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Preface
It is a report on the comprehensive study of “The Role of SME loan in small business
management”. The purpose of this endeavor is to acquire practical knowledge regarding
SMEs loan. The objective is to know how SMES play a vital role in the economic
development of our country. A group of students consisting five members from
university of Chittagong conducted the report. The group studies literature review for
secondary data collection and visits four companies named “Brac Bank Ltd, Datch
Bangla Bank Ltd, Eastern Bank Ltd and IDLC ltd. for primary data collection. Among
the four companies, the group finds responses from two companies. One company
suggested the group to collect data from their web sites. On the basis primary and
secondary data, the group prepares the report. The team gets inspiration from their class
teacher to make the paper. The report will be helpful to the persons e.g. students,
teachers, consultants, researchers, organizations, practitioners, etc.
Acknowledgement
Firstly we are grateful to the Almighty Allah for his mercy to completer the report. We
would like to thank our honorable teacher, Dr. A. F. M. Aowrangazab, professor,
Management Studies, University of Chittagong for his sincere assistance and suggestions
in preparing the project paper. Without his support, it was quite impossible to prepare the
project. We also would like to thank Mr. Md. Shahidul Islam, officer Dutch- Bangla
Bank Ltd. We remember him for that he has given valuable time despite his busy work.
We also get Assistance from the officers of Brac Bank ltd, Easter Bank Ltd. So thank to
them.
We also thank to our friends, classmates for their oral support.
TABLE OF CONTENTS
Page Title Page No
Executive Summary 2
Definition of SMEs 3
Present scenario of SMEs in Bangladesh 4
SME Foundation of Bangladesh 5
SMEs and Financial Institutions 9
Special initiatives of Government 13
Contributions of SMEs to national economy 15
Challenges or problems faced by SMEs 16
Prospects of SMEs in Bangladesh
Recommendations
Conclusion
References
Executive Summary
Small and Medium Enterprises (SMEs) have historically been one staples of the
enterprise landscape within economies globally. Especially growth with clear benefits for
poverty reduction puts a premium on integrating, productively and profitably, small and
medium enterprises in the very process of economic growth. The SMEs sub-sector plays
an increasingly dominant role in the technology assimilation and dissemination and in
economic development in Bangladesh as well. Small or Medium Entrepreneur like: an
entity, ideally not a public limited company with total assets at cost excluding land and
building from Tk. 50,000/- to Tk. 1.5 core. This paper attempts to clarify the nature of
SMEs in Bangladesh. The report also contains information on the current position,
problems of SMEs and role pf SMEs in Bangladesh. At the end some recommendations
are provided to remove the problems of SMEs.
Small and Medium Enterprises
According to Industrial policy 2006 SMEs is defined: (a) For manufacturing industries: (i) an enterprise would be treated as small if, in today’s market prices, the replacement cost of plant, machinery, structures, and other parts/components, fixtures, support utility, and associated technical services in between Tk. 50,000 to 1.5 core ( 0.05 million to Tk. 15 million) and workforce not more than 50 ; (ii) 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 in between Tk 1.5 core to Tk 20 core ( tk15 million to Tk. 200 million) and workforce not more than 150 ; From both definitions above, land and building is excluded. (b) For non-manufacturing (such as trading or other services): (i)An enterprise would be treated as small if the fixed capital in between Tk. 50,000 to Tk. 50, 00000(0.05 million to Tk. 5 million) and workforce not more than 25; (ii)An enterprise would be treated as medium if the fixed capital is in between Tk. 50,00000 to Tk. 10,00,00000(5 million to Tk. 100 million) and workforce not more than 50; From both definitions above, land and building is excluded.
Present Scenario of SME in Bangladesh
The present scenario of SMEs in Bangladesh is highlighted below:
Around 6 million SMEs are in operation.
Contribute around 50 percent of industrial outputs.
Employ about 31 million people.
Contribute around 25 percent of total GDP
About 60 to 65 percent SMEs located outside Dhaka and Chittagong metropolitan
city.
Most of the SMEs are labor intensive and low capital based.
Interest rate of SME loan is between 14 to 20 percent
The largest sector in terms of employment generation
Around 75 percent contribution to export earning
Prospects of SMEs in Bangladesh
Un-employment problem is a growing concern all over the world more particularly in
developing countries, and the panacea to the setback mostly lies in massive development
of labour incentive SME sector. SME in many cases can be set up at domestic and
household level contributing to cost cutting. Family members may also participate in the
process. Bangladesh is highly resourceful with so many seasonal fruits and also lots of
agricultural products. Pineapple and mango are best used to produce jam/jelly/juice etc
under SME. Tomato sauce and potato chips are popularly used all over the world. SME is
most suited for processing the items. If we can add more quality to the products and
ensure proper marketing, tremendous demand will be created in domestic and export
market. In RMG industries (knit) circular machines are used for knitting of the items. The
circular machines can also be set at household level to perform job works to feed RMG
industries for ultimate export of T/Polo Shirts etc. This is a subcontracting system where
RMG industries supply yarns to the entrepreneurs having circular machines. The system
has already been introduced in Dhaka and Narayangonj areas with growing demand.
Shoe making by small industries as job works of big shoe companies like BATA is a
glaring example of SME product. BATA supplies raw materials to lots of small factories
at household level in Dhaka city and gets the product (shoes) completed through
subcontract system. Lending in SME sector helps the banks to derive higher spread over
corporate one
Contribution of SMEs to national economy
In Bangladesh, SMEs play a significant role for the development of our economy. SMEs’ contributions are:
1. Creation of employment opportunities: 2. Up gradation of GDP growth rate: 3. Reduction of poverty: 4. Earning foreign currency: 5. Industrial raw-material supplier: 6. Earning govt. revenue: 7. Empowering women: 8. Optimum utilization of latent resources: 9. Development of standard of living: 10. Import substitution: 11. Ensure rural development: 12. Development of potential entrepreneurs
Statistical data about SMEs loan:
There is need to double the contribution of Small and Medium Enterprise (SME) sector to
gross domestic product (GDP) for helping Bangladesh achieve mid-income country.
Despite having huge potential, contribution of SME sector to the country’s GDP is still
lower than those of many other countries, they said. In the first nine months of this year,
the banking sector exceeded the whole year’s target for giving loans to small and medium
enterprises (SME). The bankers said the definition included existing non-SME portfolios
as SME loans, helping raise disbursed funds to Tk 38,283 crore against a target of Tk
23,995 core. “Presently, the country’s SME sector contributes about 25 per cent to the
country’s total GDP. The rate has to be enhanced to at least 50 per cent,” SME
Foundation Chairman Aftab ul Islam said at the programme
Special Initiatives of the Government
There is a government directive that 5% of a bank’s loan portfolio be set-aside for small
and cottage industry financing Govt. initiatives are:
a) BASIC Bank: (BASIC Bank was established in 1989 to finance small and cottage
industries. It is mentioned in its Memorandum of Articles that at least 50% of its loan-
able fund should be invested in Small Scale Industries (SSI). In 2003, the bank lent Taka
51.29 billion to SSI sector to a number of 418 projects. The Bangladesh Bank has been
providing refinance facility to this bank since 1999. A sum of Taka 250 million was
disbursed to BASIC in FY 2004 under this scheme.
(b) Palli Karma-Sahayak Foundation (PKSF): The Government established PKSF in May
1990 to work as an apex organization for the development of micro finance sector in
Bangladesh. PKSF is distributing micro-credit among the poor through 225 large and
small NGOs. Most of the beneficiaries are women. Government allocated Tk 217 million
in FY 2006-07 for this programme.
(c) Refinance Scheme for Small and Medium Enterprises: To help overcome the financial
Constraints of this sector and induce the banks and other financial institutions to provide
credit facilities to the SME sector, particularly the small entrepreneurs, Bangladesh Bank
introduced a refinance scheme with a special fund. The Government introduced a Tk. 100
million Refinancing Scheme through Bangladesh Bank. The World Bank and the Asian
Development Bank (ADB) will provide US$ 10 million and US$ 30 million respectively
to support this scheme. About 3000 SMEs have received credit under this scheme. For
the development of agro-product processing and software industries, the Government
allocated Tk 100 million to Equity Development Fund in the revised budget of FY 2005-
06. So far, 212 projects have been financed from this Fund.
(d) Credit Distribution Package: It has been announced by the SME Cell that 80% of total
resources available for SME would be allocated specially for small enterprises.
(e) Lead Bank: It has also been decided by the SME Cell that in the short run BASIC
Bank and BRAC Bank will be working together as lead banks and will be responsible for
distribution of the credit and venture capital fund. These two banks will closely work
with the previously mentioned Advisory Panel. Over the medium term, this responsibility
will devolve to the SME Foundation.
(f) SME Foundation: Asian Development Bank has expressed its interest to support the
Government to set up a Small and Medium Enterprises (SME) Foundation as part of its
country assistance strategy. Some other development partners will support the SME
foundation and it can be an apex body for these industries. The SME is one of the
Manilabased lender’s priority sectors and the bank would ready to channel more fund if
the disbursement and utilization of existing funds become faster. Over the medium term
and beyond (a time-frame of 18 or so months from now), the Government shall have to
form an SME Foundation as a pivotal platform for the delivery of all planning,
developmental, financing, awareness-raising, evaluation and advocacy services in the
name of all SME development as a crucially-important element of poverty alleviation.
SME Foundation of Bangladesh
The SME Foundation is an independent center of excellence created and generously
capitalized by the Government of Bangladesh.(SMEF) was formally inaugurated July 17,
2007, by Dr. A. B. Mirza Md. Azizul Islam, Hon’ble Advisor, ministries of Finance,
Commerce, Post & Telecommunications, and Government of the People’s Republic of
Bangladesh at a ceremony held at the Hotel Sonargaon, Dhaka. The mission is the
development Bangladesh’s small and medium enterprises (SMEs) in the present age of
globalization to generate employment and reduce poverty.
Objectives of Bangladesh SME Foundation
To promote, support, strengthen and encourage the growth and development of
SMEs in all productive sectors of the economy, including the service sector,
throughout the country.
To plan, program and finance interventions for delivery by private sector
organizations, including chambers, associations, trade bodies, research and
development institutions including universities, consultancy companies and
professionals to institute SME Awards.
To facilitate SME access to finance by creating and supporting appropriate
strategies and institutions.
To rationalize public sector approaches and support structures for SME
development through systematic capacity assessment and interventions for
organizational development and institutional capacity building.
To create a pro-growth and pro-poor business environment.
To create appropriate incentives, mechanisms and support structures to facilitate
the formation of new enterprises, ensuring enterprise competitiveness, and
promoting sustained growth of existing businesses.
To encourage improvement in SME business environment by gradually becoming
a one-stop facilitation window center for SMEs in getting licenses and approvals
from various agencies and department, and in accessing other required services.
To create a database and provide all needed information about SMEs.
To actively foster greater collaboration, in both design and commercialization,
between industry, civil-society and academia in the interest of harmonious
development of human resources, and delivery systems for SME development.
SME Loan Defined
SME loan is the financial support to small and medium sized enterprises and represents a
major function of the general business finance market. It is the major source of capital for
SMEs. In Bangladesh, Many commercial Banks and NGOs along with some Government
Banks are providing SME loan to the SMEs. Therefore, SME loan is the capital
disbursement to SMEs at a certain interest rate. Capital is supplied through the business
finance market in the form of bank loans and overdrafts; leasing and hire-purchase
arrangements.
Importance of SME loan in the economy of Bangladesh
Bangladesh is a developing country. About 90% of its businesses are small and medium.
So SMES are the main strength of its economy. To boost SMEs, The SME loan plays an
important role. Firstly, it assists to the growth of SMEs. Secondly, it inspires
businessmen to take risk of establishing businesses. The growth of SMEs again has
multiplier impacts on the socio-economic development of our country. For example, it
will increase per capita income and the result of it is high standard of living of the people.
In Addition, it will reduce unemployment problem from our country. Above all, SMEs
will eradicate poverty. On one hand, Due to capital shortage, Sustainable development of
SMEs has not been noticed in our country. On the other hand, the rate of interest of SME
loan is very high. Bangladesh Government are emphasizing on the empowerment of
women. Women involvement with business is one of them. In this case, capital shortage
is a main barrier for the educated women to come to set up businesses. So, the role of
SME loan is a beggar description.
SME and financial institutions
BRAC Bank started its journey in 2001 and in just 8 years proved to be country's fastest
growing bank. Today, the bank has 74 Branches, 60 SME Service Centers, 3 SME/Krishi
Branches, more than 212 ATMs and 424 SME Unit offices across the country. It has
disbursed over BDT 10,000 cores of SME loan and has over 500,000 individual
customers who access online banking facilities.
BRAC SME Products
Brac Bank has various SME schemes which are descried below:
Apurbo:
Apurbo is a combination of term loan and overdraft facility for the entrepreneurs
involved in trading, manufacturing, service, agriculture, non-farm activities, agro-based
industries etc. This product is available for the country wide entrepreneurs throughout
around 137 Branches and 424 SME Unit Offices across the country.
Eligibility
Having business for last 3 years & owner of registered land/property
Anonno rin: is a commercial term loan for small scaled business.
Eligibility
Having business for last 2 years & legal trade license
Any legal Business, Sole proprietorship, partnership, private limited company
Diggoon rin: a loan on deposit for small & medium size business. Eligibility
Having business for last 2 years & legal trade license
Any legal Business, Sole proprietorship, partnership, private limited company
Prothoma Rin: is a term loan for small scaled business operated by women entrepreneur. Eligibility
Having business for last 2 years & legal trade license
Any legal Business, Sole proprietorship, partnership, private limited company
Aroggo rin: is a term loan for small & medium size private Health Services Provider. Eligibility
Having medical business for last 2 years & legal trade license
Any legal Business, Sole proprietorship, partnership, private limited company
Durjoy rin: is a banking facility (combination of term loan and overdraft without any tangible security for working capital purpose and/or fixed asset purchase) targeted to SME customers. Eligibility
Having business for last 2 years & legal trade license
Any legal Business, Sole proprietorship, partnership, private limited company
Trade Plus rin:
is a composite facility for small & medium sized import-oriented businesses to meet their trade finance requirements. Eligibility
Having import-export experience for last 2 years
Any legal Business, Sole proprietorship, partnership, private limited company
Proshar rin: is a term loan for small & medium size manufacturing business. Eligibility
Having business for last 2 years & legal trade license
Any legal Business, Sole proprietorship, partnership, private limited company
two personal guarantors & post dated cheques
Business Equity Loan: is a term loan for commercial purpose. Eligibility
Having business in Dhaka or Chittagong metropolitan areas Having business for last 2 years & legal trade license
Bizness loan: is a term loan facility for all types of business who have healthy bank transactions Eligibility
Having business for last 2 years & legal trade license
two personal guarantors & post dated cheques
Supplier & Distributor Loan: is a loan for various suppliers & distributors to expand their businesses. Eligibility
Hypothecation on present & future assets, two personal guarantors & post dated cheques
\ Table-1: Brac Bank SME Products
Product name Loan limit Interest rate Repayment period
APURBO Up to tk.50 lac. Competitive rate ------------
ANONNO TK.3 to 10 iac
17% 3 to 36 months
Digoon loan TK 5 to 30 lac. 17% 3 to 36 months
Prothoma TK 3 to 10 lac. 15% 3 to 36 months
Aroggo Tk.3 to 30 lac 17% 12 to 48 months
Durjoy Tk.3 to 25 lac 18% Maximum 5 years
Trade plus Tk.1 to 30 lac --------- Maximum 6 months
Prosher Tk.3 to 30 lac 17% 12 to 60 months
Buziness Equity 3.5 crore
Business Loan Tk.1o to 30 lac 17.4% 12 to 60 months
Dutch-Bangla Bank Limited (DBBL) is Bangladesh's most innovative and
technologically advanced bank. DBBL stands to give the most innovative and affordable
banking products to Bangladesh. Dutch-Bangla Bank has launched the first mobile ATM
booth in Bangladesh. It was the first bank in Bangladesh to be fully automated. The
Electronic-Banking Division was established in 2002 to undertake rapid automation and
bring modern banking services into this field. Full automation was completed in 2003 and
hereby introduced plastic money to the Bangladeshi masses.
DBBL SME Product: Smart SME Cash-Credit
DBBL SME Product: Smart SME Term Loan
Purpose To meet up working capital requirement of Business
Loan Amount Minimum : TK. 100,000/-
Maximum : TK. 5,000,000/-
Interest Rate @14% p.a
Purpose To meet up working capital requirement of Business
Target
Customers
Small or Medium Entrepreneur like : an entity, ideally not a
public limited company, does not employ more than 150 persons
(if it is manufacturing concern) and 25 persons (if it is a trading
concern) and 25 persons (if it is a service concern) and also fulfils
the following criteria :
A service concern with total assets at cost excluding land and
building from Tk. 50,000/- to Tk. 10 crore
A trading concern with total assets at cost excluding land and
building from Tk. 50,000/- to Tk. 10 crore
A manufacturing concern with total assets at cost excluding land
and building from Tk. 50,000/- to Tk. 20 crore
Loan Amount Minimum : TK. 100,000/-
Maximum : TK. 5,000,000/-
Interest Rate @14% p.a.
DBBL SME Product: Small Shop Financing Scheme
Purpose The purpose of the loan may be Seasonal Financing of inventory
or Trade Receivable or both to the business entity
Nature of
Business
Wholesalers, Manufacturers / Assemblers and Retailers of
machinery, accessories, agriculture items, etc
Loan Amount Maximum TK. 500,000/-
Interest Rate @ 17% p.a. with quarterly rests
Primary
security
Secured by marketable stocks
DBBL SME Product:DBBL Smart Women Entrepreneur
Purpose To meet capital requirement owned by Women Entrepreneur
Loan Amount Minimum : TK. 100,000/-
Maximum : TK. 5,000,000/-
Interest Rate @13% p.a
Eastern Bank Ltd
With a vision to become the bank of choice and to be the most valuable financial brand in
Bangladesh, Eastern Bank Ltd. (EBL) began its journey in 1992. Over the years EBL has
established itself as a leading private commercial bank in the country with undisputed
leadership in Corporate Banking and a strong Consumer and SME growth engines.
EBL’s ambition is to be the number one financial services provider, creating lasting value
for its clientele, shareholder, and employees and above all for the community it operates
in.
EBL SME Product: EBL PUJI
Features
Any business purpose loan from Tk. 500,000 to Tk. 5,000,000
To be repaid within maximum 36 months (Next loan is repayable within 60
months)
Collateral security required along with charge on business assets
Loan repayable in equal monthly installment
Any sole proprietorship, partnership, or private limited companies having
minimum 3 years of successful business operation
Monthly cash flow to support the proposed loan installment
EBL SME Product: EBL Agrim
Features
Any legal business purpose, loan facility minimum BDT 200,000 – maximum BDT
950,000 No collateral security required
Loan tenure 1 month to 6 months
Single shot payment at maturity but interest will be realized on monthly basis
Partial payment and early payment allowed- no additional fee required
Eligibility
Business cash flow to support the proposed loan in one shot
Necessary documents of business required
Bank account in the name of the enterprise or entrepreneurs
Personal guarantee required
EBL SME Product:EBL Bannijyo
Features
Credit facility up to BDT 20,000,000 to any legitimate import business
Nil margin LC facility
No requirement of land/building mortgage
Post import facility up to 6 months
30%-40% of total limit in the form of FD as collateral required
Over Draft facility to support day to day general expenses
Eligibility Any legitimate business with three years of operation and at least one year
experience in import business
Necessary import related documents
Business cash flow to support repayment
EBL SME Product: EBL Subidha
Features Minimum account opening amount BDT 100,000
Minimum deposit requirement for interest earning BDT 100,000
Daily interest bearing and half-yearly interest paying account
Free Monthly Statement for the Current Account and Free Half-yearly Statement
for the Shubidha Account
No Ledger Fee if the Shubidha Account average balance is BDT 100,000 or more;
incase of amount less than that a semi-annual ledger fee of BDT 300 will be
applicable
24-hour money withdrawal facility at any VISA ATM
No Intercity Transaction Fee Up to BDT 10,00,000
Any EBL Branch Banking Facility
Internet Banking facility
Evening banking facility at selected EBL branches - you can deposit and
withdraw money from 6 p.m. to 8 p.m. at these branches
Eligibility
Any legitimate business entity - sole proprietorship, partnership or private limited
company, with valid trade license and other documents as per Bangladesh Bank
requirements, can open EBL Shubidha.
EBL SME Product: EBL Asha
Features Any business purpose loan from Tk. 200,000 to Tk. 990,000
To be repaid within maximum 24 months (Next loan is repayable within 60
months)
No requirements for collateral security
Loan repayable in equal monthly installment
Eligibility
Any sole proprietorship, or private limited companies having minimum 1.5 years
of successful business operation
Monthly cash flow to support the proposed loan installment
2 personal guarantee
EBL SME Product: EBL Uddog
Features Any legal business purpose, loan minimum BDT 6,00,000 – maximum BDT
50,00,000
Without land/building mortgage
To be repaid within maximum 60 months.
Loan repayable in monthly installments
50% of the loan amount in the form of fixed deposit is needed.
Eligibility Any successful enterprise minimum one and a half years in same or relevant
business can apply for loan.
Business income to support the proposed loan installment
Necessary documents of business are required
Bank account in the name of enterprise or the entrepreneurs.
EBL SME Product: EBL Mukti
Features Credit facility up to BDT 300,000 (three lac) in any legitimate business
No requirement of land/building mortgage
Yearly interest rate is 10%, which is the lowest in the country
Repayable in 18 months
Facility is only for Women Entrepreneurs
Eligibility Any legitimate business with at least two years of operation Business Cash Flow to support repayment
Table-2: Eastern Bank SME Products
Product Name Loan Amount Repayment Period Interest Rate
EBL Puji Tk 5 Lac to 50 Lac Within 36 months ……
EBL Agrim Tk 2 Lac to 9.5 Lac Within1 to 6 months ……
EBL Bannijyo Unto Tk 2 cores Monthly installment ……
EBL Subidha Minimum amount
Tk 1 Lac
…… ……
EBL Asha
Tk 2 Lac to 9.9 Lac Within max. 24
months
……
Problems in Providing SME Loan
a) Delay in repayment of loan: Executives of various banks opined that many
borrowers show their inability to repay the loan amount in time. They also told that borrowers have lack of commitment in the repayment of loan.
b) Trustworthiness of loan borrowers: Since the borrowers cannot show
sufficient security or personal guarantor in getting loan, so the bank can not enable to provide loan in spite of their willingness.
c) Lack of Entrepreneurial Knowledge: It is the precondition of banks that
every borrower must have business knowledge to get loan .But most of the borrowers don’t know how to operate businesses properly. Therefore banks become unable to sanction loan.
d) Inability to submit complete business plan: Borrowers require submitting
business plan in getting SME loan. But most of the time, they cannot submit business plan or if they submit, most of the cases it is incomplete.
e) . Improper preparation of financial statement: Financial statements contain
ins and outs of business that show the business performance for a certain period of time. Executives informed that borrowers cannot prepare these statements properly.
f) Lack of available fund: Many executives of banks argue that banks cannot
supply much SME loans in spite of huge demand due to capital shortage. So some banks cannot keep pace with the other banks in the race of heavy competition.
g) Lack of govt. support: Although many supports from govt. are available but that are not sufficient .In this case Govt. can sanction more fund to various commercial banks, so that they can provide required loan amount to their borrowers.
h) .Unavailability of collateral free bank loan: Maximum SME initiatives
come from single brain without any institutional orientation. They do not afford providing a collateral or guarantor to produce before bank to get a small loan. Due to such problems banks are not interested to give loan to borrowers.
i) High Bank interest rate: As banks have to incur huge cost in terms of
employees compensations, administrative costs etc., the rate of interest of SME loan is high .So borrowers cannot afford of this high interest rate which eventually hampers in SME loan disbursement
j)
Recommendations
1) Proper education and knowledge: Various commercial banks which are
providing SME loan can also give some consultancy support to the loan borrowers in
preparing their financial statements and continuation of their business successfully.
2) Guidance to prepare business plan: Many loan borrower usually prepare their
business plan appropriately duo to lack of proper knowledge in this case banks can guide
them in preparing the business plan.
3) Reduction of interest rate: Bank should reduce interest rate of SME loan to
encourage entrepreneurs to help set up new business and expand existing enterprises.
4) Increasing amount of SME Loan: Banks should allocate more SME fund to
assist entrepreneurs getting required loan to run their businesses and play significant role
to reduce unemployment and poverty.
5) Increase Govt. support: As we mentioned earlier that SME is an important sector
in the development of economy. So govt. can take initiatives to train new entrepreneurs.
Besides, Govt. can sanction available fund to commercial banks to distribute SME loan.
Finally it can give some tax exemption on SME loan interest to motivate bankers to raise
their loan facility.
Conclusion
SMEs, therefore, play an important role in the economic development of developing
countries like Bangladesh. But the SMEs in of our country Faces many problem.
Although Many Private Banks, NGOs and Public Banks are working to the development
of SMEs, Lack of coordination among these organizations are highly noticed. That is
why; Sustainable development of SME sectors has not been achieved. Some managers of
different banking institutions have mentioned a set of problems related to the
advancement of SMEs in Bangladesh. Considering the problems, we suggest some
recommendations in this report that can be followed by Govt. and Non-Government
organizations to the up gradation of these boosting sectors.
References:
SME FAIR-2011 at Engineering Institute Bangladesh Bureau of Statistics Economic Survey-2003 Bangladesh Bank at New market Company visits to Commercial Banks www.smef.org.bd http://www.moind.gov.bd http://www.financialinfobd.com http://www.bracbank.com/
www.dutchbanglabank.com https://www.easternbank.com http://en.wikipedia.org/wiki/Small_and_medium_enterprises
SME and financial institutions
BRAC Bank started its journey in 2001 and in just 8 years proved to be country's fastest
growing bank. Today, the bank has 74 Branches, 60 SME Service Centers, 3 SME/Krishi
Branches, more than 212 ATMs and 424 SME Unit offices across the country. It has
disbursed over BDT 10,000 cores of SME loan and has over 500,000 individual
customers who access online banking facilities. Brac Bank ltd. has the following SME
products:
Apurbo Rin: is a loan facility for Small & Medium Entrepreneurs. Apurbo is a
combination of term loan and overdraft facility for the entrepreneurs involved in trading,
manufacturing, service, agriculture, non-farm activities, agro-based industries etc.
Anonno rin: is a term loan for small scaled business. Diggoon rin: a loan on deposit for small & medium size business. Prothoma Rin: is a term loan for small scaled business operated by women entrepreneur. Aroggo rin: is a term loan for small & medium size private Health Services Provider. Durjoy rin: is a banking facility (combination of term loan and overdraft without any tangible security for working capital purpose and/or fixed asset purchase) targeted to SME customers. Trade Plus rin:is a composite facility for small & medium sized import-oriented businesses to meet their trade finance requirements.
Proshar rin: is a term loan for small & medium size manufacturing business. Business Equity Loan: is a term loan for commercial purpose Bizness loan: is a term loan facility for all types of business who have healthy bank transactions Supplier & Distributor Loan: is a loan for various suppliers & distributors to expand their businesses Product name Loan limit Interest rate Repayment period
APURBO Up to tk.50 lac. Competitive rate ------------
ANONNO TK.3 to 10 iac
17% 3 to 36 months
Digoon loan TK 5 to 30 lac. 17% 3 to 36 months
Prothoma TK 3 to 10 lac. 15% 3 to 36 months
Aroggo Tk.3 to 30 lac 17% 12 to 48 months
Durjoy Tk.3 to 25 lac 18% Maximum 5 years
Trade plus Tk.1 to 30 lac --------- Maximum 6 months
Prosher Tk.3 to 30 lac 17% 12 to 60 months
Buziness Equity 3.5 crore
Business Loan Tk.1o to 30 lac 17.4% 12 to 60 months Table-1: Brac Bank SME Products
Dutch-Bangla Bank Limited (DBBL) is Bangladesh's most innovative and
technologically advanced bank. DBBL stands to give the most innovative and affordable
banking products to Bangladesh. Dutch-Bangla Bank has launched the first mobile ATM
booth in Bangladesh. It was the first bank in Bangladesh to be fully automated. The
Electronic-Banking Division was established in 2002 to undertake rapid automation and
bring modern banking services into this field. Full automation was completed in 2003 and
hereby introduced plastic money to the Bangladeshi masses. SME products of Datch
Bangla Bank are:
Purpose To meet up working capital requirement of Business
Target
Customers
Small or Medium Entrepreneur like : an entity, ideally not a
public limited company, does not employ more than 150 persons
(if it is manufacturing concern) and 25 persons (if it is a trading
concern) and 25 persons (if it is a service concern) and also fulfils
the following criteria :
A service concern with total assets at cost excluding land and
building from Tk. 50,000/- to Tk. 10 crore
A trading concern with total assets at cost excluding land and
building from Tk. 50,000/- to Tk. 10 crore
A manufacturing concern with total assets at cost excluding land
and building from Tk. 50,000/- to Tk. 20 crore
Loan Amount Minimum : TK. 100,000/-
Maximum : TK. 5,000,000/-
Interest Rate @14% p.a.
Purpose To meet up working capital requirement of Business
Target
Customers
Small or Medium Entrepreneur like : an entity, ideally not a
public limited company, does not employ more than 150 persons
(if it is manufacturing concern) and 25 persons (if it is a trading
concern) and 25 persons (if it is a service concern) and also fulfils
the following criteria :
A service concern with total assets at cost excluding land and
building from Tk. 50,000/- to Tk. 10 crore
A trading concern with total assets at cost excluding land and
building from Tk. 50,000/- to Tk. 10 crore
A manufacturing concern with total assets at cost excluding land
and building from Tk. 50,000/- to Tk. 20 crore
Loan Amount Minimum : TK. 100,000/-
Maximum : TK. 5,000,000/-
Interest Rate ( @14% p.a
Purpose The purpose of the loan may be Seasonal Financing of inventory
or Trade Receivable or both to the business entity
Nature of
Business
Wholesalers, Manufacturers / Assemblers and Retailers of
machinery, accessories, agriculture items, etc
Loan Amount Maximum TK. 500,000/-
Interest Rate @ 17% p.a. with quarterly rests
Primary
security
Secured by marketable stocks
Eastern Bank Ltd
With a vision to become the bank of choice and to be the most valuable financial brand in
Bangladesh, Eastern Bank Ltd. (EBL) began its journey in 1992. Over the years EBL has
established itself as a leading private commercial bank in the country with undisputed
leadership in Corporate Banking and a strong Consumer and SME growth engines.
EBL’s ambition is to be the number one financial services provider, creating lasting value
for its clientele, shareholder, and employees and above all for the community it operates
in.EBL has the following SME products:
Product Name Loan Amount Repayment Period Interest Rate
EBL Puji Tk 5 Lac to 50 Lac Within 36 months ……
EBL Agrim Tk 2 Lac to 9.5 Lac Within1 to 6 months ……
EBL Bannijyo Unto Tk 2 cores Monthly installment ……
EBL Subidha Minimum amount
Tk 1 Lac
…… ……
EBL Asha
Tk 2 Lac to 9.9 Lac Within max. 24
months
……
Special Initiatives of the Government
There is a government directive that 5% of a bank’s loan portfolio be set-aside for small
and cottage industry financing Govt. initiatives are:
a) BASIC Bank: (BASIC Bank was established in 1989 to finance small and cottage
industries. It is mentioned in its Memorandum of Articles that at least 50% of its loan-
able fund should be invested in Small Scale Industries (SSI). In 2003, the bank lent Taka
51.29 billion to SSI sector to a number of 418 projects. The Bangladesh Bank has been
providing refinance facility to this bank since 1999. A sum of Taka 250 million was
disbursed to BASIC in FY 2004 under this scheme.
(b) Palli Karma-Sahayak Foundation (PKSF): The Government established PKSF in May
1990 to work as an apex organization for the development of micro finance sector in
Bangladesh. PKSF is distributing micro-credit among the poor through 225 large and
small NGOs. Most of the beneficiaries are women. Government allocated Tk 217 million
in FY 2006-07 for this programme.
(c) Refinance Scheme for Small and Medium Enterprises: To help overcome the financial
Constraints of this sector and induce the banks and other financial institutions to provide
credit facilities to the SME sector, particularly the small entrepreneurs, Bangladesh Bank
introduced a refinance scheme with a special fund. The Government introduced a Tk. 100
million Refinancing Scheme through Bangladesh Bank. The World Bank and the Asian
Development Bank (ADB) will provide US$ 10 million and US$ 30 million respectively
to support this scheme. About 3000 SMEs have received credit under this scheme. For
the development of agro-product processing and software industries, the Government
allocated Tk 100 million to Equity Development Fund in the revised budget of FY 2005-
06. So far, 212 projects have been financed from this Fund.
(d) Credit Distribution Package: It has been announced by the SME Cell that 80% of total
resources available for SME would be allocated specially for small enterprises.
(e) Lead Bank: It has also been decided by the SME Cell that in the short run BASIC
Bank and BRAC Bank will be working together as lead banks and will be responsible for
distribution of the credit and venture capital fund. These two banks will closely work
with the previously mentioned Advisory Panel. Over the medium term, this responsibility
will devolve to the SME Foundation.
(f) SME Foundation: Asian Development Bank has expressed its interest to support the
Government to set up a Small and Medium Enterprises (SME) Foundation as part of its
country assistance strategy. Some other development partners will support the SME
foundation and it can be an apex body for these industries. The SME is one of the
Manilabased lender’s priority sectors and the bank would ready to channel more fund if
the disbursement and utilization of existing funds become faster. Over the medium term
and beyond (a time-frame of 18 or so months from now), the Government shall have to
form an SME Foundation as a pivotal platform for the delivery of all planning,
developmental, financing, awareness-raising, evaluation and advocacy services in the
name of all SME development as a crucially-important element of poverty alleviation.
Contribution of SMEs to national economy
In Bangladesh, SMEs play a significant role for the development of our economy. SMEs’ contributions are:
13. Creation of employment opportunities: 14. Up gradation of GDP growth rate: 15. Reduction of poverty: 16. Earning foreign currency: 17. Industrial raw-material supplier: 18. Earning govt. revenue: 19. Empowering women: 20. Optimum utilization of latent resources: 21. Development of standard of living: 22. Import substitution: 23. Ensure rural development: 24. Development of potential entrepreneurs Statistical data about SMEs loan:
There is need to double the contribution of Small and Medium Enterprise (SME) sector to
gross domestic product (GDP) for helping Bangladesh achieve mid-income country.
Despite having huge potential, contribution of SME sector to the country’s GDP is still
lower than those of many other countries, they said. In the first nine months of this year,
the banking sector exceeded the whole year’s target for giving loans to small and medium
enterprises (SME). The bankers said the definition included existing non-SME portfolios
as SME loans, helping raise disbursed funds to Tk 38,283 crore against a target of Tk
23,995 core. “Presently, the country’s SME sector contributes about 25 per cent to the
country’s total GDP. The rate has to be enhanced to at least 50 per cent,” SME
Foundation Chairman Aftab ul Islam said at the programme
Challenges or problems faced by SME
01.Poor Infrastructure and utility supply: There is a tendency of urbanized
industrialization in Bangladesh. Everything is Dhaka based to create one more hours of
traffic jam and pollute the Boriganga once again. This is because infrastructure facility is
so measurable in any rural destination of Bangladesh. Utility mainly electricity and gas
supply is impossible to get connected in any rural even sub urban areas. Existing SMEs
are suffering badly due to load shedding of electricity. Production oriented SMEs are
incurring losses by paying idle workers wages during long load shedding period. In one
particular period of each year gas pressure remains so little that it makes no sense. So
poor infrastructure and disrupted utility supply is the major barrier for our SMEs.
02.Unavailability of collateral free bank loan Maximum SME initiatives come from
single brain without any institutional orientation. They do not afford providing a
collateral or guarantor to produce before bank to get a small loan. They are only dream
sellers sometime with excellent ideas. Financing those ideas to bring the dreams into
reality should be there. Government has to take some risk of distributing collateral free
bank loan to the SME entrepreneurs is essential here. I am fully confident that thousands
of SME defaulters can not be equal to a single bank defaulter in large industry of
Bangladesh.
03. Limited access to information People have ideas to produce useful items. But
information is not available on demand of these products. So they can not place the
product into a demand full market in right time. Then loss incurs and SMEs suffers badly.
In such case government has to take initiative so that SME information goes to general
peoples reach. Only one SMEWP is not sufficient to distribute SME information to the
whole nation. Because how many SME entrepreneurs know to browse internet is a big
question.
04. Traditional Technology SME owners generally use local technology to produce goods
but these are not productive enough to fulfill market demand, or not producing quality /
beautiful products to compete with the low cost Indian & Chinese products freely
available in our local market. As a result our SME entrepreneurs are losing their
livelihood due to poor technical know-how.
05. Low productivity of labor Bangladeshi SME sectors are employing about 82% of
workforce and producing around 50% of industrial output. This statistics proves that our
labors are low productive. It may be for their inefficiency, may be for poor technology or
what ever it is.
06. Lack of entrepreneurship development program In Bangladesh there is no agency
even not a single educational institution called Entrepreneurship Development Institute,
basically to create entrepreneurs there is no hard and fast faculty but for effective
entrepreneurship generation entrepreneurship education. But in Malaysia there is a
Ministry called ‘Ministry of Entrepreneur and Cooperative Development’. They have
different divisions and wings for operating training, motivation, innovative support for
entrepreneurship development.
07. Lack of sector specific skilled manpower There is not educational institute or
technical college in Bangladesh equip with modern technologies of our fast growing
industrial sector for training up people to employ in that sector. For example there is not
plastic and rubber faculty in Bangladesh though it's a growing sector with tremendous
export potentials. Scenario is same in other promising sectors as well.
08. Complicated bureaucratic procedures: To start a manufacturing plant we need a series
of license, registrations and clearances. For example to start an SME we need-
a. Trade license issued by the local government office (UP Chairman, City Corporation
office)
b. Trademark registration register by the Office of Patent, Design and
Trademark Register under the Ministry of Industry
c. TIN Number from NBR or Income tax Office under ministry of Finance,
d. VAT registration from the same authority,
e. Membership of any trade body (district chamber or sect oral association),
f. Import registration certificate from CCI & E under ministry of commerce
g. Export Registration Certificate from the previous office.
h. Environment Clearance from the ministry of environment
i. Fire clearance from the fire Bridget and many more.
Completing all these formality is not so easy and every desk needs bribe to be passing out
with your file. This time consuming and corruption promoting system should be making
easier. Any SME owners can start his / her business without any prior permission and
concern local agency will go to him collect government prescribed revenue and provide
his registration or clearance. Thus SME entrepreneurs can get relief from harassment and
real SME promotion will take place.
09. Lack of marketing knowledge: One of the major problems of our SMEs is not to
know the market. Where and when his / her product should be sold? They do not know
how to get export market access. Even how their products have to be promoted for
consumer's attraction with low cost promotion is not known to them.
Government can take the lead to promote our SME products in home and abroad. All our
missions abroad should have one SME product display and sales center for introducing
our SME products in abroad. All our international airports, tourist spots and five star
hotels should have one SME product display and sales center for the same. Marketing
training can be given to the small entrepreneurs to educate them in marketing
techniques.
10. High Bank interest rate: To make profit with 13% bank loan, employing people,
paying rents, and other utility charges SMEs have to do sales products with a 50% plus
rate of their manufacturing cost. But with 5 - 7% bank interest rate our competitors in
India or China will not take the market vacant for Bangladesh SMEs. To sustain in a
competitive global market we have no option but to produce quality goods in a cheap
rate. But by paying double digit interest it is not possible. As a result to remain us
competitive we have to reduce bank interest rate up to single digit. Especially for the
SMEs the interest rate should be -
- Investment amount of TK. 50 thousand - 5 lac should be completely collateral free
and the interest rate would be not more than 3 per cent.
- Investment amount of TK. 5.5 lac -50 lac with collateral or a guarantor's
recommendation with less than 5 per cent interest rate.
- Investment amount of Tk. 51 lac - 10 crore and above with all shorts of collaterals
with less than 7 per cent interest rate.
11. Lack of government support to search export market: Our poor SME owners are not
capable to search their products market in abroad.
Government has to take the lead here through SME Foundation to search new export
market and facilitating access to that markets. If primarily government plays the match
makers role then individual or collective platform will be raised to continue the effort to
export into those markets.
12. High competition due to liberalization: our SME products have to face extensive
competition due to the stronger flow of free market economy and globalization of trade in
our native market as well.
13. Lack of testing facility: Day by day private standards of the importing countries are
becoming toughest. To get access to any western market we must have to comply with
WTO SPS requirements and other international standards. In Bangladesh we are till not
having facility to test many sectoral products. So upgrading our testing laboratories
according to current need is important. BSTI should take lead to ensure all accreditations
and testing facilities to all promising export oriented sectors in this regard. Obviously
BSTI deserves strong financial support to execute this program. More standard service
providing firms should be there from private sectors as well to provide ISO, HAACP,
Credit rating and other international standard certification in Bangladesh so that our SME
products get international recognition from the standard view point.
15. Absence of skilled channel of distribution to ensure fare price of growers: If we look
into the cottage industry in rural Bangladesh we are producing many diversified products
in different sectors. But producers are not getting the deserving price for these due to lack
of market orientation. A strong market platform can help producers to deserve price and
inspire to produce more. Gramen Check took an initiative to marketing hand loom
products, Arong, Agura are marketing some fashion products but nation wide or export
oriented initiative is lagging behind. SME Foundation can enlarge there mandate to
establish such an SME Channel of Distribution for the shack of the SME sector.
16. Lack of veterinary / animal health care facility: SME is not limited with only
industrial products; it includes farming, hatching and growing as well. But veterinary
health care or plant healthcare facility is rarely available in Bangladesh. Government
should take active initiative to facilitate such services through livestock and poultry
wings of the government. Thus agro farming can be booted up at the same time country
nutrition problem can be solved.
17. Absence of SME support centers: Till now a few consulting firms are providing
consultation services but with high charges. We should have more SME support centers
to give advice to the potential entrepreneurs to prepare project proposal, formulating
marketing strategy, designing products, upgrading products quality for the SMEs.
18. Absence of an individual SME Policy: There is an SME policy strategy 2005. But
many of its articles become obsolete today. So drafting and implementing an individual
SME policy based on current need is very much essential today. It should be conform to
our import policy and export policy for greater benefit out of it.
Prospects of SMEs in Bangladesh
Un-employment problem is a growing concern all over the world more particularly in
developing countries, and the panacea to the setback mostly lies in massive development
of labour incentive SME sector. SME in many cases can be set up at domestic and
household level contributing to cost cutting. Family members may also participate in the
process. Bangladesh is highly resourceful with so many seasonal fruits and also lots of
agricultural products. Pineapple and mango are best used to produce jam/jelly/juice etc
under SME. Tomato sauce and potato chips are popularly used all over the world. SME is
most suited for processing the items. If we can add more quality to the products and
ensure proper marketing, tremendous demand will be created in domestic and export
market. In RMG industries (knit) circular machines are used for knitting of the items. The
circular machines can also be set at household level to perform job works to feed RMG
industries for ultimate export of T/Polo Shirts etc. This is a subcontracting system where
RMG industries supply yarns to the entrepreneurs having circular machines. The system
has already been introduced in Dhaka and Narayangonj areas with growing demand.
Shoe making by small industries as job works of big shoe companies like BATA is a
glaring example of SME product. BATA supplies raw materials to lots of small factories
at household level in Dhaka city and gets the product (shoes) completed through
subcontract system. Lending in SME sector helps the banks to derive higher spread over
corporate one
Recommendations
(1) Uniform Definition of SMEs: There should be a consensus on developing a uniform
definition of each category of SMEs with generic classification around the country. It
should be given standard industrial code (SIC). Without uniform definition, formulation
policy and its implementation are not possible.
(2) Seed Money, Leasing, Venture Capital and Investment Funding: There is a need for
improving different aspects of financial services of SMEs, such as seed money, leasing,
venture capital and investment funding. There is a lack of long-term loans; interest rates
are high, Guarantee/Security issues, exchange risks etc. All these limit the development
of SMEs. Finance, both short and long term, should be provided at market cost of capital.
Fund should be made available through encouragement for setting up ‘Venture Capital’
organization in Bangladesh. The concept of venture capital (VC) has successfully
operating in the USA, EU countries, and Canada.
(3) Establishment of Small Business Investment and Lending Corporation (SBILC): We
should start with ‘something effective’ for industrial development in general and the
SMEs sector in particular. Such a step, for example, could be the establishment of a
separate Corporate body. That means a separate financing institution could be developed,
with joint ownership of the public and private sector. To make the proposed initiative
effective in achieving its goals, government may set up a Small Business Investment and
Lending Corporation (SBILC). The SBILC can be formed under Small Business
(4) Internal methods of financing SMEs: Small business owners should not rely solely on
financial institutions and government agencies for capital. Instead, the business itself has
the capacity to generate capital. This type of financing, called bootstrap financing, is
available to virtually every small business and encompasses factoring, leasing rather than
purchasing equipment, using credit cards, and managing the business frugally.
Another source of financing could be raising fund from share market by flotation of IPO
by SME under ‘Group IPO Scheme (GIPS)’. In the case of GIPS, a group of SME would
utilize their assets for issuance of public shares to be managed by an independent agency.
(5) Seeking International Financing: Various international donor agency/bank extends
financing to SMEs through National Development Financing Institutions (NDFIs). It is
found that they are not explored properly. The procedure of those donor agencies/banks
for loan facilities to SMEs through NDFIs may be reviewed and term and conditions may
be examined in order to make international financing more accessible to SMEs in the
country.
(6) The Role of Donors, particularly IDB: Donors, particularly IDB, may come forward
to assist the financial institutions in alleviating the constraints faced by SMEs, primarily
the access to credit and capacity building. Funding support in the form of grant may be
sought from IDB for Technical Assistance and Consulting Services for products and skill
development for the SMEs. In this area, BSCIC may also be involved for providing
promotional and technical support services to the SMEs with funding support of IDB.
(7) Assistance for SMEs from Board of Investments and Export Development Centres:
Public sector agencies like Board of Investments and Export Development Centres can
also provide useful information to SMEs. They can provide necessary information about
trade fairs in member countries as well as training in organization of exhibitions. They
can identify foreign buyers and assist local SMEs in establishing contacts with them.
Information on changing demand conditions in various international markets can be pro
vided and advisory services on exploring trade opportunities can be provided to
prospective exporters.
(9) BSCIC to be reorganized: Most entrepreneurs and businessmen express their
dissatisfaction about BSCIC. BSCIC fails to provide needed services to the small
industries due to manifold reasons; primarily due to its unorganized management. BSCIC
has to be reorganized so that enacted policy for SMEs can be implemented to help grow
small industries in the country in a better manner. Alternatively, a separate organization
such as Small and Medium Enterprise Development Authority (SMEDA) may be
established to act as a one-stop consultancy Agency to: (a) act as a body for facilitating
policy making for SMEs, (b) provide and facilitate support services for SMEs, (c) act as a
resource base for the SMEs, and (d) represent SMEs on domestic and international
forums. The authority may be state supported, private or jointly supported organization.
(10)Developing Institutional Network through Public-Private Partnership: The design of
most government agencies appears to be overly bureaucratic and unsuitable for
effectively supporting SMEs in Bangladesh. As such, re-organization of the design of
these agencies has for long been overdue. Public-private sector partnership, by
redesigning the existing public agencies, could be developed, developing appropriate
institutional network. The objective behind this would be to utilize the strengths of public
and private agencies, while neutralizing the limitations, if any, inherent in their existing
organizational design.
(11) Establishment of R&D Institute for Enterprise and Entrepreneurship Development,
Training and Research Institute: In a country like Bangladesh, where entrepreneurial
initiative is rare and shy, a separate institute for enterprise and entrepreneurship
development, training and research should be developed. To make it a ‘centre of
excellence’ in SMEs development, it should be designed, involving educational
institutions, business associations, relevant government bodies, private research agencies,
and individual consultants having experience in SMEs development.
(12) Implementation and Monitoring of Policy Measures for SMEs: Only policy
prescription is not the end, if it is not implemented through different measures timely and
properly.
Conclusion
SMEs, therefore, play an important role in the economic development of developing
countries like Bangladesh. But the SMEs in of our country Faces many problem.
Although Many Private Banks, NGOs and Public Banks are working to the development
of SMEs, Lack of coordination among these organizations are highly noticed. That is
why; Sustainable development of SME sectors has not been achieved. Some managers of
different banking institutions have mentioned a set of problems related to the
advancement of SMEs in Bangladesh. Considering the problems, we suggest some
recommendations in this report that can be followed by Govt. and Non-Government
organizations to the up gradation of these boosting sectors.
References: SME FAIR-2011 at Engineering Institute Bangladesh Bureau of Statistics Economic Survey-2003 Bangladesh Bank at New market Company visits to Commercial Banks www.smef.org.bd http://www.moind.gov.bd http://www.financialinfobd.com http://www.bracbank.com/ www.dutchbanglabank.com https://www.easternbank.com http://en.wikipedia.org/wiki/Small_and_medium_enterprises