Small and medium enterprises (SMEs) are a driving force in the economy, but this sector is limping due to various problems related to access to finance, technology adoption, market access facilitation, skills development, and policy support.
Industry insiders say bureaucratic hurdles and complex regulatory processes hinder the sector’s growth despite its huge potential. Moreover, Bangladesh has an immense scope for increasing the SME sector’s contribution to the gross domestic product (GDP) through proper utilisation of demographic dividend.
In this context, the country needs a specific action plan for this sector and support the entrepreneurs to meet the challenges of the least developed country (LDC) graduation expected to happen by 2026, they also said.
There were 7,813,315 cottage, micro, small and medium enterprises (CMSMEs) and the number of people involved in this sector was 21,033,994, according to the Economic Census 2013 conducted by Bangladesh Bureau of Statistics (BBS).
The BBS data shows the contribution of the manufacturing sector, which includes CMSMEs, to GDP was 24.45 per cent in FY22.
Starting business full of challenges
Entrepreneurs have to face many challenges when starting a business in the country, with problems related to funding, documentation, raw materials, marketing, and bureaucratic processes hitting them hard initially, Proprietor of Izma Brand Saif Muhammad Salman told The Business Post.
He said the government encourages entrepreneurs in various ways so that the SME sector can flourish. “This inspires us to be entrepreneurs, but the reality is different. New entrepreneurs have to suffer in every step of their journey.”
Salman said the government had provided a lot of money to help SMEs recover from the Covid-19 pandemic impacts.
“But we did not get the money. Most of the assistance went to the large companies. Micro and small businesses are deprived at every stage,” he also said.
Salman further said operating costs almost doubled in the last six to seven months but it is impossible to increase product prices as much in the competitive market.
“We are trying to get the export registration certificate (ERC), but we cannot get it without becoming a member of the jute department. We have to pay Tk 24,000 every year if we want to become a member.
“We recently got orders from a well-known businessman in Dubai, but we cannot ship due to bureaucratic problems,” he added.
Salman said Bangladesh has eight to 10 types of fabrics (jute cotton) while the number is over 100 in India.
Bangladesh lags behind India in both fabric quality and design, he said. “We have to purchase low-quality fabrics at high prices.”
“Now we supply our products to different offices, including the Jute Diversification Promotion Centre. We manufacture different types of jute bags and file folders.”
NASCIB seeks robust policy support
National Association of Small and Cottage Industries of Bangladesh (NASCIB) President Mirza Nurul Ghani Shovon said they need robust policy support from the government to foster an enabling environment for sustainable growth.
“Structural reforms are crucial to unleashing the full potential of small and cottage industries. We need policies that address infrastructure gaps, enhance skills development, encourage entrepreneurship, and foster market linkages.”
“Additionally, promoting research and development activities and improving access to technology will help our industries become more competitive globally,” he said.
Shovon said the government has the SME Policy 2019 and Industrial Policy 2022 that focus on the development of CMSMEs.
To get maximum outcomes, time-bound action plans need to be implemented effectively with collaborative approaches, he noted.
“Moreover, focusing on sustainable energy solutions and creating export-oriented opportunities will help strengthen our industries and contribute to the growth of the country,” added Shovon.
Remove ‘medium’ from the definition of CMSMEs
Dhaka Chamber of Commerce and Industry (DCCI) President Barrister Md Sameer Sattar said CMSMEs often face multiple challenges, including problems related to easy access to finance, infrastructure development, innovation, use of modern skill and technology, and policy guidance.
“Many marginal businesses in the CMSME sector have the ability to repay loans but require a long list of documents to obtain institutional loans. Therefore, simplifying the process of submitting documents required for loan approval is essential.”
He said medium enterprises have a comparative advantage over micro and small businesses in securing institutional credit due to their infrastructure, capital, and asset-based strength.
“In this situation, removing 'medium’ from the definition of CMSMEs will help micro and small businesses have easier access to finance,” Sameer added.
Roadmap needed to increase SMEs’ contribution
Talking to The Business Post, Research and Policy Integration for Development (RAPID) Chairman Dr Mohammad Abdur Razzaque said the government has to find out proper ways to increase SMEs’ contribution to the economy, which would help achieve Sustainable Development Goals (SDGs) by 2030.
“The SME sector must be modernised through diversification, adoption of technology, and product quality improvement. The first step now is inflation control,” he said.
Razzaque added that productivity will increase if the informal sector can be formalised. “Workers’ rights and access to information will have to be ensured while the tax net has to be widened.”
LDC graduation to impact SMEs
Abu Hena Reza Hasan, an international business professor at the University of Dhaka, said the SME sector lacks skilled manpower, managers, and technology.
Specific action plans are needed to develop training and technology and create skilled managers in this sector, he said.
He also said SMEs will experience declining comparative advantage in international trade and dominance in the domestic market after LDC graduation.
Higher production costs, shrinking profits or losses from sales, and declining market access with poor quality products will push them towards challenging realities, he explained.
Without active support from the government to enhance capabilities quickly, many SMEs may have to cease operations, said the professor.
Hasan added that the government should invest in producing human resources for the manufacturing and service sectors as SMEs have an acute shortage of skilled workers, technicians, and managers.
SMEF needs more funds
Talking to The Business Post, SME Foundation (SMEF) Acting Managing Director Salahuddin Mahmud said they set a target to increase the sector’s contribution to GDP to 35-36 per cent from the existing 25 per cent by 2030.
“We need Tk 20,000 crore to implement the SME Policy 2019. It will help this sector become green, strong, and sustainable,” he also said.
He added that access to finance and products, diversification, product quality, and local and international marketing are the main challenges in this sector.
