Promotion of SMEs for sustainable development

SMALL and medium enterprise (SME), as defined by the European Union (EU), comprises industries having less than 250 workers. In Bangladesh, SMEs are organisations with less than 60 workers and investment of up to Tk.10 million. There are about 6 million SMEs in Bangladesh. This is the single largest industrial sector of the Bangladesh economy.
SMEs may become the main foreign currency-earning sector for the country if they get enough nursing with professionalism. The government has established SME Foundation, and a very qualified chairman, a prominent businessman, has been recruited from the private sector. But the government has to allow him freedom to execute his plans, and ensure financial assistance.
This sector can be a sustainable tool for alleviating poverty, increasing household earnings and boosting export earnings. For achieving them, we must first conduct a "Strength Weakness Opportunity and Threat" (SWOT) analysis for this sector.
Barriers to promoting the SME sector:
Lack of capital support: A majority of our small and cottage 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. The government can establish an SME bank to provide collateral-free bank loans to SME entrepreneurs.
Absence of policy for transfer of modern technology: The sector is suffering from lack of technological support for upgrading the product quality. The government may seek support for the purpose through multilateral trade negotiations under the umbrella of the World Trade Organisation (WTO). This can facilitate smooth growth of the sector.
The prime minister urged businessmen to invest in Bangladesh during her recent visit to the US. But the unavailability of appropriate infrastructure facilities such as water, electricity and gas hampers industrial activities. This situation has to be rectified, otherwise we will not be able to attract any FDI.
Lack of marketing opportunities: Our SME sector includes a wide range of small and cottage industries, but they do not have marketing knowledge and capability to promote their products. If the government takes initiatives to promote their products abroad or help establish cooperatives to conduct marketing in the same sector, then the sector can be facilitated to achieve sustainable growth.
Inadequate policy reforms: Till now, we do not have a 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. We can suggest another major policy reform, differentiating small and cottage industry sector from the SMEs. Because they are larger medium enterprises are enjoying credit allocation facilities while the small and cottage industries sector hardly gets any loans. So, small and cottage industry sector should be separated from the SME sector.
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 the demand is now being met by other countries. The government can take initiative to market such products and play match-making role to facilitate the export of such products.
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. Rich businessmen may have access to police help but the small entrepreneurs do not have such access. Our political parties have to be committed not to let the law and order situation get out of control.
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. Related government agencies can be more active to minimise both types of problems.
Despite the barriers noted above, our SME sector has some strategic advantages. This sector needs lower capital investment to start businesses and generate employment at lower cost. Risk involvement in SME sector is lower and start-up period is shorter.
Though most of our SME products are not exported, they are meeting our local demand. As a result, we are getting low cost products in domestic market. The prices of local fabrics are lower than those of countries due to the production of the same by the SME sector. SMEs are producing import-substitute products, thus saving foreign currency.
SMEs are linking production-chain by working as backward and forward linkage units for the industrial sector.
Though the global financial crisis is threatening the export sector, it may also open up opportunities for SMEs. Increase in labour wages in China, India and Brazil may offer an advantage for our SME products. If proper initiatives are taken, our SME units can explore the opportunities for new export markets. Government can strengthen the SME Foundation for accomplishing this.
Recently, Asian Development Bank (ADB) provided funds for SME sector development. The government can seek such funding from other international organisations. Government can initiate programmes for strengthening professional training facilities to help increase the efficiency of the workers in the SME sector through SME Foundation.
A research and development (R&D) wing can be set up in the SME Foundation to help diversify SME products and to facilitate access to new export markets. Information technology in both public and private sectors can be promoted to facilitate better communication facilities to the SME sector at affordable costs. Call centres can be a promising industry if an adequate number of English literate professionals can be supplied.
The SME sector should get the priority over the foreign suppliers in public procurement. The setting of a SME bank may be considered to facilitate collateral-free loan for the units in the sector. A credit guarantee corporation may also be set up to guarantee loans to SMEs, along the lines of Export Credit Guarantee Corporation (ECGC) in India.

Md. Joynal Abdin is Assistant Secretary (WTO, RTA & FTA), The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).