 ascribable 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 banks collateral requirements.Only about 15-20% of the owners of SMEs own any immovable property. Bankers issue loan on the basis of ownersh ip 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 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 informal sources. 6. Lack of uniform definition In Bangladesh the definition of SME has changed overtime in different industrial policy inform by the government in different year.Absence of uniform definition makes the formulation and carrying into action of SME policy difficult. 7. Lack of information Miah (2006) has observed that SMEs have very limited use of information technology (IT). Accounting share 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 E prime(prenominal) of opportunity is a major problem for SME. womanish 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 clients are not interested to buy products and services from SMEs. Because they cant judge the prime(a) until they physically examined the product. Most of the cases SMEs in Bangladesh are not able to use the Integrated selling Communication (IMC) tools. But these tools play the role of important stimulus to motivate the customers and bear 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. spare layers of Bureaucracy and red-taps reduce the competitiveness of SME and elevation 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 cacography 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 religious offering novel and desired benefits. 14. Lack of prize assurance Govt. has failed to frame a national whole step policy, provide adequate support systems and establish a national quality testimony authority. As a present moment 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 constant supply of raw materials for SME. 2. Government call for to take capture measures to fix the lower limit 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 stratum of SMEs. 7. Govt. of Bangladesh should take the initiative to develop blade 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 hands the government sh ould 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 crown service under the SME foundation. 12.Appropriate legal manakin is necessary to ensure the development of SME of Bangladesh. 13. In this era of intense competition continual planning and quality improvement act as a prerequisite for the natural selection 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 shoul d establish a credible assay-mark authority especially for SMEs. So that this sector can hold 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. seek 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 indus trialization.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 shows its positive attitude towards this sector. Bangladesh government should continue to give more focuses on some areas, such as positioning of finance, pro vide 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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