SMEs have high potential

Despite the government's recognition of the Small and Medium Enterprise (SME) sector as an important driver of economic development and employment generation, real headway is yet to be made in the sector.
Yes, the central bank has laid emphasis on the SME sector in accelerating pro-poor growth. We note also that the women entrepreneurs were given a stimulus in the form of Special Credit Package Programme through the SME foundation.
Yet, whereas in India and Sri Lanka the SMEs reportedly comprise about 21 per cent of their GDP, we are still basically stuck with policy declarations.
Starting from obtaining credit and gaining access to land through project feasibility to pricing and marketing, there is need for counselling and guidance to potential entrepreneurs.
Unless the government relaxes insistence on collateral security for availing loan from banks or other financial institutions, the funds earmarked for the sector will remain under-utilised.
Although there is domestic demand for SME products, the chief advantage of SMEs is their export potential. In this context, the prices and qualities will have to be competitive with the outside world.
The SMEs in the service and manufacturing sub-sectors are mainly facing difficulty in accessing institutional credit.
According to an expert, the small and medium scale trading houses are taking the lion's share (between 60 and 80 per cent) of the institutional credit, though they generate limited employment compared to those in the service and manufacturing sectors.
High interest rates are another barrier to the SMEs. Particular mention may be made of the refinancing schemes for SMEs under Bangladesh Bank. Unfortunately, very high interest rates charged by the banks through which the funds are being disbursed discourage the genuine SMEs to derive benefit.
Finally, we have to bear in mind three very important dimensions to prioritising SMEs. First, it is a powerful tool for pro-poor growth in the poverty reduction strategy paper (PRSPII). Secondly, this is a sector where ingenuity and innovation can get free play. Last but not least, it provides backward linkages to the higher end manufacturing sector.