Prospect of SMEs: A few challenges

Prospect of SMEs: A few challenges

Md. Joynal Abdin

The Financial Express on July 15, 2010

Excepting a few fertilizer, pharmaceutical, cement and telecom companies all other business entities in Bangladesh are SMEs. There are about 6.0 million SMEs in Bangladesh. Their production accounts for around 50% of our total industrial output each year. They generate highest number of employment and contribute to import substitution and save foreign currencies.

However, there are a few initiatives visible from the government side to bolster SMEs, deal with their problems and facilitate and promote them. Major achievement of the government in support of SME is the establishment of SME Foundation.

There are certain problems that need to be solved on an urgent basis to promote the SMEs. The government must address the problems of poor Infrastructure and utility supply. Existing SMEs are suffering badly due to load shedding of electricity. SMEs are incurring losses by paying idle workers wages during long hours of load-shedding period. Access to collateral free bank loan: The small entrepreneurs do not afford to provide a collateral or guarantor to get a small loan. The government has to take some risk of distributing collateral free bank loan to the SME entrepreneurs.

Limited access to information: Information is not available readily on the products produced by SMEs, which will like to know the areas where the demand for their products is higher. Traditional Technology: SME owners generally use local technology to produce goods, but these are not productive enough to fulfill market demand, or not capable of producing quality products to compete with the low cost imported items. Low productivity of labour: Bangladeshi SME sector is employing about 82% of workforce and producing around 50% of industrial output. These statistics show that our labours are low productive. This may be because of inefficiency, poor technology or what ever it is. But if we can deploy adequate technology and train up the workforce then our SME can produce twice the volume. Training for the existing manpower is essential for greater output.

Lack of entrepreneurship development program: In Malaysia, there is a Ministry called Ministry of Entrepreneur and Cooperative Development. It has different divisions and wings for operating training and support for entrepreneurship development. But in Bangladesh there is no such responsible body to do such kind of job. Lack of sector specific skilled manpower: There is no educational institute or technical college in Bangladesh equipped with modern technologies for training up people to employ in that sector. For example there is no educational curriculum dealing with plastic and rubber in Bangladesh though it is a growing sector with tremendous export potentials. Complicated bureaucratic procedures: To start a manufacturing plant we need to undergo a series of lengthy procedures, which are procuring licences, registrations, clearances etc. Completing all the formalities is not so easy and every desk asks for bribes for theirs jobs for which they are paid for.

Lack of marketing knowledge: One of the major problems of the SMEs is ignorance about the market. Where will he / she sell the product? They do not know how to get export market access. The government can take the lead to promote our SME products at home and abroad.

High bank interest rate: To make profit with 13% bank loan, employing people, paying rents, and other utility charges SMEs have to sell products at 50% higher than their manufacturing cost. To sustain in a competitive global market we have no option but to produce quality goods at a cheaper rate. But by paying double digit interest it is not possible. As a result to remain us competitive we have to reduce bank interest rate up to single digit.

Lack of testing facility: To get access to any western market we must have to comply with WTO SPS requirements and other international standards. In Bangladesh we are till not having facility to test many products. So upgrading our testing laboratories according to current need is important.

Absence of SME support centers: Till now a few consulting firms are providing services at high charges. We should have more SME support centers to give advice to the potential entrepreneurs to prepare project proposal, formulate marketing strategy, design products, and upgrade products quality for the SMEs.

Absence of an individual SME Policy: There is an SME policy strategy 2005. But many of its articles become obsolete today. So drafting and implementing an individual SME policy based on current need is essential today. It should conform to our import policy and export policy for reaping greater benefit out of it.

The country has the potentials for further growth of SME, which promises generation of higher employment, boost revenue earning and fetch foreign exchange through exports.

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Published by

Md. Joynal Abdin

Development Researcher, Columnist and Author

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