SMEs International

SMEs in Bangladesh

2011-06-07T12:56:00.000-07:00

SMEs in Bangladesh

Introduction

The objectives of the survey is to take stock of experiences on development of entrepreneurs of small and medium enterprises (SMEs) in APO member countries and to analyze the set of initiatives, strategies, programs, policies, and competencies that lead to competitiveness of Asian SMEs.

The survey therefore aims to:

§ Examine the various entrepreneur development initiatives, policies and programs being implemented by many agencies involved at the national level;

§ Examine the various entrepreneurship development initiatives and experiences of some exemplary individual SMEs in the country and analyze how these initiatives have contributed to their success;

§ Undertake comparative analyses at the regional level and to identify commonalities and differences among the experiences and practices of SME development by the countries being surveyed;

§ Identify and elicit a common framework at the regional level for entrepreneur development initiatives and strategies that will effectively work in instilling a productive and competitive mindset for the entrepreneurs of the small enterprises of APO member countries.

PART A:

COUNTRY’S DEVELOPMENT STRATEGY AND OVERVIEW OF THE SMEs IN THE COUNTRY

A. A BRIEF ECONOMIC REVIEW OF THE COUNTRY

Discuss the profile and the major economic indicators of the country.

The macro economic reforms and management in key economic sectors have significantly influenced the growth in different economic sectors of the national economy. Bangladesh, mainly backed by the growth of industry and service sector has achieved a GDP growth of 5.38 percent in the year 2004-05. Per capita GDP and GNI stood at US $445 and US $470 respectively. The rate of national investment rose to 24.43 percent, which is the ever highest. The contribution of private sector to this investment is 18.53 percent. The contribution of the private sector to the economy is increasingly becoming prominent. In the year 2004-05, the growth of credit to the private sector stood at 17.20 percent. The average inflation stood at 6.49% in the year 2004-05. The population growth rate (as percentage) for the year 2004 stand for 1.5 and the literacy rate for this year 2004-2005 stand for 62.66 percent.

b. NATIONAL DEVELOPMENT STRATEGY

Describe the country’s national development strategy/economic plan. Briefly comment on the implementation of this strategy till to-date.

Implementation of poverty alleviation action programs and strategies is a systematic and continuous effort in Bangladesh. For that purpose, the Poverty Reduction Strategy Paper (PRSP) of 2004 has clearly identified some core principles and parameters both at macro and micro levels for reducing the existing poverty level at least half with in 2015 as targeted in the Millennium Development Goals (MDGs). Rapid and sustainable growth of SMEs is undoubtedly one vehicle for accelerating national economic growth to the point of having a measurable impact in the way of reduction of poverty and unemployment, generation of more employment. The Government has expressed her commitment in the PRSP and as well as Industrial Policy 2005 to consider SMEs as vehicles for quality of life improvement, economic growth and poverty alleviation of the common people. The government will play the role as a facilitator removing policy obstacles and neutralizing market failures and, secondly, will provide necessary promotional support to SMEs.

c. OVERVIEW OF THE SMES IN THE COUNTRY

There is great interest in small and medium enterprises (SMEs) as a major plank of poverty reduction in Bangladesh. Government of Bangladesh formulated a comprehensive Industrial Policy-2005 by putting special emphasis for developing Small and Medium Enterprises (SMEs) as a thrust sector for balanced and sustainable industrial development in the country to help deal with the challenges of free market economy and globalization.

With multilateral trade negotiations often leading to improving market access, and with developing countries also being a lot more willing than before to participate in globalization, rich country government and the aid agencies have apparently decided to focus on the SMEs as one important ingredient of private-sector development. A number of donors are working in Bangladesh in the interest of fostering SMEs. Some, like the GTZ, are working not with entrepreneurs but with the chambers and industry associations building their capacities to deliver needed services. Some, like the Katalyst, are putting together a comprehensive base of knowledge and insights about living production clusters, not all of them in manufacturing, namely, plastics, agricultural tools, textiles, pond culture, and vegetable-raising. Yet others such as the SEDF are building enterprise-level capacities through training programs, efforts to upgrade project management skills, enhancing the appraisal and evaluation capacities of financial institutions concerned with SMEs.

Industrialisation’s link to poverty reduction is through (a) charging-up the growth rate of the country; (b) enhancement of the productivity of the worker(s) in employment; (c) providing employment to the unemployed; (d) expanding consumer spending (and thus the confidence level) by sharing lower costs from scale economies via lower prices. The extent to which industrialisation actually pitches up as in this virtuous scenario depends on how the “promoters” allocate resources with the aims of going for these effects. In particular, the impact will depend on which product groups and/or spatial clusters are targeted; on how technical-assistance resources are stacked up between technology know-how, management and secretarial know-how, market-access “networking”, etc. Either way, having measureable impact will often put a premium on “knowing the customer well”, the customer in this case being the entrepreneurs who have put their money where their mouths are.

Intimate knowledge about the industrial classification of the SME establishments, the spatial distribution of those establishments within each industry between “rural” and “urban” locations, the distribution of these establishments in order of fixed investment size should all be of relevance. Such a foundation of empirical knowledge is needed so as to articulate priority among competing industrial groups, production clusters, resource receptacles, interventions time-frame of varying length, etc.

Given the availability of SME-related data in the public domain, it is only possible to discuss SMEs’ industrial structure in two major ways, viz based on the number of establishments and the number of persons employed.[1]

Bangladesh

’s Development Strategy and Overview of the SMEs

SMEs Defined

From the vantage-point of industrial assistance policy, a classification of establishments based on employment of labour---the abundantly available factor of production---may not have a great deal of policy relevance, as the amount of capital that is combined with a given level of employment may widely vary. Bangladesh’s Small and Medium Enterprises Taskforce (SMETF), that reported to the Government in September 2004 defined size based on fixed investment, defined size of establishment based on fixed-investment.[2]

SMEs in Bangladesh are defined for purposes of industrial policies by the Ministry of Industries (MOI). Historically, this definition has been in terms of fixed-investment brackets, and a dual-mode definition is in place, separate for manufacturing establishments, and service establishments. For manufacturing enterprises,

For manufacturing industries, the Taskforce defines:

(a) an enterprise would be treated as small if, in today’s market prices, the replacement cost of plant, machinery, building, structures, and other parts/components, fixtures, support utility, and associated technical services (such as turn-key consultancy), etc, were to up to Tk. 10 million;

(b) an enterprise would be treated as medium if, in today’s market prices, the replacement cost of plant, machinery, building, structures, and other parts/components, fixtures, support utility, and associated technical services (such as turn-key consultancy), etc, were to up to Tk. 100 million;

For non-manufacturing activities (such as trading or other services), the Taskforce defines:

(d) an enterprise would be treated as small if it has less than 25 workers, in full-time equivalents;

(e) an enterprise would be treated as medium if it has between 25 and 100 employees;

From both definitions above, land, once again, is excluded.

Having said that, an alternative, albeit informal, definition, of SMEs is used by the Bangladesh Bureau of Statistics, using head-count for its basis. Enterprises with upto 9 employees are treated as “micro”; with between 10 and 49, as small; with between 50 and 99, as medium, and all the rest, as large. For statistical purposes, this is the definition that we use in this paper.

Some data with a national scope that are pertinent to characterizing SMEs in Bangladesh as of 2001/2003 are presented in Table-1.[3] The highlights of this table is the following: (a) there are some 78,440 private-sector establishments of various size in Bangladesh with some 3.5 million workers employed in them.[4]

Of this, urban Bangladesh accounts for some 60% of units and 76% of employment overall in the private-sector enterprise sector, with rural Bangladesh accounting for the rest. Ninety-three point three (93.6%) of all units in Bangladesh belong in the SME category, ie have between 20 and 99 employees. However, SMEs account for only 44% of the total employment of the enterprise sector.

Legal status: The proportion of SMEs that are incorporated as proprietorship is a high 81% according to data obtained from the Registrar of Joint Stock Companies. Private companies limited by liability account for strictly a very small proportion of the total number of SMEs in Bangladesh.

Table-2 shows the average employment per establishment within each of the small and medium classes for urban and rural Bangladesh in 2001/2003. The following results are worth highlighting. Let it be noted that these are weighted averages. First, where small establishments are concerned, the average employment size per establishment clusters around a narrow range, namely, 17 – 20 workers, across the six divisions. We find a similar clustering of average employment size for medium enterprises in a narrow range of between 65 – 69 employees. Also, taking the administrative divisions individually, measures of average employment levels don’t differ very greatly as between urban or rural Bangladesh: the values are strung together.

Table-1

Number of units and levels of employment in small and medium enterprises, 2001/2003

(All numbers are in thousands)

Des- Crip- Tions	Urban			Rural			Total
Des- Crip- Tions	Small	Medium	Large	Small	Medium	Large	Small	Medium	Large
No. of Units	39.9	3.17	4.036	29.0	1.29	0.88	68.96	4.46	5.01
% of total number of units	50.9	4.0	5.1	38.1	1.6	1.11	87.9	5.7	6.4
Employment	740.4	211.5	1712.67	516.8	85.85	234.669	1257.2	297.4	1947.3
% of total employment	21.14	6.0	48.9	14.8	2.4	6.7	35.9	8.5	55.6

Table-2

Average head-count per establishment across Bangladesh’s industries, 2001/2003

	Small	Medium	SME	Large	All

Food and tobacco	18.6	65.1	21.0	470.5	38.9
Textile manufacturing	19.1	66.2	21.9	490.9	56.6
Ready-to-wear apparels	17.8	70.3	22.9	512.7	249.6
Wood, leather & paper_printing	17.0	66.8	19.7	373.9	38.0
Chemicals and Plastics	19.1	67.0	22.7	367.2	58.0
Non-metallic mineral products	26.0	70.3	41.5	196.8	83.4
Fabricated goods, electricals and means of transport	17.0	65.7	20.3	282.5	35.1
Mining and manufacture nes	24.6	65.5	32.7	227.7	58.9
Various personal services	17.5	66.0	19.9	293.3	28.2
Education/healthcare	18.1	65.5	20.3	292.4	26.7
All industries	18.2	66.7	21.2	388.5	44.6

Source: BBS Census of Enterprises, 2001/2003

Table-3

The structure of “industries” in Bangladesh with respect to size of firms, 2001/2003

	% of establishments				% of total persons employed
	Small	Medium	Large	Small		Medium	Large
Food and tobacco	6.7	0.4	.03	2.8		0.5	3.1
Textile manufacturing	14.2	0.9	1.2	6.0		1.3	13.2
Ready-to-wear apparels	1.8	0.2	1.7	0.7		0.3	20.1
Wood, leather & paper_printing	2.9	0.2	0.2	1.1		0.2	1.4
Chemicals and Plastics	1.7	0.1	0.2	0.7		0.2	1.7
Non-metallic mineral products	1.6	0.9	0.9	0.9		1.3	4.0
Fabricated goods, electricals and means of transport	4.3	0.3	0.3	1.6		0.5	1.7
Mining and manufacture nes	0.2	..	..	0.1		0.1	0.2
Various personal services	23.6	1.2	0.8	9.3		1.8	5.1
Education/healthcare	31.1	1.5	0.8	12.6		2.2	5.2
All industries	87.9	5.7	6.4	35.9		8.5	55.6

Note: These percentages are relative to the total number of establishments, and total employment by the private-sector SME sector

Source: SME Cell, using data from BBS Census of Enterprises, 2001/2003

Table-3 shows the percentage importance (in terms of both number of units and the employment levels) of SMEs in the overall world of enterprises. The main result to report is that the number of SME units simply dwarf the number of large enterprises, with typically more than 90% of all enterprises being in the SME class. However, the percentage share of SMEs in total employment controlling for the location is almost always less than for the number of units. In particular, in Dhaka, Chittagong and Khulna divisions, one finds SMEs’ share in employment is lower than for the economy as a whole.

Table-4 essentially shows that the relative importance of SMEs---both in terms of the numerical importance of establishments or employment---within the entire world of enterprises remains roughly similar in both urban and rural Bangladesh. The role of SMEs in production is therefore a-spatial.

Table-5 then presents some idea as to the percentage structure of small and medium enterprises, taken separately, across a large number of industries.[5] Like in the discussion of Table-3, we again see the quantitative importance of food, beverage, textile manufacturing, non-metallic mineral products among manufacturing subsectors as providing the basis for small and medium enterprises in Bangladesh. Once again, the importance of services is highlighted.

Table-4: Proportion of SMEs in enterprise population, and in employment, by administrative Divisions of Bangladesh, 2001/2003

Divisions	Urban (% of SMEs in the number of urban units)	Urban (% of SMEs employment in urban areas )	Rural (% of SMEs in the number of rural units)	Rural (% of SMEs employment in rural areas)
Dhaka	93.8	61.2	95.6	65.3
Chittagong	93.7	54.2	92.4	69.1
Rajshahi	95.3	65.9	97.9	81.3
Khulna	93.8	59.1	95.8	70.5
Sylhet	96.6	68.6	91.9	41.5
Barisal	95.7	69.4	97.8	82.7
All divisions	94.8	63.1	95.2	68.4

Source: BBS Census of Enterprises, 2001/2003

Table-5: Industrial structure of small and medium enterprises in Urban and Rural Bangladesh, 2001/2003

Sectors

Proportion of small enterprises in the total

Proportion of medium enterprises in the total

Rural enterprises

Urban enterprises

Rural enterprises

Urban enterprises

Mining

0.4

0.2

1.2

1.0

Food & tobacco

16.6

9.3

7.4

9.0

Textiles MFG

58.7

8.4

29.2

17.5

Wearing apparels

0.3

4.6

1.0

3.3

Wood products

0.2

2.6

1.8

Tanning, etc

1.1

0.8

0.2

Paper & printing

0.1

3.3

3.4

Chemicals & plastics

0.4

4.2

4.6

Non-metallic mineral pr.

6.1

1.1

47.9

3.1

Fabricated products

0.7

3.9

5.8

Electrical equipment

0.0

0.7

Mfg. Transport equipment

1.6

0.5

0.7

Utility services

0.2

5.0

1.9

3.0

Construction

0.1

0.5

1.8

Trade

2.4

4.9

4.4

Eateries

1.4

7.1

5.2

Transport & Comm.

1.2

22.0

2.8

7.6

Finance & Banking

8.4

16.9

3.8

13.5

Real Estate

0.2

3.9

7.5

Source: BBS Census of Enterprises, 2001/2003

Type of human resource and management structure

Production workers can be grouped by skills, and those skills are relative to the industrial or product groupings of which their establishments are part. Table-2 presents a distribution of the SME establishments according to BSIC 4-digit classification of all industries in Bangladesh. Naturally enough, industries are differentiated by the skills, and specific specialization of the workers at various levels. Therefore, a distribution of the establishments according to the industrial groups is also about a decomposition of the SMEs in Bangladesh.

The SMEs in Bangladesh has never been explicitly categorized with regard to the underlying management structure of the constituent establishments. However, that is just as well. This is because management structure can’t be an absolutist concept: the structure that makes sense must be seen to be relative to the product the unit makes, and the technology it uses. One size or type can not aspire to fit all. That said, it is fair to say that most of the SMEs in Bangladesh have a relatively flat---as distinct from hierarchical--- management structure. By flat structure, we mean one in which the management functions of strategy, systems, skills, structure, Staff, Style, and Subordinate goals---which we shall call shared values---are all concentrated in one management suite, and the suite does not traverse more than one management tier.

Level of education and skills and management systems

In mature industrial structures, industries are sharply characterized by the extent and character of the median educational levels of their workers. As well, sometimes, industries are also differentiated by the kind (generalist as opposed to specialized) of education of their typical workers. Some products are R & D-intensive; some others are capital-intensive. That said, Bangladesh’s SMEs don’t evince that degree of maturity in its industrial structure. The average extent of education in ready-to-wear apparels industry---one of the heavy-weights of the industrial structure--- compared with say the plastics industry is not sharply different. Consequently, educational levels and skills levels are not really much of a differentiator.

Technology and machinery installed

Perhaps, there is room for some discussion about the situation about the choice of technology and the type and sourcing of machinery installed in the industries. Bangladesh’s textiles and apparel-export industry has a strong European predisposition: Bangladesh’s spinning industry wears an almost an European décor in that virtually all the spinning mills have chosen European equipment. Some of the spinning mills are very highly mechanized, with employment size less than 100 and thus eligible to being considered of medium in size. The ready-made garments industry---the focal point of the medium enterprises in the economy---labour intensity is higher. In fact, the ratio of wages and salaries to value added in the RMG industry is one of the highest among all manufacturing industries in Bangladesh.

A look at Table shows that the SMEs as an industry has as many as 11 product groupings. The most important industrial category which really dominates the SMEs as enterprises is ready-to-wear garments, and the second most important category is textiles weaving. The 3^rd most significant industrial grouping is about food processing. Clearly, the number and the type of machinery in each of the industries being discussed here are categorically different from each other. For instance, in the ready-to-wear garments industry, the dominant type of equipment comprises sewing machines. Typically, these sewing machines are of Japanese “Juki” brand, or “Brother” brand: standard kinds of industrial sewing machines which sew at very high speed. Other comparatively peripheral equipments are (i) stitching machines; (ii) cutting machines; (iii) lining machines, etc. The typical garments mill is not really characterized by “labour-intensive” technology, as the typical capital-labour ratio is understood to be US dollar 3000. The textile weaving industry is slightly more labour-using, with a capital-labour ratio of US $ 2600. Textiles spinning is the most capital-intensive, with capital-labour ratio of more than US $ 4000. Capital-labour ratio in food processing---at US $ 2400--- is significantly lower compared with either garments industry or textiles industry. The tendency increasingly is towards choice of more and more mechanized technologies in manufacturing industries.

Access to finance and markets

Table-6 gives an idea of the role of small and medium enterprises as destinations for bank credit in 2004 and 2005. Bangladesh’s classification of bank advances lumps medium enterprises with the large enterprises, while small units are lumped with cottage-based units. As such, unfortunately, it is not possible to speak of the access to finance issues for SMEs per se. We know however separately that SCIs corresponds to more than 99% of all productive establishments in Bangladesh.

Out of 3.8 million establishments of all kinds in Bangladesh, only 10798, or just about 0.3% happen to fall in either medium or large establishment size class based on employment size. The percentage is even much lower in manufacturing or trade---the two subsectors from which the case studies in this paper are drawn. And yet, such staggering smallness of the proportion of medium and large establishments is coupled with a preponderance of large and medium enterprises in total credit disbursements from the banking system. It is quite safe to assume that of total credit disbursed to large-and-medium class, an overwhelming majority ---perhaps, 80% or so---is arrogated by large establishments. It becomes quickly clear that SMEs, for all their numerical superiority among establishments, receiving bank credit is the exception and not the rule.

Why is the access to finance for the SMEs in Bangladesh not even based on neutral ground, not to speak of rosy or good? This is because the issue of bank credit is based on the ownership of collateral: bankers insist on immoveable property for collateral. Only about 15-20% of the owners of SMEs own any immoveable property at all in which the bankers are interested. This automatically excludes about 80% of SMEs from being among the privileged client of a bank loan.

Table-6

Percentage distribution of advances made by PCBs, FCBs and NCBs in 2005 and 2004: By receiving sectors

(Numbers are percentages; last row shows the disbursements in Tk. crores)

Name of Sectors and type Of financing		Private Comm- ercial Banks, 2005		Private Comm- ercial Banks, 2004		Foreign Comm- ercial Banks, 2005		Foreign Comm- ercial Banks, 2005		State Comm- ercial Banks, 2005		State Comm- ercial Banks, 2005
Agriculture	0.8		0.6		0.1		0.1		56.7		10.8
Large & Medium industry	14.0		11.4		10.9		11.1		17.9		21.1
SCI	0.7		.6		.6		.6		.9		1.1
WC large/medium industry	17.2		14.4		27.2		26.3		7.1		17.9
WC for SCI	.9		.7		1.4		1.3		.4		.9
Construction	8.7		15.7		0.9		0.8		1.6		6.7
Transportation	1.8		7.8		2.2		1.0		0.2		0.8
Storage	0.2		1.6		0.0		0.0		3.0		1.3
Trade financing	46.6		39.0		24.9		21.2		7.7		30.2
Miscellaneous	9.1		8.2		31.7		37.6		4.6		9.3
Total	100.0		100.0		100.0		100.0		100.0		100.0
Total advances	53029		40298		7819.8		6629		10637		37662

Note: SCI stands for small and cottage industry; WC stands for working capital

Access to markets

No custom study has ever been done in Bangladesh of the division of the output of SMEs into domestic sales and those overseas. However, some broad-brush idea of this issue can be provided here.

Of the industry that are clearly export-oriented in Bangladesh, the following stand out (Table-7).

Table-7

Importance of SMEs in export receipts of Bangladesh, 2004/05

Name of subsector(s) producing industrial goods that are exported	Exports during 2004/05, US $ Million	Exports during 2004/05, US $ Million Due to SMEs	Proportion of exports accounted for by SMEs	Definition of SME
a) Woven garments	3598	450	12.5	Between 10 and 99 workers
b) Knitwear	2819	352	12.5	Between 10 and 99 workers
c) Leather	221	94	42.5	Between 10 and 99 workers
d) Jute goods	307	12	3-5	Between 10 and 99 workers
e) Fertilizer and chemical products	197	0	0	Between 10 and 99 workers
f) Footwear	88	44	50	Between 10 and 99 workers
g) Ceramic products	29	0	0	Between 10 and 99 workers
h) Engineering goods	85	20	22-25	Between 10 and 99 workers
i) Petroleum by-products	35	0	0	Between 10 and 99 workers
j) Handicrafts	5	5	100	Between 10 and 99 workers
k) Others	621	n.a.	n. a.	Between 10 and 99 workers
Total exports	8652	977	11.3

Source: All estimates are based on trade estimates, and not based on detailed survey(s).

Use of Information Technologies (IT)

SMEs have very limited use of information technology (IT). Accounting package is used by 1-2% of the SMEs. The use of computers is revealed by say 15% of the SMEs, while the use of the Internet for business purposes applies to say 8-10% of SMEs.

The role of quality certification is minimal among SMEs in Bangladesh. There is no SMEs that has received ISO 9001:2000 certification except in the software, footwear, apparel, cycle-manufacturing industries. Wherever exporting is one of the drivers of the firm, quality-assurance certification becomes an imperative. However, SMEs have ways to go before one can cite this aspect of management of quality as a role model in any serious discussion.

Some SMEs in Bangladesh have availed of 5-S model of productivity enhancement. This is particularly true for a small number of medium-sized enterprises in the pharmaceutical industry of the country. MICRO---one of the pioneers of electronics-goods production with inspirational leadership---had availed of the entirety of Total Quality Management (TQM) and also Just-in-Time (JIT) inventory policies.

Major problems and issues challenging competitiveness of SMEs in the country?

According to the Japan Center for Economic Research, which has produced Competitiveness Index for 50 countries of the world for four years since 1980, there are eight determinants of competitiveness for nations, namely, internationalization; enterprise; education; governance; science and technology; infrastructure; finance; and IT (http://www.jcer.or.jp/eng/pdf/potential2005.pdf).

According to the World Economic Forum, the following question highlight the ingredients of the business environment that positively impinge upon productivity of SMEs. Does the government maintain an arm’s-length relationship with respect to the private sector, or does it play favorites? Does the judicial system allow for the reasonable, expeditious, transparent, and low-cost settlement of disputes, or is justice for sale? Is tax revenue channeled back into the economy through productivity-enhancing investments in human capital and infrastructure, or is the money wasted on inefficient projects, or, what is worse, is it mostly stolen? Is the regulatory environment hampered by unnecessary layers of bureaucracy and red tape, reducing competitiveness and raising the costs of transactions and operations? How efficiently are new technological innovations absorbed, and is attention being paid to constantly upgrading the country’s educational system? Does the country engage with the outside world with openness and self-confidence, or with fear and ambivalence? What is the role of property rights and institutions?

With a slight paraphrasing of the above, the following five appear pertinent to enterprise competitiveness vs. SMEs, namely, (a) modernization of the technology and management processes in the enterprise; (b) worker educational and training attainment; (c) the scope and quality of the infrastructure; (d) commitment to innovation, product quality and customer satisfaction; and (e) the harnessing of information technology (IT) to serve the customer well and to shave marketing and communications costs.

Unfortunately, it is not possible to write authoritatively about how well Bangladesh’s SMEs fare with regards to these competitiveness drivers, because the country has never carried out nationally representative sample survey(s) to probe these questions.[6] Having said that, successful SMEs of the kind that we have included in our roster of case studies amply shows that in spite of the overall relative backwardness of both the level of management and technical expertise, and of the physical infrastructure, some individual firms respond creatively and effectively. They innovate amid leanness of resources, demonstrating in the process a significant amount of creative initiative, an innovative bent of mind. These are the people who can turn on a dime while finding solutions to their own production and technology problems. We have provided some instances in our case studies.

Development public Initiatives, policies and programmes implemented

The Policy and Institutional Framework for SME Development

An exclusive focus on small and medium enterprises (SMEs) in Bangladesh is a relatively new concept. For much of the past, it was Small and Cottage Industries (SCIs) which were the operative category in the mindset for public interventions for industrialization. The focal point of the delivery of public services for that stated purpose was Bangladesh Small and Cottage Industries Corporation (BSCIC), a parastatal that was created in 1957 on the basis of an Act of the Parliament. A brief description of the BSCIC will be moot at this stage.

BSCIC

The operating divisions of BSCIC in decreasing order of importance are (i) promotion and extension; (ii) projects; (iii) marketing, technology and design. Because roughly 63% of the revenue budget of BSCIC is allocated to the P & E division, it follows that this is the flagship division. The main activity of this division is to provide pre- and post-investment counseling of manufacturers and tiny producers. Pre-investment counseling consists of spotting timely and potentially profitable small-business opportunities, profiling “potentially viable” projects based on such opportunities; identifying and matching up entrepreneurs with such projects; and then supporting such establishments through the provisioning of credit and some infrastructural facilities. In the 1980s and 1990s, the supply chain of industrial entrepreneurs for the P & E to run up big performance scores used to be managed and mobilized by an extensive project “Development of Rural Industries” (DRI). The DRI was subsequently absorbed into the regular, revenue budget of the country, inside the P & E division. The mandate of this P & E division is one of two majors interfaces between BSCIC and entrepreneurship development.

The number of industrial entrepreneurs rose from 34219 in 1998/99 to 64, 704 in 2002/03-- The other BSCIC major entrepreneurial involvement of BSCIC has been with the Women Entrepreneurship Development Programme (WEDP). While the first was about spurring entrepreneurship among SCIs in generally, WEDP worked with women only. WEDP was an extensive programme. Over a period of some 20 years starting from the early 1980s, WEDP created more than 40,000 female-headed establishments in such sectors as custom rice-milling, goat rearing, poultry-raising, and the like. For much of its life, the project received good billing from evaluations on account of a reasonably good repayment of the credit distributed.

The other important programme of BSCIC is about the Industrial Estates (IE). Under this IE programme, BSCIC develops land and some essential infrastructural support services from a greenfield environment and then invites entrepreneur applicants to come and set up shop aboard its premises. After an initial screening, BSCIC sends a short-list of the names of aspiring entrepreneurs to the District Evaluation Committee (DEC) where the final selection of awardees is made. These latter are then invited by BSCIC to take possession of the industrial plots. BSCIC does fork out significant up-front subsidies to the awardees.

The entrepreneurial development that BSCIC has brought about is not of a Schumpeterian type where a break-through idea or a commercially keen insight, which was so far not spotted by anyone, is somehow spotted by someone. When followed up and implemented in the form of a commercial venture, such a breakthrough becomes a torrent from a trickle. In stead, BSCIC’s contributions to entrepreneurship development has more been in the nature of every-day infusion of counseling, credit, some small input of design and market-intelligence to men and women of small and tiny means so that they could start their own business, howsoever puny, lowly and initially challenging. This has undoubtedly made a not insignificant contribution to the emergence of small and tiny businesses in Bangladesh owned by men and women who would otherwise have had no opportunities to open their own businesses.

Efforts of the Government to promote small and medium enterprises

The Government of Bangladesh has announced the Industrial Policy 2005. This policy document states: "the SME sector has been given priority as a privileged sector". The PRSP states:"The Government will pursue an employment intensive industrialization with emphasis on SMEs and export-oriented industries". The Government is committed to pave for industrialization led by the private sector amid a business environment that can bring out the best among all SME stakeholders. It is in the evolution of just such a business environment--- good and available infrastructure, well-trained and broad-based human resources, vigorous entrepreneurship bred out of an entrepreneurial culture, performing credit, insurance, venture-capital markets, and markets for complementary expert services---that we at the Ministry of Industries would like to take advantage of the TA resources that ADB’s financial assistance has made possible in the corpus of SMESDP.

The Government created a Small and Medium Enterprise Cell (SME Cell) in the Ministry of Industries (MOI) in 2003 so as to provide a focal core for implementing policies and interventions that selectively take care of SMEs in Bangladesh. Subsequently, government constituted in October 2003 an SME Taskforce which was based in the office of the Prime Minister, with the Principal Secretarty to the Prime Minister in the Chair. The SME Taskforce was appropriately blended with participation from the Government, the private sector, academia and the civil society. The Taskforce’s report was approved by the Cabinet of ministers, early in 2005. Based completely on the contents of the report of the SME Taskforce, the Government of Bangladesh issued, for the first time, Small & Medium Enterprise Policy Strategies, 2005---which will provide the framework for interventions and policy strategies for the development of SMEs in Bangladesh. One of the highlights of the Policy Strategies is that the Government constituted a Small & Medium Enterprise Advisory Panel as an independent and meritocratic brains-trust for the MOI for all developmental, technical and structural advisories. The SMEAP comprises again participation from the private sector and the civil society, and at the moment is prestigiously headed. The Ministry of Industries is very responsive to the SMEAP, and the two have forged a real synergy in the interest of the development of SMEs.

In the private sector, the following four have been important projects for the fostering of entrepreneurship in Bangladesh: (i) the JOBS project, funded by United States Agency for International Development (USAID); (ii) Katalyst, funded by a consortium comprising DFID, Swiss Development Corporation and the GTZ and implemented by SwissContact, a Swiss consultancy; (iii) South Asia Enterprise Development Fund (SEDF). We confine ourselves to the Katalyst and SEDF for the moment.

Private sector activities in the field of SME promotion

Any account of the promotion of SMEs through private sector would be incomplete without a proper treatment of the activities of two substantively-funded BDS effort in the country, namely, Katalyst and SEDF. Katalyst is a 5-year project funded by DFID, SIDA and Swiss Development Corporation (SDC), and is worth US dollar 25 million in funding between 2002 and 2007. It is the largest project of its kind funneling embedded services to what the project calls SMEs. The project has a head-count of 45.

With a funding of US dollar 5 million annually, and with a total funding of the equivalent of US dollar 25 million, it is clear that this project had very substantial funding on its hands.

The first important strategic decision Katalyst took was that it established a working lien versus the Ministry of Commerce. The primary locus of responsibility of the MoC is spurring of Bangladesh’s exports or deemed exports. The “industrialization” of Bangladesh was not a subject-matter of direct relevance to the MoC.

KATALYST has developed an integrated approach based on the sub-sector services methodology. It consists of five stages:

1.Research
2.Analysis
3.Service market identification
4.Interventiondesign
5. Monitoring & Evaluation

The key characteristic is that prior to the interventions in the markets, their constraints and the opportunities need to be understood and analyzed with respect to the possible relevance for business services.

KATALYST's goal is to increase the competitiveness of small and medium enterprises in selected areas and sectors with a purpose to develop more effective markets for business services in the Bangladesh economy. An indicator of KATALYST's growth will be an increase in employment and in incomes in SME sector of the economy.

KATALYST has focused its activities on the development of some of the SME sectors in Bangladesh.

The first subsector to engage the attention of Katalyst was the aromatic rice subsector. The exports from aromatic rice in Bangladesh rose from a 100 tons to 3000 tons only over a fifteen year period. In 2003, the two next subsectors to engage the attention of Katalyst are agro-tools and pond fisheries. In 2004, furniture, plastics and vegetables have engaged the attention of this project. Clearly, Katalyst has worked with a fairly wide range of sub-sectors, with very highly varying densities of SMEs within them.

The following shows the most major output from Katalyst since 2002, and gives an idea of the evolving focus of the project:

(a) Subsector Market Assessment of the Aromatic Rice Subsector, DFID & IDE Bangladesh, 2002

(b) Subsector Market Assessment of the Aromatic Rice Subsector, DFID & IDE Bangladesh, 2002

(d) Assessing Supply of and Demand for Quality Management Services in Bangladesh, Katalyst, 2004

(e) The Accounting, Financial Advisory, and Taxation Services Market in Bangladesh, Katalyst, 2004

(f) Design of the Katalyst project, Bangladesh, June 2004.

Crop diversification in agriculture, fisheries, manufacturing, cross-cutting support services, business process improvements---are in the mix of activities so far undertaken by Katalyst.

Katalyst has tasked itself to make a difference, inter alia, by making industrial and rural services available mainly for the following seven product areas, namely, agro-tools, furniture, plastics, vegetable, fisheries and bamboo. As well, Katalyst has a center of expertise and regulations to offer advocacy services to the Government in advisory capacity.

A typical subsector project consists of (i) donor identification of a sub-sector; (ii) SBS mapping and constraints analysis by a consulting team; (iii) selection of service market and service-market assessments; (iv) start of project activity (or not); (v) intervention design; (vi) intervention(s); (vii) monitoring and evaluation.

Katalyst has so far initiated project activity in this fashion in vegetables production, plastics, agro-tools. Detailed monitoring and evaluation of project will be launched in the near future. According to Katalyst, a mid-term evaluation of itself found results to be broadly positive.

Of late, Katalyst has gone into the territory of partnering with two Bangladeshi companies to develop accounting, financial management and taxation training packages for small enterprises. Under the agreement, CEC and Skill Plus will develop a package and give training to SME entrepreneurs on accounting, financial and taxation management. The training package will be promoted under the 'More business' campaign, which is a joint initiative among Banglalink, Standard Chartered Bank, The Daily Star---three of Bangladesh’s most successful corporate icons--- and Katalyst. Katalyst clearly has strategic partnerships with some of best brands in Bangladesh, although the nexus between these brands and the task of spurring of productivity and competitiveness of SMEs in Bangladesh remains, at the moment, unclear. The project is one year shy of its completion.

SEDF

The SouthAsia Enterprise Development Facility (SEDF), a newly launched initiative funded by the IFC and other donors, which has targeted its efforts towards greater SME financing from local Bangladeshi banks. In June 2002 SEDF kicked off operations with a conference where it brought to Dhaka several SME finance experts and officers from highly successful SME lending institutions worldwide like Business Partners of South Africa, PlantersBank of the Philippines and the National Development Bank of Sri Lanka. Local banks have, according to SEDF literature, since responded very positively to SEDF’s access to finance program: Dhaka Bank Limited has already signed an agreement with SEDF to collaborate on training and TA on information technology (IT), marketing, human resource development and credit management. SEDF is also working with numerous other local financial institutions to make them aware of the profitability potential of Bangladesh’s large SME sector. Between 2002 and to-date 13 banks have entered into the status of what SEDF called partner financial institutions (PFIs).

SEDF undertakes technical assistance programs for partner financial institutions (PFIs) revolving around four strategic pillars; commitment, knowledge, efficiency and tools.

Commitment: to be measured through strategic allocation of resources to SME finance; can be achieved through advocacy, strategic interaction, benchmarking with peer financial institutions.
Knowledge: to be spread at various levels of the institutions; can be achieved through training, exposure to the best practices, institutional development programs.
Efficiency: an imperative for sustainability of the SME finance program; to be measured in reduced time and costs of SME loan processing; can be achieved through instituting performance-based HR polices, process automation and procedural streamlining.
Tools: measured through the number of financial products available to SME finance; can be achieved through introduction of new products such as factoring.

The underlying principle driving all technical assistance programs is sustainability.

Enhancing Commitment to SME Finance

Financial institutions are working with the SEDF on a 50:50 cost-sharing basis.

Advocacy: SEDF staff members keeps PFIs abreast of the latest developments in SME finance techniques, benchmarks and trends.

SME strategy formulation: SEDF has helped two PFIs in the process of SME strategy formulation through conducting institutional diagnostics and structured strategy workshops. This is in addition to the four PFIs which received assistance from SEDF on SME strategy formulation last year. The number of PFIs that come to SEDF for SME strategy formulation consultation has fallen from 4 in 2003 to 2 in 2004.

Spreading Knowledge of SME Finance

SEDF organized study tours for PFI senior management to best practice SME finance institutions in India and Sri Lanka.

SEDF has organized a training program on Sales Leadership in order to enhance selling skills of the field level PFI professionals.

SEDF organized five 5-day training programs on the “Fundamentals of Good Management.” One of the training programs was conducted by the Singapore Institute of Management and the remaining four by a local consulting firm. Over 110 PFI professionals attended these programs.

Improving Efficiency in SME Finance

SEDF has developed Credit Scoring modules at three PFIs as pilot programs. This will enable these PFIs to reduce the time requested for screening SME loan applications.

SEDF has assisted a PFI in its automation through implementation of a core banking software. The first phase of business process re-engineering has been completed by SEDF consultants. The bank, along with its 18 branches, is expected to go online by the end of 2004.

A comprehensive risk grading framework has been developed for a PFI which will enable the company to better manage its lending risks and adopt risk-based loan pricing policies. The assignment was carried out by the leading Indian credit rating agency, CRISIL.

IT Diagnostics: SEDF conducted IT diagnostics for five PFIs. The diagnostics was aimed at identifying gaps in software and hardware infrastructure for catering to the SME client segments.

Redefining the HR policy: SEDF has helped a PFI in instituting a performance-based human resources policy which encompasses recruitment, job description, assessment, incentives and development of the bank staff. The study was carried out by a local consulting firm.

ISO diagnostics: with a view to streamlining processes/procedures and promoting efficiency, SEDF has carried out an ISO diagnostics of a PFI. The first phase of this on-going project has been completed. The PFI aims for an ISO 9001 certification audit by the end of 2004.

PROBLEMS AND CHALLENGES FOR SME DEVELOPMENT

1. Intense competitiveness of the global and domestic market-place in which the SMEs have to compete;

2. Secularly-increasing quotient of specialised knowledge and codified R & D that have become defining characteristics of products and competitors in globally-integrated markets;

3. Inequalities in the distribution of wealth, including human-capital, that lead to a crowding out of SMEs in general, and small enterprises in particular, from participating in markets for venture capital and credit;

4. Deficient foundation of policy-relevant knowledge and information of a kind that can make a difference to the pro-poorness of the development strategy for SMEs growth;

5. Inadequate level and uneven distribution of execution, design and implementation capacities in the facilitators and providers so as to spur competitive growth of their clients in the shortest possible time;

6. The “inherent difficulties” of dealing effectively with all government failures, market failures and enterprises’ own failures in the interest of expeditious development of SMEs.

SOME IMPORTANT STEPS TO BE TAKEN FOR SME SECTOR

1. A two-stage stratified random sampling of SMEs throughout Bangladesh slated to start early in 2006, so as to bench-mark, for the first time in Bangladesh, SME comprehensively;

2. The crystalisation of keen policy-relevant insights from this survey which will hopefully input substantively into the formulation of a strategic plan of action;

3. A conscious design to embed all policy planks into Bangladesh’s Poverty Reduction Strategy Programme;

4. The formation of an SME Foundation within the next 18 months or so, comprising the SME Advisory Panel and SME Cell to become an independent private-sector Foundation created expressly by Government action, and tasked comprehensively with all matters pertaining to the development of SMEs throughout Bangladesh in a thoroughly pro-poor manner;

5. An well-orchestrated effort to funnel much-needed provisioning of debt-capital and R & D funds into the world of innovative and deserving SMEs;

6. Upgrading of all relevant kinds of capacities in the SME sector.

[1] It is not as yet possible to carry out this structural discussion based on measures of output. It remains the hope of the TA Grant Team to also do so in a future date.

[2] “Head-count” would nevertheless be an useful measure of size for statistically purposes.

[3] Of course, establishments smaller than head-counts of 10 are excluded from this body of data.

[4] BBS data on enterprises include some units under the sub-sectoral captions of “public administration and defence”, for instance. Clearly, these units do not belong in the private-sector.

[5] Entries in each column add to 100, except for rounding errors.

[6] With financial assistance from the Asian Development Bank (ADB), the SME Cell in the Ministry of Industries (MOI) is now slated to run a set of nation-wide surveys which will sample a representative collection of SMEs in Bangladesh. An incisive questionnaire will be administered for this purpose and, it is believed, will generate information about all of the foregoing correlates of productivity and competitiveness by SMEs in all industrial groups in the country. The survey is expected to commence sometime in 2006 now.

DEVELOPMENT INITIATIVES, POLICIES AND PROGRAMS BEING IMPLEMENTED BY THE VARIOUS AGENCIES IN BANGLADESH

2011-06-07T12:46:00.001-07:00

	Initiatives, Programs, Policies	Public Sector Organizations/ Donors	Private Sector Organizations	Results (Success/Failure)
A	Promotion of Entrepreneurial Culture
1	SME promotional Councils/bodies	SME Cell SME Advisory Panel		Just formed
2	Entrepreneurship development promotional campaigns	Bangladesh Small & Cottage Industries Corporation
3	Awards for Successful SMEs – “Small Business Entrepreneur of the Year”		Dhaka Chamber of Commerce & Industries
4	Quality Awards for SMEs
5	President/Prime Minister’s mention about entrepreneurship in his/her speeches/statements and budget statements	Prime Minister, in her speech, mentioned about SMEs.
6	Entrepreneurship Development Action Plan at the national level	Very recently an Action Plan has been prepared and approved by the government
7	Government’s vision promoting entrepreneurship, innovation and competitiveness at the national level	SME Policy Strategies have been adopted by the government
8	Promotion of Entrepreneurship Profile for SMEs
9	Promotion of benchmarking and best practice networks	To be done	Model beginning has been made on this score by the efforts of such private-sectors efforts as Katalyst.
10	Promotion of Women and Youth entrepreneurship	Government has been implementing different projects for women entrepreneurship development	Women trade bodies are working for women entrepreneurship development
11	Promotion of e-business and ICT development	Government has been implementing ICT projects	Private sector ICT business is growing fast
12	Promotion of technological innovation for SMEs		Trade bodies
13	Promotion of financial products and schemes for SMEs	ADB loan for SME lending State-owned SME bank	Private commercial banks and financial institutions
14	Productivity promotional campaign for SMEs	National Productivity Organization
15	Promotion and availability of SME database, SME publications, SME web-based portals for information and business matching	Bangladesh Bureau of Statistics SME Website launched by SME Cell	Katalyst/SEDF/ GTZ/ JOBS/ MIDAS
16	Provision of infrastructural facilities	BSCIC Industrial Estates
B	Regulation and Policies
1	Laws/Regulations/Policies for SME development at the national level – Availability of a SME Framework	Industrial Policy 2005 and SME Policy Strategies 2005
2	Policies /Regulations to support technological development
3	Policies/Regulations for ICT development	Project on ICT/web-portal is under implementation
4	Policies/Regulations for SME’s access to markets
5	Policies/Regulations for SMEs’ access to financial facilities
6	Policies/Regulations for Entrepreneurship Development (separate policy in addition to the SME Policy, if any)	Industrial Policy 2005
7	Bankruptcy laws which smoothens the exit of enterprises that are not sustainable or competitive	Bankruptcy Law 19===
8	Labor Laws and employment regulations affecting SMEs	Yes
9	Infrastructure facilities/exemptions provided to SMEs	BSCIC provides
10	Specialized Prudential Regulations for financing to SMEs	Not yet
11	Regulations on Financial Incentives for SMEs i.e. tax exemptions/benefits, duty concessions for SMEs	Nothing special
12	Policy/Regulation for Productivity Development in SMEs	Not yet
C	Administrative Environment/Framework
1	Availability of permanent or ad-hoc units/cells mandated to represent SME views in the regulatory process	SME Cell under Ministry of Industries
2	Councils/Consultative bodies/Task Force for SME development and/or to take SMEs’ views into consideration while formulating policies and procedures	National Taskforce on SME Development
3	Experts Advisory/Advisory Board/Specialized Boards set up to develop SMEs (in general or in specific sectors)	SME Advisory Panel
4	Availability of Productivity improvement programs for the SMEs	yes
5	Availability of Entrepreneurship Profile/Entrepreneurship Indicators for the country	Yet to be developed
6	Systems/programs to monitor the entrepreneurial profile, entrepreneurial activity and entrepreneurial business environment (EBE)
7	Programs/focus on developing Entrepreneurial Mind-sets, corporate vision and corporate entrepreneurship	Bangladesh Bank-the Central bank
8	Procedures for development of SMEs:
a	Registration of firms, formation of a new company, listing requirements	Yes
b	Exit of uncompetitive firms	No
c	Compliance and reporting	No.
d	Licensing	No.
e	Accounting standards	Yes
f	IT driven communication through web portals	No
g	Taxation	Yes
h	Utilities	Yes, but patchy
i	Standardization	No.
j	Quality certificates, ISO certification	Essentially no
D	Entrepreneurship Training and Education
1	Entrepreneurship Curriculum at universities and colleges (covering start-up strategies, entrepreneurial behavior, application of marketing and finance to start-up, entrepreneurial finance such as venture capital and angel investors, intellectual property rights, franchising, corporate entrepreneurship/entrepreneur, prototyping, technology transfers, etc.)	Entrepreneurship is taught at some of the best private universities as part of BBA and MBA courses.
2	Internship programs/attachment with enterprises for developing entrepreneurial skills	No
3	Linkages between SMEs and colleges/universities	Very little
4	Institute of Entrepreneurship – (separately discuss model of the institute and services provided, if applicable)	Bangladesh does not have any institute of entrepreneurship
5	Entrepreneurship Training programs i.e. technical trainings, management trainings; trainings on corporate social responsibilities, entrepreneurship ethics, productivity and quality consciousness, use of information technology, ICT development, developing internal synergies and alliances with their employees, etc	Entrepreneurship development is included in courses offered by Bangladesh Institute of Management (BIM), which is under the Ministry of Industries. National Productivity Organization (NPO), also in the MOI, actively seeks to enhance the standards of quality-administration in practice in the country
6	Other Skill Development Training Programs and Institutes (directed towards self-employment and entrepreneurship development, etc)	More than 100 Vocational Training Institutes (VTIs), which are variously under the administrative oversee of several ministries (Labour, Textiles, Education), exist to offer relatively short-term re-skilling training programmes
7	Quality Standardization and Testing Institute	No
8	Other Training Institutes for human resource development of SMEs	No
E	Network and Linkages for SME Development
1	Availability of Enterprise Cluster (separately discuss parameters and dynamics of the cluster model, if applicable)	There are between 30 and 40 clusters based on one or the other products, in the country.
2	Availability of business development and business support service providers (Separately discuss specific models of these service providers, specific services are being provided, and how are these services marketed to the SMEs)	BSCIC used to perform a lot of profiling and then disseminating, among its own network of SCI entrepreneurs, of potentially viable business and industrial ventures. However, it essentially no longer does that, due to funding problems. Similarly, technology universities such as BUET is often approached by especially engineering industry owners for support in terms of assessing steel strength, and the needed degree of tempering in metals, for an agreed fee.
3	Availability of business advisory/consultancy services for SMEs	No.	There are some consulting firms who sell such expert services
4	Strategic alliances and joint ventures within domestic and/or international markets in SMEs	No	No
5	Sub-contracting support for SMEs by larger enterprises		Yes, in apparel and knitwear industries
6	Availability of business incubators (separately discuss the model of incubators most commonly used)	No	No
7	Linkage programs for market access /programs, product development, technological access, etc for improving domestic and international market access for SMEs	No	No
8	Supply chain and value chain networks in the country and internationally	Yes	Yes
F	Technology and ICT
1	Initiative for cross border technological cooperation (joint R&D, joint commercialization), regional association for technology-led enterprises	No	No
2	Technology business incubators	No	No
3	Availability of back-up/pilot and demonstration projects which foster innovation and technological development	No	No
4	Facilities for developing technopreneurs – availability of knowledge centers, research and development centers, and testing laboratories, etc	No	No
5	Facilitation of benchmarking exercises and sharing of best practices – Best Practice Networks	Benchmarking facilities exist in desultory manner in BUET and other technology universities
6	Availability and facilitation of e-business and e-commerce practices, use of internet and other e-market, e-business methodologies
7	Availability of web-based SME portals, SME database, information networks
G	Financial Support
1	Support and role of the Central Bank in providing financial access to SMEs
2	Availability of specialized Financial Institutions for SMEs
3	Specialized financial products and incentives for small enterprises
4	Availability of SME Fund, Technopreneurship or Intrapreneurhsip Fund, etc
5	Availability of Venture Capital Funds or risk financing mechanisms, risk mitigation fund, credit guarantee schemes
6	Grants for SMEs for technological assistance, market access, productivity improvements, research and development, innovations, product development, e-business, ICT development, supply chain networks, etc

#	Question		Response
A	Basic Background Information of the SME
1	Name of the SME (organization)	Corbel International Limited
2	Name of the Proprietor/CEO	M. Saiful Alam
3	Date of Formation	1995
4	Legal Status	Limited-liability company registered by the Registrar, Joint Stock Companies, Bangladesh
5	Economic Sector	Agro-chemicals
6	Main Products	Distributing insecticides, fungicides, weedicides, etc
B	Business/Operations/HR Strategies (Internal)
1	Does the firm has a corporate vision and mission statement	Be a market leader; ensure opportunities for growth farmers through the route of high yield and low costs; contribute to achieving self-sufficiency in food. Corporate mission is to achieve yearly, quarterly and product-wise targets.
2	Has the firm chalked out short term and long term objectives/goals	Yes, short-term objective is about achieving yearly sales targets. Long-term objective is about achieving and maximizing shareholder value over a horizon of some 15 years.
3	Are annual action plans developed in accordance with these objectives? Are the employees’ opinions and feedback made part in determining annual objectives and targets? Does the firm practices the concept of “management by objectives”/corporate entrepreneurship?	Annual budget meeting, planning and feedback meeting are conducted with respect to short- and long-term objectives. Mid-level managers and division heads work in a group to set objectives and targets. Company follows the MBO to achieve the vision and mission
4	Is emphasis placed on individual responsibility and reward based on results	Individuals are of course responsible to produce assigned/settled results, which the management considers the basis for reward.
5	Does the management organizes its human resource in venture teams to deliver the objectives	Management trained its Human Resources (HR), follow or feedback to achieve the objectives and organization goals.
6	What is the organizational structure of the firm. Is it a flat hierarchy? How is work managed amongst different departments/units. Is there coordination amongst different departments and process of operations? How is this managed?	The organizational hierarchy of this company is quite flat, in the sense that keeping costs to the barest minimum is a priority. With five functional divisions---Finance, Marketing, R & D, HR, and Production---all reporting to the CEO, there is ample coordination at work.
7	Does the firm believe in innovation and creation of new ideas for products and services? How is this managed?	Company systematically encourages innovation and creativity. It organizes zonal workshops with a view to
8	Has the firm taken initiative to develop new products/diversify into new products/business opportunities to match market needs or to enter into new markets. Is this done on a continuous basis. Get examples of these initiatives	Company took initiatives of related diversified business to fulfil the markets need, ie mosquito coil-FMCG.
9	What is the firm’s policy on pricing its products/services. Are competitors’ prices kept into account when determining price levels	Management adopts best pricing strategies which competitive and within buying capability of users. Pricing strategies deeply analyzes competitors’ price to find out the best price level
10	Does the firm explore new markets, both domestic and international on a continuous basis. What are its current markets and how did the firm reach this status. Has the firm adopted e-marketing or e-business techniques. Does the firm uses internet facilities for sharing its information and expanding market potential	CIL continuously explore new markets in domestic areas. Current markets are agro-chemicals within which niche segments are continuously exploring new opportunities to reach the status. E-marketing is not applicable for our agro-chemical business. CIL share internet facilities gathering and transferring information from local and global sources.
11	What marketing strategies are used by the firm to sell its products. Are the 4 “P”s of marketing considered. Are these strategies revised from time to time.	CIL provides best cost, differentiation and niche strategies as per nature of markets. CIL always consider product, price, place, promotion, which it revises from time to time per the needs of the market.
12	Is the firm conscious of providing quality products/services and maintaining it. How is this ensured. Has the firm acquired ISO certifications	“Quality is CIL’s commitment”. So, CIL provides quality products and service to our valued customers and CIL seeks to maintain it at all costs. CIL ensures quality by practicing TQM in all of our activities of production, sales, marketing, customer service, R & D, HR, etc.
13	Has the firm taken the initiative to replace old plant and machinery/technologies or technological methodologies for improving production. How were new technologies acquired. Were the human resource trained to use new technologies	All of CIL equipment and technology platform have not as yet reached a stage when replacement is imperative. CIL continually welcome new technologies for cost-effective production. CIL launched re-skilling of its human resources per the requirements of upgrading of its equipment stock.
14	Has the firm adopted any productivity improvement technique to effectively enhance its operations i.e. kaizen, 5 S, total quality management, quality control circles/work improvement teams, balance scorecard, Just in Time, business process reengineering, etc. If yes, how are these implemented and managed	CIL had adopted TQM, KAIZEN (eliminating unnecessary activities) through innovation in all of its activities such as production, sales, HR and R & D. TQM is sought by achieving close-to-zero defects during production, KAIZEN in CIL’s daily activities.
15	How does the firm monitors and manages the cost of its operations/cost of production. Has the firm devised methodologies for reducing cost of operations/production and overhead costs i.e. bulk purchases, maintaining optimal level of inventories, timely shipments/delivery of products, managing utility consumption, human resource placement, business process, reducing reworks and rejects, improving communication and selling methodologies, etc. Does the firm benefit from economies of scale	CIL monitor operation cost and production cost by setting target and by comparing actual with targeted cost. CIL reduces the cost by adopting economies of scale, discount during bulk purchase, by maintaining minimum inventories, minimizing rework and rejects, improving communications, and sale skills of its sales force.
16	Is the firm familiar with business control systems such as accounting, record keeping, financial analysis, book keeping, profit center, collections, forecasting, etc. Are these systems used in the management of the business	CIL does practice Business Control System (BCS) both in its Accounts (Financial analysis) and marketing (forecasting). All its divisions are familiar with BCS
17	Does the firm have a computer software to manage its business operations. Are HR working on the system been appropriately trained/skilled. Is the firm familiar with ICT development. Has any initiative taken in regard of implementation of ICT. If yes, how have these initiatives helped in the business growth	CIL does use computer software in the interest of more timely and cost-effective management of its business operations. HR managers are appropriately trained in terms of the information systems. CIL has already deployed custom-developed application software in warehouse, in the interest of having an instantaneous enterprise-wide view of mission-critical variables of senior management interest.its
18	Does the firm compare its performance i.e. business/production growth, sales growth, cost of production, profit growth, return on investment, market share, staff retention, etc with its competitors in the market (industry indicators)	CIL compares business performance, ie growth in sales, profit, return on investment, market shares versus its industry comparators.
19	Does the firm have a HR recruitment policy. Is the recruitment policy followed when hiring employees. Are internal employees given opportunities to fill in job vacancies before advertising/fresh hiring	CIL has a HR recruitment policy by which management hire employees. CIL prefers promotion of suitable in-house candidates to fill new vacancies before it advertises.
20	Are there explicit job descriptions for each employee	Every employee has a specific job description approved by the departmental head.
21	Is there a performance appraisal system in the firm. How often is performance appraised in one year. Is there an incentive and reward policy based on performance appraisal	CIL developed a semester-wise performance appraisal guideline to evaluate employees, and such evaluation is the basis for award of incentives bonus
22	Is there a promotion policy in the firm. Is the performance linked to the promotion policy	Promotion is linked with performance.
23	Are the salaries of the employees market based. How are the salary packages and incentives compared to other firms in the sector. How are the salary packages and incentives compared within the firm with peer groups	Salaries are market-based: packages and incentives proposals are submitted by field managers comparing with similar industry, then department head approves by keeping remuneration package in line with the organization. Salary package and incentives of the peer group are set in view of nature of jobs.
24	Does the firm has policy of giving annual bonuses and other financial incentives to its employees	CIL gives two Festival Bonuses, and a performance bonus to its employees
25	Is human resource development considered important for enhancing productivity of the firm	Management consider proactive HR policies essential to achievement of high staff productivity.
26	Does the firm have a training policy for its employees. Does the firm allocates annual budget to training of employees	CIL organizes semester-wise training program for employees to upgrade skills. The company makes specific allocation in its annual budget on account of staff training.
27	Are internal training programs organized for the employees; if yes, how often in one year. Which level of employees are trained internally	Internal training is provided to employees twice a year (in June and December). Staff in production, marketing and quality-control department are a priority in training.
28	Are employees sent on external training programs; if yes, how often. Which level of employees are sent on external training	Employees trained by external institutes such as Bangladesh Institute of Management (BIM), Dhaka. Operations staff receive priority in such external training.
29	Does the firm focuses on motivational programs for its employees. Does the firm focuses on building staff morale and retaining its employees	The firm focuses on motivational program such as CEO and Departmental Heads visit the field associates to build rapport and to boost morale of the field forces.
30	Is there any employment security offered to employees.	CIL attaches great significance to staff job security.
31	Are employees provided employment growth opportunities/career paths within the firm	Employees are offered opportunities for professional self-advancement through the route of external and internal training, on-the-job training. Promotion is always meritocratically determined.
32	Other initiatives:	The best performer has opportunity for responsibility of diversified business.
C	Business Development/Support Mechanism (External)
1	Did any government regulation/policies/procedures support the growth of the enterprise. Yes/No, please elaborate	The Department of Agricultural Extension (DAE) has helped CIL, recommending its products to farmers.
2	Has any government intervention in terms of support organizations, councils, consultative groups, task forces, advisory bodies, incubators, export promotion facilitation, etc facilitated the development of the firm	Government’s subsidies have in parted helped.
3	Has the firm accessed/not accessed formal financing. How has this facilitated in the business development	Firm has accessed institutional finance. Without such start-up financial intermediation, CIL could not have reached where it is now.
4	Has the firm benefited from any grant fund	CIL never got any grant money from any source.
5	Does the firm have access to infrastructural facilities	CIL’s repacking unit is located in one of the BSCIC’s Industrial Estates, located some 60 miles from the capital city of Bangladesh. This access to BSCIC’s fairly developed infrastructure has certainly helped.
6	Has the firm benefited from entrepreneurship development programs and other trainings offered by universities and training institutes	Yes, from BSCIC.
7	Has the firm benefited from any technological network, fund or facilitation	CIL has benefited from the Internet: it manages its entire supply chain using the Internet
8	Does the firm know about the ways of working with bankers, accountants, attorneys, utility providers and tax authorities. How does it handles this	CIL has retained services of a professional Chartered Accoutant (CA) so that its workings with bankers and accountants are on solid footing.
9	Others:	CIL organizes customer-education program, excursion program for distributors and retailers, foreign tour, special reward for the best marketing performance.

#	QUESTION	RESPONSE
A	Family Background
1	Do you come from a family that owned a business	Yes
2	As a child, did you sell anything to earn money		No
3	Do you have a relative who is in business		No
4	Are you between the ages of 16 and 45	Yes
5	Are you married or single	Yes
6	If you are married, is your spouse supportive of the personal and financial risk involved in the business		No
7	Were you the first-born child in your family		No
8	Have you suffered the death/divorce of a spouse or parent		No
9	Do you belong to a middle class family	Yes	No
10	Do you have a lot of family obligations/liabilities	Yes	No
B	Personal Characteristics
1	Are you inquisitive, creative, innovative and aggressive	Yes
2	Do you enjoy solving problems	Yes
3	Do you like to make things happen	Yes
4	Do you enjoy taking personal and financial risks	Yes
5	Do you consider yourself free and independent spirit	Yes
6	Do you have high need for achievement	Yes
7	Do you take rejection personally	Yes
8	Do you like to move around a lot	Yes
9	Do you feel you are more lucky than hardworking	Yes
10	Do you use advice of external consultants		No
11	Do you believe that you can control your own destiny		No
12	Are you a consistent goal setter and result-oriented individual	Yes	No
13	Can you make quick decisions	Yes
14	Do you have high energy level	Yes
15	Do you follow through with implementation when a decision has been made	Yes
16	Do you believe in your own power to accomplish goals	Yes
17	Do you have high moral and ethical standard	Yes
18	Are you dedicated and committed to being in business for yourself	Yes
19	Can you inspire and motivate other individuals	Yes
20	Do you know how to multiply your talents	Yes
21	Have you ever made an assessment of your personality characteristics		No
22	Do you believe in the power and success of self-directed learning	Yes
23	Do you wake up happy 99% of the times	Yes
24	Do you consider yourself ambitious		No
25	Do you provide a period during each day for thinking, studying, planning or relaxation		No
26	Do you enjoy power, control and authority		No
27	Do you consider yourself enthusiastic, imaginative and tenacious	Yes
28	Do you know how to protect your ideas from thieves	Yes
29	Do you have a personal bank account	Yes
C	Business Experience/Knowledge at Commencement
1	Did you have specific experience in the area of business you undertake	Yes
2	Did you have personal funds to start up your own business	Yes
3	Did you have managerial skills when you started your business	Yes
4	Were you willing to work longer hours for a minimal amount of money to set up your own business	Yes
5	Did you have a college degree or special skills and knowledge from a vocational or technical institute at the start of your business	Yes
6	Did you know how to raise money for starting a business or expanding it	Yes
7	Did you know how to develop a business plan for presentation to a group of investors/bankers	Yes
8	Did you know the four Ps of marketing	Yes
9	Did you know how to explore for markets to sell your product	Yes
10	Did you know how to determine “break-even” point. Do you know now	Yes
11	Could you read financial statements, project cash flows	Yes
D	Business Practices/Knowledge at Present
1	Do you know how to enter into a franchise, JV, technical collaboration, strategic alliances, etc for business growth	Yes
2	Are you familiar with current business and tax laws/regulations and policies	Yes
3	Do you know how to get free publicity for your products or service	Yes
4	Are you familiar with differences and benefits of a proprietorship, partnership and a company	Yes
5	Are you aware of the different government and non-government programs supporting SMEs in your country	Yes
6	Have you benefited from any of these programs		No
7	Are you aware of different entrepreneurship development training programs offered in the country. Have you benefited from them		No
8	Are you accessing formal financing	Yes
9	Can you read financial statements	Yes
10	Do you know what motivates customer behavior and buying habits	Yes
11	Do you have experience in organization, planning, budgeting, personnel, marketing, advertising, administration, or evaluation	Yes
12	Are you respected by your peers at work and by your friends in other areas of your life	Yes
13	Do you constantly explore new technologies, markets and business opportunities	Yes
14	Do you strive to learn for better business management practices and cost effective methodologies	Yes
15	Do you adopt e-business methodologies in your business		No
16	Do you believe in employee training, motivation and retention	Yes

Small and Medium Enterprise (SME) Credit Policies & Programmes of Bangladesh

2011-06-05T12:51:00.000-07:00

Introduction:

The role of Small and Medium Enterprises (SMEs) is indispensable for overall economic development

of a country particularly for developing countries like Bangladesh. Since this sector is labor intensive

with short gestation period, it is capable of increasing national income as well as rapid employment

generation; achieving Millennium Development Goals (MDGs) especially eradication of extreme

poverty and hunger, gender equality and women empowerment. SME sector has played a vital role in

economic development of some prosperous countries of Asia. Our neighbouring countries have also

given due importance on SME. Terming SME as ‘employment generating machine’ they stressed on

SME development for higher economic growth, narrowing the gap of income inequality and poverty

alleviation. The present government has also put much emphasis on the development of SME sector

considering it as ‘the driving force for industrialization’.

2. Steps/Measures taken by Bangladesh Bank for SME Development:

Bangladesh Bank has already introduced several schemes and programmes to flourish and expand

SME Enterprises. Refinance scheme funded by Bangladesh Bank, IDA and ADB has been facilitated

for the development of SME Sector. Besides, to ensure institutional financial facilities under easy

conditions Bangladesh Bank has taken diverse steps; like opening of ‘Dedicated Desk’ for SME and

‘SME Service Centre’ in the banks and special facilities for the women entrepreneurs. But reality is

that expected outcome has not been achieved so far in this sector.

In the back drop of recent global recession and changed circumstances, it has become essential to

include all segments of people in the growth process through facilitating credit to the sectors where

less attention has been given due to present market mechanism, specially, in agriculture and SME

sector. Reasonably, a new department namely ‘SME and Special Programmes Department’ has

been established in Bangladesh Bank recently which will be solely responsible for policy formulation,

facilitating fund, monitoring and development of entrepreneurship in the SME sector.

The guidelines formulated by the newly created department for compliance of the banks and financial

institutions for the development of SME sector are enumerated below:

􀁸􀀃 For the first time in Bangladesh, an indicative target for SME loan disbursement has been set

for 2010 by the banks and financial institutions considering SME development as one of the

most important development agenda of the country. According to the target, SME loan shall be

disbursed to the small, medium and women entrepreneurs.

􀁸􀀃 Following the 'Area Approach Method' banks/financial institutions will try to attain their

indicative targets separately by dividing it as branch wise, region wise & sector wise.

􀁸􀀃 Each bank/financial institution shall follow a separate business strategy in financing SME loan

with least formalities in executing documentation to ensure easy and speedy loan sanction and

disbursement process.

􀁸􀀃 Priority shall be given to small entrepreneurs.

􀁸􀀃 For small entrepreneurs credit limit will be ranged from Tk. 50,000 (Fifty thousand) to Tk.

50,00,000 (Fifty lac).

􀁸􀀃 For more participation of women entrepreneurs in industrial development of the country and

for conducting business activities by women entrepreneurs in large number, priority shall have

to be given to potential women entrepreneurs in respect of SME credit disbursement.

􀁸􀀃 Banks & Financial Institutions shall put highest priority in receiving loan application from small

and medium women entrepreneurs and settle the loan disbursement process within very

reasonable time from the date of acceptance of the application.

􀁸􀀃 Each bank and financial institution shall establish a separate ‘Women Entrepreneurs’

Dedicated Desk’ with necessary and suitable manpower, provide them training on SME

financing and suiltably appoint a lady officer as chief of dedicated desk. Branch wise list of

‘ Women Entrepreneurs’ Dedicated Desk ‘ should be sent to SME and Special Programmes

Department of Bangladesh Bank within two months from the date of declaration of this policy

and programme.

􀁸􀀃 Banks and financial institutions may sanction up to Tk. 25,00,000 to women entrepreneurs

against personal guarantee. In that case, group security/social security may be considered.

􀁸􀀃 The success in SME loan disbursement will be considered as yardstick for further approval of

new branches of the concerned bank. License for New Branches will be issued for financing the

priority sectors like SME and agriculture from 2010 in the name of ‘SME/Agriculture Branch’

instead of ‘SME Service Centre; in order to involve banks in financing priority sector like

SME and Agriculture’.

􀁸􀀃 Each bank/financial institution shall fix the interest rate on SME loan sector/subsectorwise.

However, bank/financial institution will inform Bangladesh Bank sector/sub-sector wise rate

of interest immediately and ensure disbursement of refinanced fund to the clients (women

entrepreneurs) at Bank rate +5% interest.

􀁸􀀃 Training programs shall be arranged for the entrepreneurs.

3. Definition of SME:

Existing definition of SME is recommended by Better Business Forum and accepted as a uniform one

by Ministry of Industry and Bangladesh Bank. Criteria of the definition of SME are given below:

3.1. Definition of Small Enterprise:

Small Enterprise refers to the firm/business which is not a public limited company and complies

the following criteria:

Serial No. Sector Fixed Asset other than

Land and Building (Tk.)

Employed Manpower

(not above)

01. Service 50,000-50,00,000 25

02. Business 50,000-50,00,000 25

03. Industrial 50,000-1,50,00,000 50

3.2. Definition of Medium Enterprise:

Medium Enterprise refers to the establishment/firm which is not a public limited company and

complies the following criteria:

Serial

No. Sector Fixed Asset other than

Land and Building (Tk.)

Employed Manpower

(not above)

01. Service 50,00,000-10,00,00,000 50

02. Business 50,00,000-10,00,00,000 50

03. Industrial 1,50,00,000-20,00,00,000 150

4. Target for SME Credit:

A total target of SME credit worth Tk. 23,995(Twenty three thousand nine hundred ninety five)

crore has been set by the banks and financial institutions for the first time in 2010 considering

SME development as one of the important development agenda of the country. According to

the target, SME loan shall be disbursed to the small, medium and women entrepreneurs. In

future, banks/financial institutions will send their target to the SME and Special Programmes

Department as well as branch offices of Bangladesh Bank fixing their target of SME loan sector

wise, region wise and branch wise.

The SME credit target as fixed by the banks and financial institutions has been summarised at

Annexure-’A’ attached herewith.

5. Area Approach Method:

‘Area Approach method’ shall be applied for SME sector like agricultural credit. Territorial industrial

production, type of industrial products i.e. areas famous for industrial production or important due

to geographical location will be taken into consideration while disbursing SME loan. Besides, clusterbased

approach will be helpful for the bank’s risk analysis and intensive monitoring of SME financing.

For this purpose, light engineering clusters (Annexure-B), identified by IFC-SEDF and Upazila-wise

lists of potential SME sectors identified by Branch Offices of BB (after discussion with the local bankers)

are attached herewith (Annexure-C).

6. Cluster Development Policy:

Banks/financial institutions will inform BB after adopting cluster development policy to flourish SME

sector. Cluster development policy can be formulated in co-operation with banks, financial institutions

and NGOs. The objectives of this policy are to strengthen the existing cluster, development of new

clusters in special sector, development & expansion of sustainable and competitive technology, skill

development of entrepreneurs, development of marketing channels, reduce credit risk and enhance

overall product development.

Strategies for cluster development :

- Identification of the cluster;

- Formation of committee for cluster development;

- Conduct baseline survey & diagnostic study;

- Fixation of action plan;

- Implementation of action plan;

- Review & monitoring.

7. Financing SME Sector:

Access to finance is vital for SME sector development. In many instances, entrepreneurs raise complain

regarding high rate of interest. Indeed, higher rate of interest is a major hindrance, but availability of

adequate fund is very much important. That is why, Bangladesh Bank is committed to facilitate SME

credit through refinance window.

To develop SME sector, the fund of BB, IDA and ADB is being channelised through refinance scheme.

So far a total of Tk.1,432 crore has been refinanced (up to December 2009) to 14,122 enterprises using

the revolving fund (Tk.918 crore) of BB, IDA & ADB. Moreover, Bangladesh Bank is going to launch an

extended refinance scheme of Tk. 660 crore very soon with the newly arranged ADB fund.

8. Priority to the Small Entrepreneurs:

Among SME enterprises/entrepreneurs in our country, small entrepreneurs have more prospects for

generating employment, reducing unemployment and achieving economic growth. Keeping this

in view, at least 40% of the total disbursement target of SME credit should be reserved for small

entrepreneurs and the rest will be allocated to medium entrepreneurs.

9. Priority to Refinance in Industry (Manufacturing) and Service Sector:

Industry and service sectors are given priority over the business sector under refinance scheme by

Bangladesh Bank. 100% claims in industry and service sector is being refinanced. This policy will be

continued to create a friendly environment for employment generation and higher production.

10. Special arrangement for Women Entrepreneurs:

About half of the population of Bangladesh is women. Therefore, women participation in the

mainstream of economy is crucial for attaining sustainable economic growth & poverty reduction.

But women participation in institutional economic sector is inadequate & the rate of women

entrepreneurs is very low compared to that of male counterparts. In fact, there exist many obstacles

in women participation in the mainstream of economy although the degree of integrity, devotion,

creativity and expertise of women society make us surprised. Especially women participation in

micro credit programmes and readymade garments industry is contributing significantly to the

country’s industrialization. Similarly, participation of women entrepreneurs in SME sector is vital for

the flourishing of Bangladesh economy.

Meantime, Bangladesh Bank has taken some steps and formulated a guideline for the banks & financial

institutions to ensure more institutional financial facilities for women entrepreneurs in SME sector.

a. With a view to organizing and making uniform industrial development and to ensure institutional

credit facilities, at least 15% of total BB refinance fund for SME sector has been allocated for

women entrepreneurs.

b. Interest rate for women entrepreneurs will be Bank rate (which is at present 5%) plus maximum

5%; i.e. not more than 10% per annum.

c. Banks/Financial Institutions will accept and settle all types of loan applications of SME women

entrepreneurs with the highest priority.

d. Banks and financial institutions shall take initiative to advertise all the facilities for women

entrepreneurs in both electronic & print media.

e. Banks and Financial Institutions may provide a maximum loan facility of Tk.25, 00,000/- against

personal guarantee if borrower is woman or majority of the owners of the enterprise are

women.

f. Banks/Financial Institutions shall establish special advice and service centre for women

entrepreneurs in selected branches and ensure service friendly approach towards women

entrepreneurs.

10.1. Identification of the Real Women Entrepreneurs:

To identify the real women entrepreneurs, assistance can be sought from Bangladesh Small and

Cottage Industries Corporation(BSCIC), SME Foundation & professional organizations, such as,

Handloom/Handicrafts Association, Mahila Samity, different Women Entrepreneurs’ Association,

such as, Bangladesh Women Chamber of Commerce & Industries (BWCCI), Women Entrepreneurs

Association of Bangladesh (WEAB), Bangladesh Homeworkers’ Women Association (BHWA), National

Association of Small & Cottage Industries of Bangladesh ( NASCIB) etc.

11. Collateral:

Lack of collateral of small entrepreneurs is deemed as a major hindrance to the expansion of SME credit.

Collateral free credit for the share-croppers in agricultural sector is being disbursed. Banks/financial

institutions may provide collateral free credit facilities up to Tk. 25,00,000 against Personal Guarantee

in SME sector especially for small and women entrepreneurs. Credit can also be provided against

hypothecation of products and machineries, if needed. However, banks and financial institutions shall

follow their own rules and banker-customer relationship to determine collateral for credit facilities

more than Tk.25,00,000. Banks and financial institutions shall apply their own due diligence method

in selecting clients/entrepreneurs. In this connection, banks/financial institutions shall formulate their

own credit policy following the guidelines of the Central Bank as minimum benchmark and inform

SME and Special Programmes Department of Bangladesh Bank. Group security or social security

can also be considered in formulating such policy.

12. Acceptance and Consideration of Application:

Respective bank branch will sanction the SME loan limit considering the annual requirement and

following the existing credit norms. For this purpose, respective branches will accept the application

of the small and medium entrepreneurs with their annual production plan. If necessary, entrepreneurs

will be allowed to modify their production plan on reasonable ground.

13. Grace Period:

The entrepreneurs often raise complaints regarding short duration of grace period for repayment of

SME loan. Therefore, banks and financial institutions will consider the reasonable grace/moratorium

period at the time of formulating credit policy for SME sector.

14. Eligibility of the Borrower:

Real entrepreneurs who are directly involved in SME sector will be considered eligible for SME credit.

Generally loan defaulters will not be entitled to get new loan.

15. Interest Rate on SME Credit:

Banks/financial institutions shall fix up the interest rate on small and medium loan for the respective

sector/sub-sector. The operating cost of the banks is high for the small entrepreneurs. Reasonably, the

rate of interest in this sector is somewhat higher. Banks are being given directions to keep the interest

rate within a tolerable limit. Bangladesh Bank is providing refinance facility to banks and financial

institutions at bank rate (at present 5%) in SME sector. The fund obtained at bank rate through BB

refinance window should be disbursed at bank rate + not more than 5% interest to the client level (in

case of women entrepreneurs).

16. Outsourcing of Credit Disbursement:

Banks/financial institutions may seek assistance from private organizations/Non-Government

Organizations (NGO)/self-help group for selecting borrower, monitoring of credit disbursement,

recovery, motivation of the borrowers, training for them etc.

17. Training Programmes:

The SME sector in Bangladesh faces problems both from supply side and demand side. However,

to address the supply side problems, three refinance schemes of Bangladesh Bank are already in

place. Besides, the banks/financial institutions have fixed target for disbursement in the current

year. The existing main problem of the demand side, on the other hand, includes: marketing of

products, lac of skill and knowledge of the entrepreneurs to improve quality of products, absence of

SME information data base etc. In order to develop genuine small and medium entrepreneurs, it is

essential to arrange trade faires of the SME products matching buyer-supplyer improving the quality

of product and package design, workshop and training on technology and design development. For

the purpose, the commercial banks and international donor agencies will be requested to arrange

training on entrepreneurship development where Bangladesh Bank will play the supporting role.

Besides, institutions like BBTA, BIBM, DCCI, FBCCI, NASCIB, BWCCI, SME Foundation will be requested

to arrange training programmes on the development of technology, skill and marketing of SME

products. The banks and financial institutions will incorporate the implementation status of such

training programmes in their annual report.

18. Monitoring of SME Credit:

Like monitoring of agricultural credit, three tier monitoring systems (BB Head Office, BB Branch Offices

and Banks) will be established in case of SME credit.

18.1. Purpose of the Monitoring of SME Credit:

a. To achieve the overall target of SME loan disbursement;

b. To achieve sector wise industrialization; such as higher growth of industry and service

sector, increasing the number of women entrepreneurs and their development, district

wise employment generation and poverty reduction;

c. To provide required credit to the small entrepreneurs without any harassment;

d. Special monitoring of the banks performance in providing credit to the women

entrepreneurs;

e. To ensure area approach and cluster-based credit disbursement.

f. To ensure satisfactory recovery of the disbursed credit in this sector to address any liquidity crisis;

g. And so on.

18.2. Methods of Monitoring of SME Credit:

􀁸􀀃 Monitoring in the Head Office of the Central Bank:

Comprehensive monitoring strategies/procedures are being adopted by Bangladesh Bank to monitor

the SME policy implementation more effectively. Meanwhile, an ‘SME Loan Monitoring Cell’ has

been set up in the ‘SME and Special Programmes Department’. To achieve the objectives of SME

credit policy, the Monitoring Cell will comprehensively monitor the SME credit management at the

field level. In addition to the off-site & on-site supervision of SME loan, the respective Cell will take

necessary steps against any complain regarding SME credit subject to investigation.

􀁸􀀃 Submission of Information/Statements:

To review the annual implementation progress of SME credit programmes, the respective banks/

financial institutions will submit accurate information/statements as per format at Annexure-D & E

regarding SME credit on quarterly basis to Bangladesh Bank within 15 days of the next month following

the quarter under reporting. Besides, the existing statements will be required to be continued as usual.

􀁸􀀃 Monitoring in the Branch Offices of the Central Bank:

SME Credit Monitoring Cell will be established in the branch offices of Bangladesh Bank like Head

Office. This Cell will take effective steps to monitor the SME credit disbursement and recovery activities

by the banks/financial institutions of their respective areas intensively.

􀁸􀀃 Monitoring in the Banks Level:

The respective banks have to ensure effective monitoring system so that real entrepreneurs can get

the SME credit in time according to the SME credit policy and credit norms. They will also ensure that

the entrepreneurs do not face any harassment and the indicative target of SME credit is achieved. For

this, respective banks will set up ‘Monitoring Unit’ and inform the same to Bangladesh Bank.

􀁸􀀃 Monitoring by the Head Offices of the Banks:

a. As part of their business strategy, higher authorities of banks must have clear vision and

direction about disbursing SME credit.

b. Usually, credit disbursement is the affairs of the credit disbursing bank. The banks sanction

credit in favour of the customers after considering their credit worthiness and other relevant

matters. In addition to comply with the existing credit norms, the banks will take the following

steps to ensure sincerity, efficiency and speed in sanctioning and disbursement of SME loans.

􀂃􀀃 Simplifying of the SME credit Application Form;

􀂃􀀃 Guidance for filling up the application form and all other requirement should be advised

at the time of supplying the application form to avoid delay;

􀂃􀀃 All supplementary queries shall be made to the applicant in one instance;

􀂃􀀃 Rationalizing the time line for credit processing and disbursement;

􀂃􀀃 The letter requesting the Credit Information Bureau (CIB) of Banglaledesh Bank to verify

loan classification status of the applicant shall marked “SME, the priority” and CIB will

provide the same on priority basis (within minimum time);

􀂃􀀃 Quick settlement of borrower’s complain;

c. Core Group or Cell has to be established to monitor SME credit disbursement activities, to

take new steps and solve problems surfaced at the field level rapidly.

d. SME credit related item may be included in the agenda of annual/half yearly managers’

conference.

e. The officials in the regional/branch level may be rewarded on the basis of performance of

SME credit disbursement and recovery.

f. Required training may be arranged for the officials related to SME for their capacity

building.

g. Modern information technology especially Mobile Phone, E-mail etc. may be used in order to

monitor the activities of the regional offices and branches intensively.

􀁸􀀃 Monitoring Activities in Regional Offices of the Banks:

a. The smooth implenmentation of the SME programme shall be monitored at regional offices

level of the banks. For the purpose, SME Credit Monitoring Unit may be established in the

regional offices. The members of the Monitoring Unit will visit their respective areas from

time to time to monitor that the disbursement is progressing in line with the target.

b. The role of Regional Offices will perform the role of coordinator between higher authority of

the bank and the branches.

c. As a part of regular monitoring, the officers of Regional Offices/Monitoring Unit will arrange

meeting with the officers of their respective branches and visit the branches from time to

time to ensure that the potential entrepreneurs do not face any harassment. They will address

complain related to SME credit instantly’ provide required directions to the branches and

assist them to solve the problems existed in the branches.

􀁸􀀃 Activities to be performed at the Bank Branches:

The success of SME credit disbursement programmes mostly depends on the performance of

the bank branches. Therefore, the bank branches have to perform dynamic role in sanctioning

and disbursing SME credit. Bank branches will perform the following activities to disburse

and recover SME loan:

a. The branch manager will evaluate/decide the demand for and scope of SME loan

disbursement. In this context, arrangement should be made to disburse SME loan in the local

potential sectors.

b. Special initiative should be taken by every bank branch to disburse SME loan to the small

women entrepreneurs;

c. Identifying the curageous and successful small entrepreneurs and bring them under loan

activities/programme;

d. Motivating the entrepreneurs through necessary and comprehensive publicity;

e. Arranging SME loan to interested eligible and bonafied entrepreneurs through easy

transparent process and in a timely manner;

f. Monitoring of the proper utilization of disbursed loan;

g. Gearing up monitoring of SME loan recovery activities.

19. Preservation of Mobile Phone number of the Clients:

To facilitate easy communication for proper monitoring of SME credit disbursement at field level mobile

phone number of each borrower should be preserved at branches (mobile number of neighbour or

close relative may be preserved marking ‘on request’, in case the borrower don’t have his own mobile).

A mobile/telephone directory of the SME borrowers may also be maintained at branch level.

20. Availability of Information:

Banks will display the detailed information regarding SME credit facilities in their website and also

in each of their branches at a common and easily noticeable place. Banks will maintain sectorwise

(industry/product) information of credit flow, rate of default, employment creation etc. This information

will help in evaluating the effectiveness of existing guidelines adopted by the government and will

assist in formulating SME guidelines in the future.

21. Incentives:

SME loan should be extended to rural areas instead of centralizing at urban areas. The overall success

in SME target achievement will be considered as an important criteria for allowing the respective

banks to open new branch, Authorized Dealer (AD) branch and exchange houses abroad.

22. SME Service Centre:

The banks (Private and Foreign) have so far opened 210 SME service centres (listed Annexure-F) to

provide more facilities to SME clients. Notably, in order to involve the banks in financing SME and

Agriculture sector, licences for SME/Agriculture branch are being issued instead of SME Service Centre

from this year (2010).

23. Potential Sectors/Clusters of SME:

A list of important sectors/clusters of SME is enclosed herewith (Annexure-G).

24. Explanation of Few Terms:

􀂃􀀃 Cluster:

A cluster may be defined as a local agglomeration of enterprises (mainly SMEs but often also including

some large enterprises) which are producing and selling a range of related and complementary

products/services. For example, leather and leather products manufacturing enterprises at Hazaribag

of Dhaka is treated as the cluster of leather goods. Clusters are identified considering various factors

such as-geographical area, product or service etc.

􀂃􀀃 Social Security/Collateral:

Social security/collateral refers to the guarantee given by any social institution/social community

(acceptable to both parties) to secure the loan. For example, when any business organization

(Chamber of Commerce and Industry/Association) gives guarantee/assets as security against the

loan taken by a person associated with the organization can be called social security.

􀂃􀀃 Group Security/ Collateral:

Group security means the security given by the group jointly against the loan taken by a group

member. Ideologically, this security includes both assets/guarantee. In reality, guarantee given by

the group is mostly used as Group Security for the repayment of the loan. In such case, if any member

becomes defaulter, whole group will be considered as defaulter and will be deprived of further loan.

As a result, defaulter member will be bound to pay the loan under the pressure of group members.

􀂃􀀃 Women Entrepreneur:

An woman engaged in business in her own name will be treated as women entrepreneur. The women

entrepreneurs should be given priority for SME loan and special facility (low rate of interest) will be

entitled under special consideration. It may be mentioned that if a woman entrepreneur owns/

possesses more than 50% shares of a business, it will be deemed as a business conducted by woman

entrepreneur and will be entitled for facilities under special consideration.

􀂃􀀃 Loan/Investments:

Islamic banks operating in our country term ‘SME financing’ as ‘Investment’ instead of ‘Loan’. For this

reason, the term ‘investment’ used by Islamic banks is interchangeable with the word ‘loan/credit’ in

SME financing.

Published by

Dr. Md. Golam Mustafa, General Manager

Department of Printing and Publications

Bangladesh Bank, Head Office, Dhaka.

Phone : 7110211, 7120951

E-mail : golam.mustafa@bb.org.bd

Website : www.bangladeshbank.org.bd

www.bangladesh-bank.org

Designed & Printed by Srout Advertising

Tel : 8356741, 01819251898

DPP-06-2010-1000

(Full policy paper is available at Bangladesh Bank web site)

WELCOME !!!

2011-06-03T14:22:00.001-07:00

This blog is under construction, please comeback soon………………………..

Lists of affiliated Blogs:

<Family Lab Bangladesh> www.familylab.blogspot.com

<Family Lab International> http://familylabinternational.blogspot.com/

<Family Based Capitalization (FBC)> http://fbcbd.blogspot.com/

<SMEs International> http://smecentre.blogspot.com/

<Familinomics International> http://familinomicsinternational.blogspot.com/

<Entrepreneurs Resource Centre> http://homeofentrepreneurs.blogspot.com/

<Home Enterprise Resource Centre> http://hecentre.blogspot.com/

<Family Enterprise Resource Centre> http://fecentre.blogspot.com/

<Mizanism: Extended Horizon for Open Thoughts> http://mizanism.blogspot.com/

<Inclusive Finance-Finance for ALL> http://familifinance.blogspot.com/