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[🇧🇩] Cottage Industry in Bangladesh

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Reforms that we need for the MSMEs in Bangladesh

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Due to the low entry barrier and the informality of the MSMEs, success of one MSME draws in multitude of similar enterprises. This leads to a price war that eventually proves to be detrimental to all. SOURCE: FREEPIK

Micro, Small and Medium Enterprises (MSMEs) create self-employment, apprenticeship and jobs for the unskilled population. They help solve economic problems faced by the youth, women and marginalised communities, while providing innovative merchandise and services and making products and services more accessible and affordable. During the Covid lockdown, we saw a new wave of MSMEs flourish through online sales. A large number of women ran such enterprises through various platforms, such as Facebook. But the recent years have been tough. The diminishing purchasing power of the consumers is hurting the MSMEs. Global value chains are in shambles and prices of imports have increased. The exchange rate devaluation has not helped the matter either—it is now 30 percent more expensive to advertise products on Facebook. The MSMEs cannot increase prices in proportion to the costs as that would result in a loss of sales in a country like Bangladesh, where inflationary pressure is high. Given their low switching costs, a large number of MSMEs are leaving the market. This has created a vicious loop of underperformance and informality.

I believe the solution to this problem lies in policies that foster value creation by the MSMEs and expansion of the market base and reduction in price competition. The consumer is always seeking the highest value for the price paid. In a market with two MSMEs, if both MSMEs offer the same product, the consumers will buy from the one that sells it for a lower price. If one producer offers, say, ketchup made with organic tomatoes, while the other sells regular ketchup, the first one gains from the premium market while the second one gains from the price-sensitive market. This is beneficial for all parties involved. Similarly, if one MSME produces home-baked bread and another sells diabetic bread, both gain as they serve different values. However, in Bangladesh, MSMEs thrive in the price-sensitive market rather than in the value-focused one. Due to the low entry barrier and the informality of the MSMEs, success of one MSME draws in multitude of similar enterprises. This leads to a price war that eventually proves to be detrimental to all.

The economic significance of value creation will be clearer if we compare the data on MSMEs per thousand people and the value of MSMEs for different countries. There are 79 lakh SMEs in the country, according to the Planning Division. As per IFC's SME Finance Forum's 2019 database, Bangladesh has 50 MSMEs per thousand people. India has 48 per thousand, Pakistan 18, UK 40, and China 17. The number of MSMEs does not drop with affluency of a country. Luxemburg has 54 MSMEs per thousand, Sweden has 32 and Japan 43. This raises the question: how does Luxemburg, a country of over 6,75,000 people (according to Worldometer), have so many MSMEs? The answer lies in the value created by the MSMEs in Luxemburg. The definition of MSME is largely the same across countries by the number of employees but differs in terms of assets or revenue per enterprise. According to a policy paper of Bangladesh Bank, an enterprise is small if it has no more than 50 employees and if its fixed asset other than land and building is within the range of Tk 50,000 to Tk 1.5 crore. In contrast, in Luxemburg, which follows the European Union (EU) definition of SMEs, an enterprise is small if it employs less than 50 people and its annual turnover or balance sheet total is 10 million euros or Tk 130.30 crore. A small enterprise in Luxemburg is almost 86 times more valuable than a small enterprise in Bangladesh.

Our policymakers rarely get into this discussion of value creation. We are more interested in the number of MSMEs, and the number of jobs created by the MSMEs, as our formal sectors fail to create the large number of jobs that we require to employ our youth.

How do we get out of this vicious cycle? The answer is: by directing the MSMEs to enter untapped niches and by incentivising value creation. The Palli Karma-Shahayak Foundation's (PKSF) Sustainable Enterprise Project (SEP) has shown how mixing microcredit with technical assistance, skills development and market creation activities can help rural MSMEs to target strong niches through value added products. We need to emulate this at the national level. PKSF's Partner Organisations (POs) or the Micro-Finance Institutions (MFIs) have been capacitated to support the MSMEs. The SME Foundation needs to partner with financial institutions and business associations along with business development service providers to map out the range of niche markets that remain untapped for the MSMEs and provide soft loans together with skills for product development, quality assurance and market promotion support. PKSF itself can work as a special purpose vehicle to scale this project through the MFIs. We need to reduce cost of doing business for the MSMEs to incentivise formalisation. Cost of business can reduce if we give access to preferential rates on facility rents, technology, services, machineries and equipment. The immediate return from legalisation should be much higher than the cost of it.

In addition to these, information on markets, logistics suppliers, business development service providers, financial service providers need to be widely available. SME Foundation's works on cluster mapping should be revisited to identify natural clusters with fully integrated vertical and horizontal linkage activities and specialised clusters with just one type of entities in the value chain. The prospect of cluster and value chain financing for Bangladesh has already been mapped and presented for the national SME policy in Bangladesh. However, these proposals are yet to be made operational.

To increase value per MSMEs, we also need to build capacity of the MSME associations. Bangladesh Furniture Industries' Owner's Association (BAFIOA) is a testimony of how the associations can champion growth of an entire sector. By building associations, we should be able to unlock potential for export. But the foundation must be set by expanding the local market base. By strategically targeting value creation, we will be able to unleash the true power of growth of our MSMEs.

Md Rubaiyath Sarwar is managing director at Innovision Consulting.​
 

Cottage industries on the wane as production falls
Call for formalising CMSMEs for economic growth
FHM HUAMAYN KABIR
Published :
Nov 24, 2024 00:46
Updated :
Nov 24, 2024 00:46

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Smaller and medium industries in Bangladesh are becoming weaker as their production has steadily been down over the years, painting a grim picture of employment generation, according to officials.

The manufacturing growth in cottage, micro, small and medium enterprises (CMSMEs) had been lower in fiscal year (FY) 2023-24 than in previous years, official data showed on Saturday.

An estimated 85-per cent employment of the country is created in the informal sector, which mostly deals with CMSMEs.

Economists say lower growth in CMSMEs means slim employment generation as these industries are the country's top generator of jobs.

Since CMSMEs are the backup industry for larger ones, their production fall will ultimately affect manufacturing at bigger industries, they add.

The Bangladesh Labour Force Survey-2022 shows an estimated 60-million people, who constitute 84.9 per cent of the total working population here, are engaged with the informal employment.

According to a recent disclosure by the Bangladesh Bureau of Statistics (BBS), the year-on-year industrial production growth rate in micro, small and medium enterprises (MSMEs) lowered to only 5.07 per cent in FY24.

The rate was lower than that in the previous two consecutive fiscals of FY22 and FY23.

According to the MSMEs industrial production index, the FY22 growth was 15.39 per cent and that in FY23 was 9.03 per cent, according to the National Accounts Statistics-2024 report.

Under MSMEs, the production of machinery and equipment has dropped drastically as it marked 45.55-per cent negative growth in FY24.

Machinery and equipment output maintained positive growth in FY22 and FY23.

The production of wood-made goods and corks, printing and reproduction of recorded media, chemicals and chemical products; pharmaceutical products and preparations, computer, electronic and optical products, and transport equipment posted negative growth in FY24.

Based on the production index, the growth rate in the cottage industry also lowered in the same fiscal.

The BBS data showed that the year-on-year production at the cottage industrial has been lowered to 6.7 per cent in the last FY2024.

The home-based industry expanded at a 7.67-per cent rate in FY22 and 9.96 per cent in FY23, reveals the BBS data.

Although machinery and equipment manufacturing has got a good leap over the last few years in the cottage industry, gadgets like computer, electronic and optical items, coke and refined petroleum products, rubber and plastic goods maintained negative growth.

Dr Zahid Hussain, a former World Bank economist, told the FE that a gradual decline in demands has affected the production of CMSMEs domestically.

"Inflation is higher. The month-on-month real wage has been declining in the last couple of years. Thus, the purchasing power of people has fallen. So, the demand for CMSME products has dropped."

Since the demand has dropped over the years, production at smaller and medium industries has ultimately declined, said Dr Hossain.

He urged the government to supply seamless power and gas, formalise smaller manufacturing sectors and subsectors, ensure internal and external markets, and cut the inflationary pressure with intent to boost production at CMSMEs.

As the highest number of jobs is created by CMSMEs in Bangladesh, their lower growth might affect the employment, according to Policy Exchange Bangladesh chairman Dr Masrur Reaz.

"If the trend continues, Bangladesh's employment will shrink further and people will fall behind the poverty line," he told the FE.

As these sectors are the backup industry for large manufacturers, their recovery is needed, continued the economist.

Cottage, micro and small industries should be brought under the formal sector for their survival and also for the growth of the national economy, he cited.

"Most of the cottage, micro and small industries in Bangladesh are set up on an informal basis. They should be brought under the formal system in a bid to upgrade their capacity to create decent employment," Mr Reaz said.​
 

Most SMEs cite tax structure as main barrier

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Around 57 percent of surveyed small and medium enterprises (SMEs) cited the existing tax structure as the main obstacle to doing business in compliance with the law, according to a report by the SME Foundation.

The trade licence renewal process was the next biggest barrier, being identified by 54 percent of entrepreneurs, it said.
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Other leading concerns were regarding the cost of trade licences, singled out by 51 percent of respondents, and the complexity of laws and regulations, pointed out by 44 percent.

Melita Mehjabeen, a professor of the Institute of Business Administration (IBA) at the University of Dhaka, conducted and led the research.

She presented the findings at a seminar yesterday.

The seminar, styled "Informal SMEs in Bangladesh: Formalization Challenges and Way Forward", was organised by the SME Foundation and German development agency Friedrich-Ebert-Stiftung (FES), Bangladesh at Parjatan Bhaban in the capital yesterday.

Sadia Noor Khan, an associate professor of the Department of Banking and Insurance at the University of Dhaka, was the co-researcher.

The study surveyed 304 entrepreneurs across Dhaka, Chattogram, Sylhet, Khulna and Rajshahi.

Mehjabeen said more than 74 percent of small and medium entrepreneurs want to do business in line with government rules and regulations.

However, there is a need to simplify the rules. Introducing one-stop services, collateral-free loans and increasing the benefits of doing business in compliance with the law are also necessary, she said.

To do business in accordance with the law, seven certificates are needed from different government departments in India, Mehjabeen said.

But permission from around 34 departments is required in Bangladesh, she added.

As most SMEs are informal, they remain outside the tax net.

So, Mehjabeen suggested the government prepare a comprehensive strategy paper to bring these organisations under existing structures, formalise them step by step and provide monetary and non-monetary incentives to entrepreneurs.

SMEs accounted for almost 25 percent of Bangladesh's gross domestic product in 2018, according to a Planning Division report.

SMEs account for about 90 percent of businesses and more than 50 percent of employment around the globe, according to a 2022 World Bank report.

The contribution of SMEs in the formal sector is up to 40 percent of the GDP in emerging economies, it added.​
 

Reviving Dhaka’s classic cane furniture traditions

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PHOTO: PRABIR DAS

Hollowed cane chairs with pillowy cushions in white cotton covers surrounded a cane centre table with a glass top, on which, there would be a brass flower vase, posing with beautiful pink roses or gardenias from the garden -- this was how verandas looked years ago in Dhaka, or casual day rooms. Cane furniture was a timeless and vintage home décor style in Dhaka homes of the sixties.

"I remember my mother had a cane basket to put the flasks and milk bottles for my younger brother, sort of like the baby diaper bags we carry now. That square basket with compartments and a hooked cover, was my favourite plaything. I had one chamber to stow my dolls when we went out," says Tripti Reman, a homemaker.

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"Our rare Dhaka visits always meant taking a rickshaw ride to Green Road, the only street selling such merchandise. Those beautiful cane items, like the lidded wicker baskets for picnics, the sprawling divans, and daybeds with hand-embroidered sheets, the ball chairs, highchairs for babies, bar chairs, and room partitions are all reminders of the colonial influence on our home styling," Reman remembers fondly.

Planters' chairs made from cane and timber, with the wicker woven in a criss-cross pattern on the back and bottom, were a common choice of our yesteryear interiors. And now, Dhaka people are once again opting for classic wood and cane furniture. Old-world charm is in; an impression you seem to gather if you browse through some f-commerce sites offering antiques.

"Rustic, and very homely cane products were common in our household before the plastic and wooden boards took over our interiors," says Masudul Islam Gias, the current owner of Yamim Furniture Fair, the famous cane furniture store in Green Road, which has been in operation since the sixties. Gias a second-generation manufacturer and dealer of all kinds of cane and bamboo products, explained that the main difference between cane, wicker, and rattan is that cane and rattan are materials, while wicker is a weaving technique.

"The trend of using cane-bound wood furniture is on the rise, but unfortunately, we manufacturers cannot cash in on this new demand. Our business dipped sharply since the early 2000s and never regained momentum. The skilled craftsmen for cane binding took to other professions and those in profession charge Tk 800 for a day's work, while imports became a tedious process, and the government imposed a 15 percent VAT on handicrafts. With all these issues plaguing the sector, it is in dire straits now," Gias laments.

Unlike the dedicated gardens for crops that need cultivation, cane has no specific area for mass forest production in Bangladesh. Dhaka mostly imports cane from the Arakan regions via the Chattogram-Cox's Bazar route, which is not the best option. A single container of cane stripe bundles, if imported from Indonesia, can cost almost Tk 50,000 and it might take three to four years to sell the load off. Since it is a slow item and the import process is tedious, importers are not keen on this business.

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Currently, the once thriving stores in Green Road are on the verge of closure.

Favourite cane items like rocking chairs, cabinets, and sofa sets are priced between Tk 7,000 to Tk 40,000, so the middle-class opts for cheaper plastic or foreign furniture, leaving these artisanal stores with almost no sales on lean days.

Cane furniture was in vogue in the British and Dutch colonies such as Indonesia, India, and the Caribbean for its natural texture, and eco-friendly and biodegradable features, and this furniture brought about an aesthetic appeal to the bungalows they lived in.

Dhaka interiors are going green by popular choice, so adding a traditional beth-er-mora or cane stool to your décor only adds to the earthiness and a vintage charm to your home, while also helping the cane stores on Green Road survive.​
 

Proposed SME policy repetition of failed one
Shakhawat Hossain 10 January, 2025, 00:14

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The National Small and Medium Enterprise Policy 2025 has been drafted without any major changes in strategies adopted in the recently expired policy that failed to achieve the main targets.

Giving almost the same emphasis on the establishment of a 37-member SME Council headed by the adviser or minister for industries, the draft also recommended continuation of a task force headed by the secretary to the industry ministry, said officials concerned.

Referring to data of 2013, the proposed policy said that 2.1 crore people were employed in 78 lakh SMEs which accounted for 28 per cent of the gross domestic product.

The sector’s target to the GDP was, however, projected at 32 per cent by 2024 from 25 per cent projected in the SME Policy 2019, said the officials.

No interpretation has been made in the new policy regarding the failure to achieve the main target, added the officials.

Institute for Inclusive Finance and Development executive director Mustafa K Mujeri expressed disappointment over the repetition of such policy.

‘It is a sheer waste of time by bureaucrats,’ he said, adding that the proposed policy would remain incomplete without a thorough review of the previous policy which expires in 2024.

The draft has, however, called for a solution to overcoming problems linked to the access to finance for the SME operators since the access to sustainable credit has remained as a contentious issue for long.

The unwillingness of banks and financial institutes to provide credits to SMEs became visible with the disbursement of only 27 per cent of Tk 20,000 crore incentive announced by the Bangladesh Bank to tackle the challenge caused by Covid outbreak.

The SMEs, however, bore the main brunt of the two-year-long pandemic, said Small and Medium Enterprises Owners Association of Bangladesh president Md Ali Zaman.

Limited access to finance remained as one of the major challenges for the SMEs over the past decade in Bangladesh, as banks generally favoured larger and well-established companies, according to the White Paper on the State of Bangladesh Economy.

The white paper, prepared by a 12-member committee led by Centre for Policy Dialogue Debapriya Bhattacharya, noted that the SMEs faced difficulties in conducting operations in the intricate regulatory environment.

It said that the complex regulations included cumbersome and bureaucratic licensing procedures, inconsistent application of rules and lack of supporting government agencies.

It also said that lack of support from government agencies made it difficult for the smaller businesses to grow.

Suggesting a number of ways to overcome the problem of credit, the draft of the proposed policy has projected that the sector’s contribution to GDP would reach 35 per cent from the current 28 per cent.

It has set up 83 time-bound matrices to be implemented by ministries and divisions between 2025 and 2030 for the implementation of the proposed policy, compared to 63 in the previous policy.

Expressing doubt about the new target, Md Ali Zaman said there was lack of expertise and vision within the bureaucrats of the industry ministry to draft an effective SME policy.

Industries ministry additional secretary Mohammad Salauddin said that they were consulting stakeholders to find out merits and demerits of the proposed policy.

It will be finalised only after the consultation, added the official who looked after the wing dealing with policy, law and international cooperation.​
 

New SME policy with no new strategies deplorable
15 January, 2025, 00:00

THIS is unfortunate that the proposed National Small and Medium Enterprise Policy 2025 offers almost no new strategies to facilitate the growth of the sector. The proposal appears to echo the strategies of the 2019 policy that failed to help the sector grow. Such a repetition of failed strategies reflects, as experts say, the government’s lack of commitment to addressing the systemic challenges that continue to hinder the growth of the medium enterprises. The policy proposal puts almost the same emphasis on the establishment of a 37-member SME council and recommends the continuation of a task force under the industries ministry. It also proposes 83 time-bound metrics, from the 63 metrics, to be implemented by ministries and divisions in 2025–2030 for the implementation of the policy. All this appears a mere bureaucratic expansion, devoid of any innovative solutions to the problems that small and medium entrepreneurs face. A lack of access to finance is one of the biggest obstacles to the growth of the sector, composed of about 7.8 million enterprises that employ about 80 per cent of workers in the informal sector. A World Bank report says that only 36 per cent of SMEs have access to formal credit, compared with 48 per cent in South Asia and 68 per cent in East Asia and Pacific.

Small entrepreneurs largely rely on loans from microfinance institutions at higher interest rates. Economists and policymakers have for long asked the authorities to ensure SME access to loans from banks and non-bank financial institutions and asked the regulatory authorities to cut the maximum interest rate in microfinance institutions, but to no avail. During the Covid-induced economic slowdown, financial institutions, as studies show, failed to disburse loans to them. Only 27 per cent of Tk 20,000 crore incentive announced by the Bangladesh Bank was disbursed. The proposed policy fails to offer any comprehensive solution to this issue. Instead, it simply iterates the need for an improved access to finance without offering clear, actionable strategies. The regulatory environment has also remained burdensome, further stymieing their growth. Issues such as complex tax structures, difficulties in trade licence renewals and the absence of one-stop services create unnecessary obstacles. The SME Foundation says that more than a half of SMEs blame complicated tax system and trade licence procedures as major hindrances. Entrepreneurs need to run to at least 34 departments to start a business. The proposed policy’s failure to address these systemic issues and continued reliance on failed strategies would leave SMEs with little hope to overcome challenges.

The government should, therefore, review the proposed policy with not only a new name but also with strategies. The policy should prioritise SME’s access to finance, simplify regulations, incentivise financial institutions for SME-friendly credit schemes and foster an ecosystem where SMEs can thrive.​
 

SMEs lose credit appetite in economic turbulence

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How have local private sector businesses fared in recent years?

To gain a micro-level understanding, ask the question to house yard workshops, rural handicraft units, tiny grocery stores and small leather and footwear ventures.

These businesses have been struggling for over three years, gasping for air amid a challenging economic climate.

This is because high prices have eroded consumer demand, while increased power and utility bills have increased operating costs.

Access to bank loans has also become increasingly difficult for these small ventures, officially categorised as cottage, small, and medium enterprises (CMSMEs).

Instead of easing, the situation for around 78 lakh CMSMEs across the country, which contribute one-fourth of the gross domestic product (GDP) and employ 40 percent of the total workforce, has worsened in late-2024.

On top of the stubbornly high inflation, nationwide protests, violence, curfews, recurrent flooding and punishingly high interest rates on bank loans have brought the CMSMEs to their knees.

Credit data from the central bank also shows the economic disaster facing the CMSMEs.

During the April-June period of fiscal year 2023-24, small businesses received Tk 54,526 crore in bank loans. This figure plummeted to Tk 42,950 crore in the subsequent quarter, according to Bangladesh Bank (BB) data.

Compared to the same period in FY23, loan disbursement in April-June of FY24 witnessed a 13.10 percent decline.

BB data also shows that CMSMEs borrowed Tk 2.25 lakh crore in FY24, a mere 0.46 percent increase compared to the previous year's Tk 2.24 lakh crore.

Meanwhile, private sector credit growth in November of last year reached a three-year low due to weakened credit demand, a dearth of new investment, and a surge in government T-bills and bonds.

According to Syed Abdul Momen, deputy managing director and head of SME Banking at BRAC Bank, businesses mainly seek loans for two purposes: managing operations and expanding their businesses.

"Given the current economic situation, there is little to no demand for loans aimed at business expansion," said the banker.

"Entrepreneurs are now focused on securing the minimal financial support required to meet their working capital needs," he added.

Similar to Momen, Sanjib Kumar Dey, the head of the SME and Agri-banking division at Mutual Trust Bank, said that high inflation and costly loans have compelled small businesses to shelve their expansion plans over the past three years.

"Business owners have been primarily focused on survival rather than growth," Dey said. "Banks, too, are exercising caution in lending amid the prevailing economic uncertainties."

'SITUATION IMPROVING SLOWLY'

Compared to July or August of last year, when a nationwide protest culminated in a government ouster, the current business climate and credit outlook have improved, according to Mohammad Salekeen Ibrahim, head of asset at Eastern Bank.

"Banking activities were almost shut in July and August of last year. During that period, curfews and general holidays were frequent," recalled the banker.

"Banks were unable to reach customers, and customers were likewise unable to access bank services," he added. "While the overall situation in the country has shown signs of recovery since August, it has not fully stabilised."

Ibrahim said they are looking for potential clients. However, the current business climate and high interest rates remain major obstacles.

"The loan disbursement rate may remain sluggish until the client confidence stabilises," he commented.

The high-interest rate environment is a direct consequence of the central bank's prolonged battle against stubbornly high inflation, which has been dragging on for more than two years.

In the first half of FY25, inflation averaged 10.87 percent, according to the Bangladesh Bureau of Statistics.

To curb spiralling prices, the BB has been steadily increasing the policy rate, the rate at which it lends to banks, since May 2022.

This has resulted in a gradual rise in loan interest rates, particularly after the central bank lifted the lending rate cap in July of last year.

In October of last year, the central bank raised the policy rate by 50 basis points to 10 percent. This marked the eleventh upward adjustment since May 2022, when the policy rate stood at only 5 percent.

'BUSINESSES NEED GOVERNMENT SUPPORT'

Current consumer confidence is at an all-time low, a level unprecedented in the past 30-35 years, according to Rizwan Rahman, former President of the Dhaka Chamber of Commerce and Industry.

He told The Daily Star that businesses are also grappling with rising costs, and inflation remains unmanageable.

In such an uncertain and confidence-deficient environment, businesses are hesitant to assume loan obligations, he added.

The business environment since June 2024 has been far from conducive to investment, and loan disbursement in this sector is expected to decline significantly in fiscal year 2024-25 compared to the previous year, he added.

"Without timely monetary or fiscal support from the government, reviving loan disbursement and encouraging investments in this challenging economic scenario will be almost impossible," he commented.

Melita Mehjabeen, a professor at the Institute of Business Administration at the University of Dhaka, told The Daily Star that the significant SME loan disbursements observed in 2021 and 2022 were due mainly to refinance schemes and Covid stimulus packages.

However, loan disbursements witnessed a decline in 2023 and 2024, attributed to increased prudence exercised by banks and financial institutions, she noted.

A restrictive loan ceiling of 30 percent of working capital further limited borrowers' ability to apply for fresh loans if they exceeded this limit, she added.

Moreover, the central bank's actions against loan misuse (for example, using working capital loans to repay existing debts) and the reduced lending appetite of commercial banks towards smaller borrowers have also contributed to the decline in disbursements, she added.

Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue (CPD), said that while private sector credit growth remains sluggish, SMEs are the most vulnerable in the current economic climate.

He said rising production costs, fueled by increased gas and electricity prices, coupled with high inflation, have largely eroded sales and profit margins for SMEs.

"They are struggling to meet loan instalment obligations on time," he noted, adding that these challenges are not being adequately addressed.

"With the exception of a few specific banks, SMEs are unable to access loans due to varying terms and conditions," said the economist.​
 

SMEs: Start locally, think globally

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Since the country's independence in 1971, small and medium enterprises (SMEs) have played a pivotal role in GDP growth, employment, income generation, and local development. However, despite their substantial potential, most Bangladeshi SMEs struggle to transition from local markets to global trading platforms. It is embarrassing that, despite having immense potential to shine on the global stage, our entrepreneurs remain constrained by local limitations and fail to become formidable players in the international market.

Now, at the beginning of 2025, Bangladesh stands at a critical crossroads in its history. The nation must refocus its attention on SMEs from a fresh perspective. First and foremost, government support must be leveraged to help SMEs represent themselves globally. The government should expand policy support and incentivise entrepreneurs to promote SME exports on a broader scale. Entrepreneurs, in turn, should take advantage of initiatives such as export subsidies, training programmes, and trade fairs and similar entities. Additionally, the government should develop a robust business plan encompassing export strategies, target markets, and potential challenges.

Capacity building and skill development remain major barriers to global expansion. Training programmes focused on global trade, export procedures, digital marketing, and letters of credit (LC) can equip entrepreneurs with the necessary skills to succeed globally. Collaborating with institutions like the SME Foundation and trade associations can facilitate such training. In terms of capacity building, more emphasis should be placed on audiovisual content available on digital platforms. This approach can help overcome geographical barriers and support better time management for entrepreneurs. Digital tools and e-commerce platforms can also enable SMEs to reach a global audience. Entrepreneurs should invest in user-friendly websites, enhance their online presence on social media, and leverage global marketplaces.

Most Bangladeshi enterprises face significant challenges in securing adequate financing. High interest rates, lack of collateral, and limited access to alternative funding sources hinder their ability to invest in global expansion. To address these challenges, the government, NGOs, and international donors should offer more financing schemes and grants tailored specifically for SME exports. Additionally, mitigating currency risks should be a strategic priority in international trade.

For global acceptance, obtaining internationally recognised certifications, such as ISO standards, can significantly boost buyer confidence. SMEs in Bangladesh should focus on improving production processes, operational efficiency, adopting green business practices, ensuring superior quality control, and achieving high packaging standards to compete with top global players. Collaborating with international merchants, agents, and trade intermediaries can also help SMEs access new markets. Participation in global trade fairs and business matchmaking events can open doors to valuable connections.

In the context of global trade, branding with a unique selling proposition (USP) distinguishes one enterprise from another and creates demand for its products or services. SMEs should invest in building a distinctive brand identity that resonates with international audiences.

Through determination, innovation, and visionary strategic planning, Bangladeshi SMEs can overcome barriers and become competitive players on the global stage. By fostering synchronisation between the government, financial institutions, donors, NGOs, and the private sector, Bangladesh's SMEs have the potential to transform the nation into a global trading powerhouse. If we do not start thinking big now, it may never happen.

The writer is a banker​
 

SMEs’ share in GDP 35pc by 2030 in focus
FE REPORT
Published :
Jan 23, 2025 08:47
Updated :
Jan 23, 2025 08:47

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Industries ministry has initiated framing the National SME Policy 2025, aiming to boost the contribution of small and medium enterprises (SMEs) to GDP to 35 per cent by 2030 from the current 27 per cent.

The 2019 policy is the last such guideline for the SME sector.

The implementation of the latest policy concluded last June, with no government funding allocated to meet the demand for approximately Tk 105 billion to support the sector.

The observations were made at a workshop styled 'SME Policy-2025: Opportunities and Challenges, and the Role of Media' hosted by the SME Foundation in collaboration with the Economic Reporters' Federation (ERF) in ERF Auditorium on Wednesday.

SME Foundation chairperson Md Mushfiqur Rahman attended the event as the chief guest with ERF president Doulot Akter Mala in the chair.

Anwar Hossain Chowdhury, managing director of the SME Foundation, and Taskeen Ahmed, president of the Dhaka Chamber of Commerce and Industry (DCCI), spoke as special guest.

Speakers say data shortage, lack of financing, high interest rates, informal operations and limitations in marketing are challenges for the SME sector. Proper execution of the new policy will help boost the sector.

They also highlight that while SME's contribution to GDP in Bangladesh is about 27 per cent, it stands at 40 per cent in Pakistan, 52 per cent in Sri Lanka, 60 per cent in China and 37 per cent in India.

However, they called for implementing the new policy by boosting funds of the SME Foundation and facilitating regular meetings and decisions by committees like the National SME Development Council (NSDC) and the SME Task Force.

The workshop, moderated by ERF secretary Abul Kashem, featured a keynote address by SME Foundation general manager Mohammad Jahangir Hossain.

According to the keynote, only three out of the 10 projected meetings of the NSDC were held under the chairmanship of the then industries minister, during the implementation of the last policy.

On the other hand, only six of the 20 meetings of the National SME Task Force under the industries secretary took place.

With no funds allocated despite a demand for Tk 105.13 billion for the development of the sector, two business incubation centres were established in Dhaka and Chittagong with the Asian Development Bank's support.

A national SME training institute was set up in Agargaon, Dhaka, a national SME e-database was created and operated with own funding, and a development project proposal of Tk 229.5 million was prepared and sent to the Planning Commission, said Mr Hossain.

He said the proposed policy has 83 strategic tools and 310 activities under 10 strategic goals for the development of the SME sector.

To implement this policy, it is necessary to organise regular meetings, allocate funds, monitor the execution process, establish an office of the Foundation outside Dhaka, and strengthen the entity financially.

SME Foundation chair Mushfiq said like in many countries, the cottage, micro, small and medium enterprise (CMSME) sector is vital to Bangladesh's economy, accounting for 85 per cent employment of the industrial sector.

The Foundation has been instrumental in advancing government policies and strategies to foster the sector's growth, organising 11 national and 91 regional SME product fairs, four heritage handloom festivals, and supporting over 200 entrepreneurs at international fairs.

It has established the first-ever common facility centre at Kaluhati Footwear Cluster in Rajshahi and facilitated more than Tk 10 billion in loans for around 10,000 entrepreneurs through its credit wholesaling programme.

Meanwhile, Mr Anwar highlighted that the poor contribution of Bangladesh's CMSME sector to GDP compared to neighbouring countries.

Referring to the economic census of the BBS conducted in 2013, he said there were more than 7.81 million CMSME entrepreneurs in the country.

Since its establishment in 2007, the SME Foundation has helped around 2.0-million entrepreneurs. Despite the 2019 SME Policy, the lack of funding forced it to implement programmes with its own resources.

Taskin Ahmed highlighted financing, high interest rates, informal operations, and marketing challenges in the SME sector, and thus sought solutions.​
 

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