SMEs need policy support now more than ever

The small and medium enterprises (SMEs) are playing a key role in supporting Bangladesh’s economic growth by creating non-traditional opportunities for the youth – especially women, and improving the value of local products and services.

SMEs account for more than 25 per cent of our GDP and 80 per cent of total industrial jobs. The International Labour Organization (ILO) too considers SMEs a core component in economic development and employment generation.

A report published by The Business Post on Sunday mentioned that the Bangladesh Bank has revised its guidelines to ease the policy and definition of cluster financing, in a bid to boost production of specialised products in the country. The central bank’s SME and Special Programmes Department has already sent the new guidelines to the top executives of banks and financial institutions for the immediate execution of credit policy in cluster financing.

A myriad of economic issues – triggered by the Covid-19 shock and global inflation – has put Bangladesh into a difficult situation, and the banking regulator’s decision to boost support for SMEs is a step towards the right direction.

The revised guidelines indicate that the central bank is prioritising cottage, micro, small and medium enterprises (CMSMEs) so that the labour-intensive small sector can grow based on local raw materials in developing specific products.

At least 50 such small enterprises in five square kilometers in the rural areas of the country will be treated as cluster financing areas. Banks and financial institutions will disburse credit to these enterprises on easy conditions and lowest collateral guarantee.

Banks and financial institutions have to disburse minimum 10 per cent credit in the cluster financing of their total disbursement loans of the CMSMEs sector till December 2022, and it will go up by 1 per cent each year till 2024.

SMEs in the formal and informal economy are the driving force for increased employment and economic prosperity of the country. The world of work is changing, and smaller enterprises need all the policy support they can get to remain competitive.

SMEs lie at the heart of the Bangladesh economy, and more than eight million people involved in this sector are among the hardest hit by the ongoing economic headwinds. Rescuing these businesses through swift fiscal and policy measures is integral to preserving employment, supply chains and overall productivity.

Despite having great potential, SMEs contribution to Bangladesh’s GDP is still lower than those of many other countries. For example, SMEs’ contribution to GDP is 60 per cent in China, 30 per cent in India, 45 per cent in Thailand, 40 per cent in Pakistan, and around 38 per cent in Malaysia.

SME clustering is a good option for developing this sector and helping it contribute more to the economy.

As most of the SMEs are heterogeneous in nature and scattered all over the country, identifying and developing the cluster can ensure the better growth and business success of SMEs that ultimately increase their capability for greater financial access.

Cluster development and financing including facilitating its total supply chain may create new avenues for lenders as well as for overall economic progress.

The incumbent government has put much emphasis on the development of the SME sector considering it as the driving force for industrialisation. As per the BB policy, Tk 50,000 to Tk 50 lakh can be disbursed to a single enterprise of cluster financing area-based capacity.

For more participation of women entrepreneurs in the industrial development of the country and for conducting business activities by women entrepreneurs in large numbers, priority will have to be given to potential women entrepreneurs in respect of SME credit disbursement.

Banks and financial institutions should also put the highest priority on receiving loan applications from small and medium women entrepreneurs and settle the loan disbursement process within a very reasonable time from the date of acceptance of the application.