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The Small and Medium Enterprises (SMEs) sector, often regarded as the backbone of the nation's economy, plays a crucial role in employment generation, fostering entrepreneurship, and driving innovation and competitiveness across diverse industries.
However, this vital sector faces significant challenges that impede its growth and potential.
Chief among these are limited access to finance, capacity constraints, and inadequate coordination, all of which prevent SMEs from fully realising their contributions to economic development.
Coupled with unreliable power and gas supply, infrastructure deficiencies, regulatory compliances, and intense competition in both domestic and international markets, these are regarded as further bottlenecks that prevent SMEs from achieving growth.
Experts have suggested policy review, enhancing access to finance, and improving productivity through demand-based training are essential for overcoming these challenges.
According to the World Bank, SMEs constitute about 90 per cent of businesses and provide more than 50 per cent of employment globally. They also serve as a crucial backward linkage industry for larger enterprises.
Empowering women, youth
On the occasion of Micro, Small, and Medium-sized Enterprises Day, United Nations Secretary-General António Guterres addressed the vital contributions of SMEs, saying, "Micro, Small and Medium-sized Enterprises have vital contributions in creating jobs, driving economic growth, and empowering women, youth and marginalised communities.
"Yet many continue to face limited access to finance, technology, markets and supply chains. These enterprises require policies, support structures and investments that promote their growth and formalisation – and, in turn, help communities prosper, uplift the most vulnerable, and pave the way for more sustainable and just livelihoods."
SMEs are growing at an annual rate of approximately 6 per cent. Bangladesh, as outlined in the SME Policy 2019, aims to increase the GDP contribution of SMEs from 25 per cent to 32 per cent by 2024.
The Planning Division reports that SMEs constitute 90 per cent of industrial units and 80 per cent of industrial employment, contributing 45 per cent to the manufacturing value added.
Unmet targets
The SME Policy 2019 was designed to provide benefits such as supportive policies, a favourable environment, effective institutions, and access to financial and business services for underprivileged yet promising entrepreneurs.
However, after five years, as the policy period ends this June, experts note that due to capacity constraints and a shortage of meaningful government entities, the policy's targets remain largely unmet.
In this regard, Dhaka Chamber of Commerce and Industry President Ashraf Ahmed stated, "The key challenge for SMEs in Bangladesh is the unavailability of funding. Our banking sector is worth almost $150 billion, while SMEs need more or less than $2-3 billion, which is insignificant in comparison.
"Since many SMEs are informal, they lack proper documentation, creating barriers to accessing finance. Additionally, there is no track record for the informal sector, so its health cannot be determined," he added.
Ashraf emphasised that the process should be data-driven.
He further states, "There are seven issues identified in the SME Policy, but our meaningful government entities lack the capacity to address all of them. Most financial activity is conducted by the central bank, which is not directly involved with this sector."
Stating that the sector has come under the most pressure due to the new monetary policy, he expressed, "Budget constraints are a significant problem. There is no budget and no capacity to work at the required volume. This sector has come under the most pressure due to the new monetary policy. Reduced investment and decreased production have resulted in a lack of working capital.
"Implementation agencies should involve other organisations to structure the policy effectively. The economy will not grow without the growth of SMEs. Without hard work, goals cannot be achieved," he emphasised.
Apart from funding, entrepreneurs face many challenges when starting their businesses. Aktaruzzaman Tushar, owner of Jutex (a jute-based small enterprise), said, "I always thought about doing something in the jute sector. But I faced challenges such as finding skilled manpower and accessing loan facilities."
He emphasised, "If we receive enough support, more entrepreneurs like us will be able to enter this sector."
Separate SME banks
Meanwhile, SME Foundation Director Rashedul Karim Munna highlighted several key issues and recommendations for improving the SME policies, saying, "There are recommendations to review the SME policy. The previous targets will be reviewed as there are some weaknesses in the current policy that need to be addressed."
He underscored the need to distinguish between CMSMEs and SMEs, address weaknesses in current policies, and improve access to SME financing by creating separate financial policies.
"SMEs contribute 60-70 per cent of the total GDP of our neighbouring countries. Adequate nurturing is needed to achieve our $3 trillion target by 2041. Thus, there are recommendations to establish separate SME banks."
Rashedul Karim also suggested increasing import duties on locally produced goods to support SMEs and focusing on product-based professional training to boost productivity.
He said that, currently, numerous training programmes aim to enhance the skill development of SMEs. However, many of these plans were conceived 4-5 years ago and are only now being implemented. The lack of coordination in their execution often leads to subpar outcomes, resulting in stagnant productivity.
The SME Foundation director highlighted the importance of detailed planning and demand-based skill development in capturing global market opportunities, especially after the Covid-19 pandemic.
"Design, training, and technology should focus on increasing productivity in a coherent and coordinated manner," Rashedul added.
