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SME & CONSUMER daibb part 2 bank diploma

 
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.

According to the Industrial policy 2005, SME definition has been in terms of fixed assets and no. of employees of three major sectors: service, manufacturing and trading but the present definition which was recommended by Better Business Forum and accepted as a uniform one by Ministry of Industry and Bangladesh Bank included Cottage and micro industry as SME in Bangladesh. Bangladesh Bank has revised the SME definition through its ACSPD Circular No.08, dated 26th May, 2008 and then through its SMESPD Circular No.01, dated 19th June, 2011. The present SME definition is given below:

Medium  Industry /Enterprise
Sector	Total Fixed Asset (in Lac Tk.)	No. of Employees
Service / Others Concern :	100-1500	50-100
Trading Concern:	100-1500	50-100
Manufacturing Concern:	1000-3000	100-250
Small Industry / Enterprise
Service/Others Concern :	5-100	10-25
Trading Concern:	5-100	10-25
Manufacturing Concern:	50-1000	25-99
Micro Industry /Enterprise
Service/Others Concern :	Less than 5.00	Less than 10
Trading Concern:	Less than 5.00	Less than 10
Manufacturing Concern:	5.00-50.00	10 - 24
Cottage Industry / Enterprise
Family Concern	Less than 5.00	Less than 10
* Total Fixed Asset is excluding land and building but including replacement value.

 SME is considered as employment Generating Machine- Explain?

SME is considered as employment Generating Machine for the following reason:

·         SME sector is the largest provider of employment in most countries, especially of new jobs.

·         SMEs tend to employ poor and low -income Workers.

·         SMEs are sometimes the only source of employment in poor regions and rural areas.

·         There are approximately six million SMEs in Bangladesh, which include enterprises with up to 100 workers employing a total of 31 million people – equivalent to 40 per cent of the population of Bangladesh aged 15 years and above.

·         SME has huge Employment generation potential due to labor intensive nature of most of the SME activities. Between 1986 and 2006, the labor force grew by nearly 3 percent while employment grew by 2.6 percent. In the small enterprises, employment grew by 4.8 percent during 1978-1991 and by 5.5 percent during 1991-2001. Employment growth in the medium enterprises is estimated at 9.6 percent during 1988-2003. SEDF reports that between 80 percent and 85 percent of the total industrial employment and 23 percent of the country’s overall employment is accounted for by the SMEs. 

How would you identify and select entrepreneurs for financing SME projects? Discuss.

Entrepreneurs are those persons (business owners) who seek to generate value, through the creation or expansion of economic activity, by identifying and exploiting new products, processes or markets. A desire for independence and a strong sense of initiative are usually characteristics of a successful entrepreneur. They have the following characteristics:

·         They are dedicated to their workings.

·         They have Entrepreneurial Personality

·         They have basic business competency, industry specific knowledge.

·         They desire to win and succeed coupled with vision

·         They are the creative type.

·        They take risks and succeed. Risk involves looking into the future and believing that there is a probability of the occurrence of certain events. And on this basis a decision is taken to do or not to do something.

·         Successful entrepreneurs react quickly to change.

There are many types of entrepreneurs like Spiral (Helical) entrepreneurs, Occasional entrepreneurs, Habitual entrepreneurs, Growth entrepreneurs etc. We need to select

  true entrepreneurs by their characteristics. We can say, the characteristics which are discussed above are considerable to select entrepreneurs for financing SME projects.

Discuss the roll of SMEs in the economic development of Bangladesh.

         Small & Medium Enterprise (SME) plays a pivotal role in the economic growth and development of Bangladesh. Actually, SME works as the platform for job creation, income generation, and development of forward and backward industrial linkages and fulfillment of local social needs. SMEs occupy a unique position in the economy of Bangladesh. Mainly private sector development depends on them.

            In view of present economic development effort in Bangladesh the SME sector plays an important role. These are reflected in the following performance /activities of this sector:

·         SME contributions to value addition in manufacturing is in the range of 20 to 25 percent of GDP

·         There are approximately six million SMEs, which include enterprises with up to 100 workers employing a total of 31 million people – equivalent to 40 per cent of the population of our country aged 15 years and above. Some private survey also found that the industrial structure of SMEs consisted of primarily wholesale, retail trade and repairs (40 per cent), agricultural goods (22 per cent), services (15 per cent) and manufacturing (14 per cent).

·         During the Fourth Five year plan, a total of 0.35 million jobs were created against the target of 0.4 million.

·         SME sector help alleviate poverty, increase income level of rural people and promote agro-industrial linkage in Bangladesh.

·         SME sector requires lower energy supply, lower infrastructure facilities and this sector imposes less environmental risk.

·         They contribute towards better utilization of local resources and skills that might otherwise remain unutilized.

·         Small industries being labor oriented are capable of generating more employment.

·         They are necessary to maintain and retain traditional skills and handicrafts.

·         They are the only medium for diversification of rural economy and for peaceful and concurrent socio-economic development of all classes of people

To put it simply, SMEs are the heart of the industrial sector of the country, employs the bulk of the working population and are owned by Bangladeshi entrepreneurs. They provide a huge range of goods and services to the Bangladeshi population, especially in the rural areas, alongside providing vital support in the production chain to large industries. From the above discussion, we can say that SMEs are playing an important role in our economy in various ways.

Discuss the main constraints to the growth of SME finance in Bangladesh?

The main Barriers / Constraints to the promotion of the SME Sector in Bangladesh are:

Lack of capital support: A majority of our small and medium industry entrepreneurs belong to the lower class or lower middle class. They are hard workers, innovators, and-challenge-takers, but cannot get funding from commercial banks due to their inability to provide collaterals.

Absence of policy for transfer of modern technology: The sector is suffering from lack of technological support for upgrading the product quality.

Unavailability of appropriate infrastructure facilities: An Infrastructure facility as water, electricity and gas hampers industrial activities.

Lack of marketing opportunities: SME sector includes a wide range of small and medium industries, but they do not have marketing knowledge and capability to promote their products.

Inadequate policy reforms: Till now, do not have uniform definition of SME. The Bangladesh Bank, Bureau of Statistics, and SME Foundation have different definitions of SMEs. Government may take necessary initiatives to make it uniform.

Lack of exposure to international markets: Our SME sector is producing handicrafts and decorative and household items having high demand in the developed market, but having the demand women entrepreneurs are unable to attend international markets due lack of exposure and promotion.

Law and order situation: The members of the business community, especially those involved in the SME sector, suffer because of the law and order situation

Illegal imports and non-tariff barriers: Both illegal import and non-tariff barriers are threats to our SME sector. If banned products are smuggled into the country domestic production will be harmed. Our SME products are facing many non-tariff barriers in different markets.

Lack of adequate investments:

High rate of interest on bank loans:

Inadequate availability of raw materials:

Fierce competition:

Lack of skilled technicians and workers:

Lack of research and development facilities:

What are the existing sources and areas of SME Financing in Bangladesh?

Existing Sources of SME Financing:

The main sources of SME Financing are basically personal funds, family and friends, banks and NBFIs. Some refinance Schemes from different organization are also available. These are discussing below:

SME Financing by Banks & NBFI: An important element of SME finance is not directly provided by banks through traditional loans but rather by leasing or factoring companies. Bank loans and overdrafts are the most widespread debt financing tools for SMEs, but also those alternative sources like leasing and factoring are of high relevance.

The EEF: The Government had instituted the Equity Entrepreneurship Fund (EEF) in early 2002 in an effort to make funding more widely available for agro-processing and information technology businesses in the country. 

Small Enterprise Fund (SEF): Small Enterprise Fund (SEF), a scheme to refinance banks and other financing institutions that lend to the SME sector create a capacity to specifically channel needed debt-finance.  Disbursements made by financial institutions and leasing companies into small-enterprises will be refinanced from the proceeds of the SEF. 

ADB Fund: The Small and Medium Enterprise Sector Development Program (SMESDP), which is financially assisted by The Asian Development Bank, Manila and implemented by the Ministry of Industries, Govt. of Bangladesh introduce a fund for SME entrepreneurs by Banks & NBFI.

Other Refinance Scheme:

1. Bangladesh Bank Fund:

2. EGBMP (IDA) Fund:

3. Japan International Cooperation Agency (JICA) Fund

The areas of SME Financing in Bangladesh:

·      Agro Process, agro-based and agro supportive industries. ·      Handicrafts & other Cottage industries ·      Computer software and ICT ·      Plastic & Other Synthetics ·      Poultry & cattle ·      Jute goods (with renewed vigor) ·      Electronics and Electrical appliance ·      Leather and leather goods

·      Pottery ·      Light engineering ·      Textile, RMG, Knitwear etc. ·      Educational Services ·      Health Care & Diagnostics Centers ·      Pharmaceuticals/Cosmetics/Toiletries ·      Event Management ·      Internet Service Providers

Discuss the roll of SME foundation in SME Development in the country.

Small and Medium Enterprise Foundation, an independent and unique non-profit organization got registration in 2006. After formatting SME Foundation, it is playing its role in helping the SME entrepreneurs including the women entrepreneurs by conducting various programs with an aim to develop the SMEs of Bangladesh. One of the major aims of SMEF is to bring the grassroots entrepreneurs into the main stream of economic development through employment generation, reduction of social discrimination and poverty alleviation.

The major rolls of SME foundation in SME Development in the country are:

·            Implementing SME Policy Strategy adopted by the Government of Bangladesh.

·            Recommending SME friendly policies to different government ministries and agencies.

·            Providing business support services to the SME entrepreneurs.

·            Providing information and proper guidance for establishing new SMEs.

·            Conducting sectorial study to ensure availability of latest information,

·            Identify challenges and recommend preventing measures.

·            Operating credit wholesaling programs for the SMEs through different banking and non-banking financial institutions.

·            Conducting training programs to create skilled labor for different SME sub-sector based on their demands.

·            Technology development, adopting new technology, conducting reverse engineering and supporting SMEs to get quality certifications.

·            Supporting SMEs in marketing their products and promotion of services.

·            Bringing women entrepreneurs into the mainstream of development and helping them to achieve economic self-dependency.

·            Assisting SMEs in creating institutional bondage with foreign companies for capacity building, technology transfer and improving productivity.
Training up and motivating SMEs in using ICT tools for more productivity and improving quality.