SME Banking Scope In Bangladesh.(Part-2)

SME Banking Scope In Bangladesh.(Part-2)

SME Financing: present status & Contribution to our Economy:

SME (Small and Medium Enterprises)

SME business is a non-public limited companies but a business for self-employment or for social welfare.

>According to the latest circular of BANGLADESH BANK (Date – 26/05/2008), the definition of Small & Medium Enterprise sector is given below:


►Small Enterprises – Small enterprises refer to those enterprises which are not any Public Limited Companies and which fulfill the following criteria-

1.Service Concern– Having an investment of Tk. 50,000 to Tk. 50, 00,000 excluding land & building and / or employing up to 25 workers.

2.Business Concern – Having an investment of Tk. 50,000 to Tk. 50, 00,000 excluding land & building and / or employing up to 25 workers.

3.Manufacturing Concern – Having an investment of Tk. 50,000 to Tk. 1,50,00,000 excluding land & building and / or employing up to 50 workers.

►Medium Enterprises – Medium enterprises refer to those enterprises which are not any Public Limited Companies and which fulfill the following criteria-

 1.   Service Concern– Having an investment of Tk. 50,00,000 to Tk. 10,00,00,000 excluding land & building and / or employing up to 50 workers.

2.   Business Concern – Having an investment of Tk. 50,00,000 to Tk. 10,00,00,000 excluding land & building and / or employing up to 50 workers.

3.    Manufacturing Concern – Having an investment of Tk. 1,50,00,000 to Tk. 20,00,00,000 excluding land & building and / or employing up to 150 workers.

Manufacturing enterprise:

Small Enterprises 

An enterprise should be treated as small if, in current market prices, the replacement cost of plant, machinery and other parts / components, fixtures, support utility, and associated technical services by way of capitalized costs (of turnkey consultancy services, for example), etc., excluding land and building, were to be up to tk. 15 million;

Medium enterprise

an enterprise would be treated as medium if, in current market prices, the replacement cost of plant, machinery and other parts / components, fixtures, support utility, and associated technical services by way of capitalized costs (such as turnkey consultancy services), etc., excluding land and building, were to be up to tk. 100 million;

Non-manufacturing enterprise:

Small enterprise an enterprise should be treated as small if it has less than 25

Workers, in full time equivalents;

Medium enterprise – an enterprise would be treated as medium if it has between 25

And 100 employees.

Brief Overview of SME Financing:

There is a great interest in small and medium enterprises (SME) as a major plank of poverty reduction in Bangladesh. The government has formulated a comprehensive industrial policy 2005 by putting special emphasis for developing SMEs as a thrust sector for balanced and sustainable industrial development in the country to help deal with the challenges of free Market economy and globalization.

Some data with a national scope those are pertinent to characterizing SMEs in Bangladesh

as of 2001-2003. There are some 78,440 private sector establishments of various sizes in Bangladesh with some 3.5 million workers employed in them.

Current Status of SME Financing by Banks in Bangladesh:

BB Sets SME Financing Target at tk 625b for 2011:

(Collected news about SME loan from Financial Express)

The central bank has set the target for disbursement of loans at over Tk. 625 billion for the small and medium enterprise (SME) sector in calendar year, 2011, marking a 64 .56 per cent increase over that of the previous year.

The banks and financial institutions initially set the target at Tk. 240 billion in 2010. But the SME financing target was later revised upward for the year – to Tk. 380 billion to meet the growing demand for such credits.

Types of Banks name 

Estimated 01.Owned commercial banks and financial institutionsTk 134.99 billion02private commercial banksTk 451.76 billion03foreign commercial banksTk 15.93 billion04country’s non-banking financial institutionsTk 22.65 billion Total:

SME sectors:

 Besides, The loans will be given to more than 60 categories of operations in the SME sector such as-

         ● light engineering

         ● handicraft,

         ● flower,

        ● fish processing,

         ● handloom, rice-mill

  • Jamdani, Rajshahi Silk

Bank of Small Industries and Commerce Bangladesh Ltd. (BASIC) is entrusted with the responsibility of providing medium and long-term loans for promotion and development of small-scale industries. The memorandum and Articles of Association of the bank stipulates that 50% of loanable funds shall be used for financing small scale and cottage industries. The outstanding credit of BASIC stood at Tk158.9 crore at the end of December 2001 for small and cottage industries sector that rose to Tk178.7 crore by 12.46% at the end of December 2002.

Comments of Analysts:

 “We’ve already taken a three-tier monitoring arrangement to ensure growth of the SME sector in the country,” the BB official said, adding that the central bank has advised the banks and financial institutions to invest their funds on a cluster basis, along with an area-approach method.

►Under the monitoring arrangement, the head office of the central bank, its nine branch offices across the country and head offices of all commercial banks will regularly review the implementation of SME credit programmers.

 ►”We’ve put emphasis on cluster and area-approach methods for disbursement of such loans with the aim of easing inflationary pressures on the economy through creation of jobs across the country,” the BB official noted.

►“Developing countries like China are getting 20 to 30 per cent of their GDP from SMEs whereas this sector in Bangladesh is contributing 20 per cent to GDP with 60 per cent of total labour employed,” Mr Aftab said.

SME: Thrust sector deserves appropriate support:

SME has been considered as the thrust sector in the economic development of the country with growing importance from all walks of life. It is evident that, substantial increase in SME and Retail Credit portfolios along with commercial, corporate and institutional lending, would lead the banks to its higher trajectory of growth, minimizing the risk of lending through portfolio diversification. As such, most of the banks have taken up aggressive marketing policy to augment their exposure in SME and Retail Credit. Though SME concept is nothing new, as evident from the establishment of Bangladesh Small and Cottage Industries Corporation (BSCIC), but a fresh look into and Endeavour to boosting the sector are still imperative. Bangladesh Bank re-finance scheme for SME is laudable. The role of IFC-SEDF for creating awareness among the entrepreneurs and banks/NBFIs to be more focused in SME deserve appreciation.

Un-employment problem is a growing concern all over the world more particularly in developing countries, and the panacea to the setback mostly lies in massive development of labor incentive SME sector. SME in many cases can be set up at domestic and household level contributing to cost cutting. Family members may also participate in the process.

The government is considering a special package for the SME sector:

Determining the economy growth government  initiating to develop SME . The government considers a further cut in bank interest rates, especially for small and medium enterprises (SMEs) to help the sector grow faster, said the commerce minister yesterday. ?We have already brought down the interest rate to support the country’s entrepreneurs. We are considering reducing the rate further to help different sectors, especially the SMEs, grow faster,? said Faruk Khan. Now Analysis SME loans through a graph based on 2010 fiscal policy.


In the first nine months of this year, the banking sector exceeded the whole year’s target for giving loans to small and medium enterprises (SME) — but only thanks to a new definition of SME loan, according to some bankers. The bankers said the definition included existing non-SME portfolios as SME loans, helping raise disbursed funds to Taka 382.83 billion (US$5.4 billion) against a target of Taka 239.95 billion. If a trader borrows Taka 100 million, it can be mentioned as medium enterprise loan because of the definition,” said an official with the SME credit department of a private bank. He said many banks have shown their loans up to Taka 150 million as SME credit, which exaggerated the disbursed figure. Bangladesh Bank data shows less than Taka 150 billion was lent to the SMEs in 2009

SME From the speech of Budget 2010-11:

[183]. Considering the SME sector as one of the main agenda of economic development, for the first time in 2010, we have fixed a target of Tk. 23,995 crore as SME loan to be disbursed by the banks and financial Institutions. The banks and financial institutions will distribute loans to the SMEs and women entrepreneurs in accordance with the ascertained target.

[184]. Under the ‘SME Re-financing Scheme’ managed by Bangladesh Bank, an amount of Tk.1,541 crore has been refinanced from three funds up to April, 2010 to various banking and nonbanking financial institutions. The beneficiary coverage of this scheme is 15,672 SMEs.

[185]. In order to create an equitable and well-organized development of the industrial sector, a directive has been issued to establish a ‘Women Entrepreneur Dedicated Desk’ in each bank and financial institution to ensure better opportunity for the women entrepreneurs to receive loans on

easier terms and conditions.

Contribution of SMEs in the Economy:

In view of present economic development effort in Bangladesh the SME sector plays an important role. These are reflected in the following performance /activities of this sector:

►During the Fourth Five year plan, a total of 0.35 million jobs were created against the target of 0.4 million.

►Contribution of SME sector to GDP remained above 4.5% during the period from2000-01 to 2004-2005 despite decline in the amount of advances by the banking

sector to this sector.

►SME sector employs 25% of the total labour force. As a result, this sector is the present available sector for creation jobs.

►SME sector help alleviate poverty, increase income level of rural people and promote agro-industrial linkage in Bangladesh.

►SME sector requires lower energy supply, lower infrastructure facilities and this

sector imposes less environmental risk. They contribute towards better utilization of local resources and skills that might otherwise remain unutilized.

►Small industries being labour oriented are capable of generating more employment.

►They are necessary to maintain and retain traditional skills and handicrafts.

►They are the only medium for diversification of rural economy and for peaceful and concurrent socio-economic development of all classes of people. From the above discussion, we can say that SMEs are playing an important role in our economy in various ways.

In Bangladesh, SMEs playing a significant role for the development of our economy by creating employment opportunity and producing important alternative machines and machinery parts for saving huge foreign currency for our country. So as a part of our development strategy, we should intensify our efforts to develop this sector to grow industrial base and volume of foreign trade. As we know that in this age of globalization, it is impossible to stop the flow of foreign goods to any country. Only quality products can meet the challenges in global market. For meeting this situation SMEs need to upgrade their technological capabilities and production facilities in order to produce quality products at a competitive price.

The evidence for the re-emphasis on the SMEs is manifest in the Government’s own policy intent, in any reasonable survey of the literature, and in any compilation of economic statistics regarding the industrial sector. Though the SME sector is becoming gradually a rising industrial sector of our country and contributing more and more to our export, this sector faces several common problems like lack of technical know-how, shortage of long-term financial support, lack of skilled workers, marketing link, R & D, knowledge on safety measures, hygiene, environmental pollution, etc. We need to acquire proper institutional knowledge in the fields of technological and managerial education and ask academics and researchers to work more vigorously for the sector’s rapid development.

SMEs in Bangladesh produce a multitude of labour intensive goods including, consumer items, toys small tools and paper products for the domestic market. Further development of these industries offers various investment opportunities. Export-oriented production in SMEs has gained momentum in the past few years. Entrepreneurs from Hong Kong, Japan and Korea have taken advantage of Bangladesh’s cheap and easily trainable labour and its infrastructure facilities to manufacture products for the export market.

Role of SMEs Export Growth in Bangladesh

Bangladesh maintained its upward strides in economic growth duly manifested by positive developments of the major macro-economic indicators. GDP growth was 6.43 percent in 2006-2007 compared to 6.63 percent in 2005-2006. The growth of GDP was 5.96 percent for the year 2004-2005. The national savings and investment reached 29.20 and 24.30 percent of GDP respectively in 2006-2007. Per capita GDP and GNI would cross U$ 482 mark for the first time in Bangladesh and stand at US$ 482 and US$ 520 respectively. The contribution of service sector in the GDP was 52.33% in 2007-2008; while industry and agriculture sectors were 28.58% and 19.09% respectively.

After all, small and medium enterprises, including the tiny and ‘micro’ enterprises comprise virtually all (about 99.85%) of all business enterprises outside agriculture in Bangladesh. Large enterprises account for only 0.15% of the said enterprises. SMEs including micro enterprises account for some 81.2%, while only 0.15% of all business enterprises employ a full 18.8% of the employment of all business enterprises outside agriculture. Clearly, small and medium enterprises including micro enterprises have a ground-breaking, monolithic and humongous importance in the economy of Bangladesh in the context of pro-poor growth.

The government launched a strategy of industrialization focused on the manufacturing sector. Industries (manufacturing) sector expanded at an average rate of 6.44% per annum throughout the years of FY 1972-2005. The average growth of industry sector (manufacturing) during 1992-96 was 8.21 percent. But during 1997- 2003, the growth rate rose to 6.8 percent. Manufacturing sector registered 10.77% growth for the 2005-2006. It was 9.52% for the year 2006-2007.

The growth of SMEs in a number of industries, particularly in the field of plastic, food, footwear, rubber products, chemicals, job printing and certain categories of metal based products. Plastic industry has not only succeeded in substituting imports but has also been able to penetrate the export market in specific range of products such as drums and bulk containers etc. The industry has also been producing items that are considered deemed export, e.g. accessories for the garments industry etc. Similar export successes have also been achieved by imported metal based engineering product industries. Thus, export of engineering products has experienced nearly 27% annual growth during the last 10 years, with production carried out by enterprises belonging to the SME sector. Easy import of components has also facilitated the rapid growth of a wide variety of footwear products in the country. Similarly, lower cost of imported paper and ink has helped commercial job printing to grow rapidly. Import of packaging materials at lower cost has contributed to the growth of other food industry. Rubber products and other chemical products also seem to have benefited from easier access to raw materials due to trade liberalization. Pilferage from the export oriented garments factories of fabric imported duty free also adversely affected the SMEs in weaving.

The growth of SMEs has been the trend in domestic demand. On the other hand, SMEs in dominant manufacturing industries such as grain milling seem to have stagnated due to relatively low income elasticity of demand for these products.

SMEs Defined

SMEs in Bangladesh are defined for purposes of industrial policies by the Ministry of Industries (MOI). Historically, this definition has been in terms of fixed-investment brackets, and a dual-mode definition is in place, separate for manufacturing establishments, and service establishments.

1. For manufacturing industries, the Revised SME defined:

(i) an enterprise would be treated as small if, in today’s market prices, the replacement cost of plant, machinery, structures, and other parts/components, fixtures, support utility, and associated technical services (such as turn-key consultancy), i.e. Tk. 50,000 to 1.5 crore ( 0.05 million to Tk. 15 million and / or workforce not more than 50 ;

(ii) an enterprise would be treated as medium if, in today’s market prices, the replacement cost of plant, machinery, building, structures, and other parts/components, fixtures, support utility, and associated technical services (such as turn-key consultancy), i.e Tk 1.5 crore to Tk 20 crore ( tk 15 million to Tk. 200 million and/ or workforce not more than 150 ;

From both definitions above, land and building is excluded.

2. For non-manufacturing activities (such as trading or other services), the Revised SME defined:

(iii) an enterprise would be treated as small if the fixed capital is Tk. 50,000 to Tk. 50,00000 (0.05 million to Tk. 5 million and / or workforce not more than 25;

(iv) an enterprise would be treated as medium if the fixed capital is Tk. 50,00000 to Tk. 10,00,00000 (5 million to Tk. 100 million and / or workforce not more than 50; From both definitions above, land and building is excluded.

Government Initiative for SME Export Development

(i) Government Policies and Strategies for SMEs : The government has committed in the PRSP and as well as in the Industrial Policy 2005 to consider SMEs as vehicles for quality of life improvement, economic growth and poverty alleviation of the common people. The Government will play the role as a facilitator removing policy obstacles and neutralizing market failures and secondly will provide necessary promotional support to SMEs. The poverty Reduction Strategy Paper (PRSP) Stateg: The Government will pursue an employment intensive industrialization with emphasis on SMEs and export oriented industries.

(ii) Booster Sectors: For promotional support SME policy Strategies 2005 has identified the following 11 booster sectors: (1) Electronics and electrical; (2) Software development; (3) Light engineering and metal-working; (4) Agro-processing/agri-business/ plantation agriculture/ specialist farming/tissue-culture and related business; (5) Leather- making and leather goods; (6) knitwearmaking and leather goods; (7) Plastics and other synthetics; (8) Healthcare and diagnostics; (9) Educational services; (10) Pharmaceuticals/cosmetics/toiletries; and (11) Fashion-rich personal effects, wear and consumption goods

(iii) Revenue and financial Incentives: The industrial enterprises identified as Thrust Sectors including small and medium enterprise (SMEs) in the Industrial Policy 2005 will enjoy special fiscal and financial incentives.

Private Sector Initiatives for SME Export Development

Product Launching for SMEs: Product launching by trade association, chambers, among which FBCCI, DCCI, CCCI NASCIB, WEAB, regional chambers and district chambers.

 FBCCI SME Fair: The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) has contributed a grate deal in promoting SMEs products of Bangladesh through the SME fair annually.

SCI Fair of NASCIB: National Association of Small and Cottage Industries of Bangladesh (NASCIB) organizes various Small and Cottage Industries (SCI) Exhibitions, Regional Fairs, Seasonal Exhibitions, Product Promotion of NASCIB members and Trade fairs, of which the Yearly National SCI Mela held annually is participated not only be women entrepreneurs of Dhaka but also from different districts of Bangladesh. Besides NASCIB assists its women entrepreneur members in SME in the participation of important International Trade Fairs and regional melas, where women entrepreneurs’ SME products are in great demand and these women have proved their efficiency by receiving orders for their products at different fairs.

Various Type of Fairs: Trade Fairs for product promotion and export orders are held every year by various Trade Associations as “Exposition” themes with exhibitions, displays and fashion shows. Among them are BGMEA, BKMEA, Bangladesh Engineering Industry Owners Association (BEIOB), Plastic Manufacturers and Exporters Association. Pharmaceutical Owners Association, Textile Mill Owners Association , Bangladesh Furniture Industries Association, Bangladesh Electrical Association and Bangladesh Weaver association etc.

Barriers for SME Export

(i) Insufficiencies Information: Problems in identifying, selecting and contracting international markets due to information insufficiencies. (i) Limited information to locate markets; (ii) Unreliable data about the international Market; (iii) Locating foreign business opportunities; (iv) inability to contact overseas customers;

(ii) Functional Barriers: Insufficiencies of various functions internal to the enterprises such as human resources, production and finance with regards to exporting: (i) Lack of managerial time to deal with internationalization; (ii) Insufficient quantity of personnel for internationalization; (iii) Lack of excess production capacity for exports; (iv) Shortage of working capital for financing exports;

(iii) Marketing Barriers: Pressures imposed by external forces on adapting the elements of the company’s marketing strategy including barriers associated with the company’s product, pricing,

distribution logistics and promotional overseas: (i) Developing new products for foreign markets; (ii) Adapting export product design/style; (iii) Meeting export product quality/ standards/

specifications; (iv) Offering technical/after-sales service; (v) Offering satisfactory prices to customers; (vi) Granting credit facilities to foreign customers; (v) Complexity of foreign distribution channels; (vi) Maintaining control over foreign middlemen; (vii) Unavailability of warehouse facilities abroad; (viii) Excessive transportation/insurance costs; (ix) Adjusting export promotional activities to the target market;

(iv) Procedure Barriers: Barriers associated with the operational aspects of transactions with foreign customers. (i) Unfamiliar exporting procedures/ paperwork; (ii) Difficulties in communicating with overseas customers; (iii) Slow collection of payments from abroad; (iv) Difficulties in enforcing contracts and resolving disputes;

(v) Government Barriers: Barriers associated with the actions or inaction by the home government in relation to its indigenous companies and exporters. (i) Lack of home government

assistance/incentives; (ii) Unfavorable home rules and regulations; (iii) Unfavorable foreign rules and regulations;

(vi) Customer and Competitor Barriers: Barriers associated with the firm’s customer and competitor in foreign market’s which can have an immediate effect (i) Different foreign customer habits/ attitudes; (ii) Keen competition in overseas markets;

(vii) Business Environment Barriers: Barriers associated with the economic, political-legal and socio-cultural environment of the foreign market’s within which the company operates or is planning to operate. (i) Foreign currency exchange risks; (ii) Unfamiliar foreign business practices; (iii) Different socio-culture traits; (iv) Verbal/Non-verbal language differences; (v) Inadequate of infrastructure for e-commerce; (vi) Political instability in foreign markets;

(viii) Tariff and non-tariff Barriers: (i) High tariff barriers; (ii) Inadequate property rights protection (PRP); (iii) Restrictive health, safety and technical standards; (iv) Arbitrary tariff classification and reclassification; (v) Unfavorable quotas and/ or embargoes; (vi) High costs of customs administration;

Market Development Initiative for Export

A major focus of the trade associations and chamber bodies should be to gather information regarding existing and potential markets and advise entrepreneurs regarding products and their qualities which are in demand now or can be in demand in future. What design and packaging charges and improvements would make particular products more attractive to customers, particularly abroad, should also be regularly assessed. Properly designed market development efforts such as negotiations, advertisements and exhibitions, both at home and abroad, that would be helpful towards expanding sales should be in the portfolio of their market development activities. Like many other countries the SMEs of Bangladesh have been affected by the precipitous economic liberalization in the early 1990s without first taking action preparatory to liberalization. All kinds of foreign goods including ordinary consumer items have been coming into the country easily. The domestic industries, given their relative inefficiency, cannot compete with these imported items in terms of price and also, not infrequently, quality. As a result existing enterprises have been failing and possible new ones have not been coming up initiating a process of de-industrialization. Finally special care must be taken both by the entrepreneurs as well as by the relevant government agencies to, ensure quality control and to make the products up to the international standard to remain alive in the competitive world market. Consequently, small businesses always trying to keep one step ahead of their rivals”.

Major Export flourishing in Bangladesh:

1.    SME Sub-Sectors

(i)   Agro-process, agro-based and agro-supportive industries ;(ii) Handicraft: braided rug of jute & cotton etc., (iii) artificial flower making, etc; (iv) computer soft ware and ICT; (v) micro-electronics; (vi) food processing and food staffs; (vii) floriculture; (viii) gift items; (ix) poultry and cattle; (x) jute goods; (xi) electrical appliances, (xii) leather and leather goods; pottery; (xiii) light engineering; (ivx) staffed toys; (xv) RMG, knitwear etc.; (xvi) aquaculture; (xvii) automobiles; (xviii) horticulture and (xix) medicinal plants culture; pharmaceutical

2.    Sub- Sectotal SME Export Information

Gift items :The country’s gift items manufacturing firms participated in the Tokyo International Gift Fair held on September 2- 5, 2008 . Bangladeshi participating companies displayed SME products like handicrafts, home textile, jute products, nakshi katha, scarf, bags, belts, wallets, show pieces, wall- mat, candle, cushion cover pottery and such other products. From this fair Bangladesh participants received US$ 20,000 spot orders in addition to 120.000 prospective orders. SAARC Trade Fair in Colombo, held from August 28 – 31 2008 was also able to receive spot order worth US$ 490.000. Pharmaceuticals items, Soft Drink, Jamdani Saree, Dhakai Moslin, Silk Scrap, and Other products were put on display in the Colombo fair. The prospects of exporting shoes and gift items and RMG products to Japan.

Home Textile: Export of home textile products can fetch US$1.0 billion by the next few years as many of the country’s regional rivals have shifted their focus on producing high-value textiles. Exports of home textile items such as bed linen, cushion, blanket, nakshikatha, curtain and pillow will continue to boom in the next years. Home textile products have the potentials to earn $1.0 billion from export by 2012-13 fiscal years. If the current rate of growth continues, by next four years home textile would emerge as the third highest export earning sector. A number of countries of north and South America, Europe, Africa, middle and Southeast Asia are major markets of Bangladesh’s home textiles. The demand for home textile to the USA and Europe, which account for Bangladesh’s 80 per cent export market, rose sharply in the recent months amid declining shipments from some south and Southeast Asian countries.

Electrical & Electronics Products: There is huge markets for electrical goods in different countries across the globe including Europe and Middle East. Bangladesh is near about self-sufficient in electrical goods and accessories. Apart from some 5 per cent sophisticated items 95 per cent electrical products are made in Bangladesh, at the last edge to be self-sufficient in producing all kinds of fans cables within two to three years. There is huge prospect of exporting electrical goods abroad if government helps in this regard. The products of electrical accessories like substation equipment, household electrical appliances, tube light and incandescent bulb, electrical and electronic ballast, supper enamel copper wire, energy saving bulb, voltage stabilizer, electrical cables, energy saving bulbs, electric motor, electric meter, transformers, light fittings, electrical fan, capacitor, IPS-UPS and varnish have a tremendous market for export into African countries . A local electronics assembling company will set up a liquid crystal display (LCD) television assembling plant and refrigerators the first of its kind in Bangladesh.

Camera Lens Plant: The lenses used in some of the world’s most famous camera brands are being produced in Bangladesh with such success that the company involved plans to expand I operations. Apart from camera lenses the company also produces lenses for fax machines, photocopies, security cameras, scanners and projectors.The company earns around US$ 8 million annually by exporting products.In producing lenses workers need to follow nine stages such as curve generating, smoothing, polishing, cleaning, inspection, centering, coating, second time inspection and packing for export.

Automobiles: The first ever fuel-less and environment friendly electric bike and electric rickshaw was formally launched by Electric bike and electric rickshaw would save huge foreign currency by reducing diesel use, air pollution and transport cost. The people of middle and lower income bracket will be able use it for their affordable prices. A leading automobile distributors is to assemble Mercedes-Benz buses in Bangladesh. The company will be able to cut the price of Mercedes-Benz buses by about Tk 40 lakh to nearly Tk 1.10 crore after the establishment of the assembling plant.Currently one Mercedes-Benz bus costs around Tk 1.50 crore as it enters Bangladesh in completely built form. The local assembling plant will help us offer lower prices due to cheap labour. A local manufacturing firm has initiated a move to produce CNG-run motorcycles. Main targets is to export motorcycles after meeting the domestic demand. The company has moved to produce CNG-run motorcycles, considering its cheap fuel cost. The duty structure on import of raw materials is a big constraint for the manufacturers. We can export our motorcycles to neighbouring countries, including India take advantage of the duty-free access under SAFTA in the future.

Bicycle Export: The country exported bicycles worth US$ 64.28 million in the just concluded fiscal year. Bangladesh exported around half a million bicycles in 2007-08. There is huge demand for our bicycles in the European countries. Currently, world’s some of the leading companies including Raleigh of UK, Avocet Sports, PCM of UK, Motor and Sports of the UK, Aldi of Holland, Bachtenkirch Interbike of Germany, M&F De Scheemaeker of Belgium and Formula Cycling of Belgium are importing bicycles from Bangladesh. Bangladesh is also trying other potential markets like Canada, the United Kingdom (UK) through supplying bicycles in a limited scale.The UK is a leading importer that imports bicycles worth around 220 million euro a year. Bangladesh alone exported bicycles worth 13 million euro to the UK in calendar 2007.Bicycle industry is a light engineering sector and most of parts are locally available.Bangladesh can export around 2.0 million pieces of bicycles a year.

Light Engineering : Currently, the light engineering has been producing highly demanded products like crushing machines, bicycle, spare parts of shallow engines, carbon rod for dry-cell batteries, pistons, etc. The sector is also producing agricultural tools like power-tiller and its spare parts, irrigation pumps, crank shaft, automobile components like bracket, accelerator, oil expeller, marine parts like bush and others. Besides, it is also manufacturing parts for textiles, jute and tea, food processing, construction, and tools required for furniture industry. A light engineering company has started export of flour machines to Australia recently. The light engineering sector is growing on an average 30 per cent annually and it is now eyeing export around half a billion US dollars in 2008- 09 fiscal. The light engineering sector exported US$ 310 million in 2006-07 fiscal year. There are around 40,000 light engineering units across the country and its local market size is estimated to be around Tk.200 billion with its 40000 units. The case for the light engineering sub-sector, which is but part of the Small and Medium Enterprises (SMEs), should not be looked upon as just one of the so many other claimants to government largesse. In fact, the light engineering sub-sector is the key to the development of heavy industry.

Local Firm Makes Heavy Crane: A local engineering industry, manufactured heavy barge-mounted crane at its own factory, an achievement that will pave the way to end manual lifting of heavy machinery. Having a capacity to lift around 300 tonnes of machinery or tools at a time, the crane will also be useful to lifting sunken vessels in a short time. If any company introduces such kind of heavy crane it will help save time and the completion of construction work will be possible in a span of two to three years. As we are saving huge amount of foreign currency we seek government patronisation so that we can develop crane for overseas market.”As a support industry for shipbuilding, the company is trying to explore international market for its product.

ATM Body Frames to be Manufactured Locally : A local manufacturer is set to produce automated teller machine’s (ATM) body frame, which would help develop the electronic banking sector even further. Initially, 10 ATM body frames will be delivered and 500 more frames by 2010. A private company involved in providing ATM machines to many banks of the country. In recent years, electronic channels of banking, especially ATM, have become popular among the urban population. However, the costs that they incur to manufacture such ATM bodies is substantially lower than the imported ones. A local light engineering products manufacturer at Dholaikhal that manufactured these bodies, the cost of manufacturing each ATM body is Tk 1.5 lakh where as imported price is an ATM machine for Tk 5 lakh, which was Tk 11 lakh previously, as they do not have to pay import duties anymore.

Apparel Industry: The country’s export earnings from the Readymade Garments (RMG) sector may well reach the $ 25 billion mark by the year 2013 if it remains competitive in the global market.During the same timeframe, the industry should grow in terms of capacity to employ 2 million more people in this sector. RMG export which contributes around 76 percent of the country’s annual export income, stood at $ 10.7 billion at the end of the of the fiscal year 2007-2008 posting a growth of 16 percent from the previous year.The industry, the lifeline of Bangladesh economy at the same time, directly employs more than 2.2 million people, while indirectly benefiting around 10 million.

Textiles Industry : The country’s total export earnings from ready-made garment items, textile fabrics, terry towels and home textiles exceeded $1.24 billion in July this year.Of the total, knitwear and woven garments together accounted for earnings over $ 1.19 billion in July.The EPB statistics knitwear and woven garments grew around 71.64 per cent to $1187.80 million, with knitted items growing 84.50 per cent and woven 58.55 per cent in July. Pharmaceutical, raw jute, agro processed foods and tobacco exports also continued their hefty growth in July amid continued demand for the Bangladeshi goods among the expatriate communities.However, export earnings from vegetables, leather and tea dropped during the period under review.

Pharmaceutical :.The country’s pharmaceutical market had a valuation of US$700 million in 2007 and that a compound annual growth rate (CAGR) of 18.79% through to 2012 can be expected. The greatest challenge facing the industry is the end of the patentfree regime in 2016, when local pharmaceutical companies will have to cease the production, distribution and sale of medicine that have intellectual property protection elsewhere in the world. Forward thinking local drugmakers will have to adapt their product portfolio as necessary or suffer a steep drop-off in sales. However, the global ‘patent cliff’ in 2011 will mitigate this watershed.

Glass Industry: The local multi-billion taka glass industry that sprang up in a span of three years now exports produces to a number of countries after meeting around 95 per cent of the domestic demand. The present market size is around Tk 300 crore. Previously the country was fully dependent on imported glass, whereas it now imports only 5 per cent of its demand for colored and luxurious designed glass from China, Thailand and Indonesia. Most of the raw materials, including dolomite, limestone and chemicals, for float and sheet glass need to be imported from abroad. The local glass companies are also exporting their produces mainly to South Asian countries, including India, Nepal, Bhutan and Sri Lanka. The government to take necessary measures to ease the border difficulties to smoothen the shipment of consignments, as glasses are usually exported through borders. Recently, the government is considering giving 10 percent incentives on exporting sectors, which, the industry people hope, would help the sector boom.

Label export : The label-manufacturing sector of the country has an investment of Tk 50 billion involving about 40,000 persons and the total volume of export amounted to $ 500 million in 2007 with an annual growth rate of about 20 per cent.

Jute-Blended Denim: A local fabric producer has successfully developed better and durable denim woven from blended yarns of jute and cotton. Bangladesh’s $10 billion apparel export industry produces a huge quantity of denim apparels. Woven garment manufacturers are the main users of denim for making jackets and jeans for global buyers. In the last fiscal year ended in June 2007, the country earned only $147 million from export of more than 0.6 million tons of raw jute.

Diamond Cutting: Diamonds cut and polished in Bangladesh have grabbed the limelight on the international market. But the export potential of Bangladeshi-cut diamond is yet to be fully realized1 due to bureaucratic tangles and novelty of the industry. When most of Indian-finished diamonds get $7,000 to $15,000 for each carat, Bangladeshi diamonds earn around $25,000 to $35,000 for each carat for their superior quality. The importing countries check sealing and certificates on the packages of imported diamonds. The export would reach about $10 million within next year if the government allows a bonded warehouse for diamond jewelry. The global diamond cutting industry is worth around $63 billion, with India as the major stakeholder. The country’s skilled workforce, engaged in traditional jewelry industry, can heavily contribute to the diamond cutting trade

Bags:Bangladesh made a big impact in the world’s biggest shipbuilding fair in Hamburg, bagging export orders worth US$250 million and carving a niche among the nations of ship manufacturers. The ten ships weigh 7250 tons each and have an order price of over $170 million. A prime location for building small ships thanks to its abundant cheap labor and traditional expertise.

Leather and Lather Goods:Bangladesh is going to launch a global standard testing laboratory to test and certify exportable leather and footwear products to meet the demands of international buyers. The country’s export of leather goods and footwear products will definitely increase as the local exporters will be able to receive international standard certificate from the local authorities. Meanwhile, leather worth $261.67 million was exported during July-May period of 2007-08 fiscal year against its target of $264.47 million for the same period. During the same period, the manufacturers exported footwear worth $145.73 million against its target of $147.92 million, while leather bags and purses worth $7.86 million were exported against its target of $11.65 million.

Recommendations for Export Development of SMEs

The proposed strategies and policies to be implemented on shortterm, medium term & long term basis.

1. Extensive Financial Support to SMEs: Various banks, financinginstitutions, NGOs may further increase its technical andfinancial support to SMEs through its various financingfacilities and windows, which may significantly contribute tothe creation and development of SMEs.

2. Trade Fairs, Exhibitions, Symposiums, Seminars andWorkshops: Trade fairs, exhibitions, symposiums, seminars,workshops etc. on SMEs should be organized on a regular basis.Publications of all these events should be made available for allSME establishments. Chambers around the country can arrangeexhibitions for SMEs products, so that larger number ofconsumers may gain awareness about the diversity and qualityof SMEs products.

3. Periodical Professional Training Courses for SMEs: Periodicalprofessional training courses should be arranged for technicalstaff of SMEs. Moreover training in management of smallenterprises and efficient marketing can also be provided.Training programme/workshop should be organized for thedevelopment of SMEs capabilities to acquire enhancedknowledge and skills about how to choose, use and improvetechnology.

4. Seed Money, Leasing, Venture Capital and Investment Funding:There is a great need for improving different aspects of financialservices of SMEs, such as seed money, leasing, venture capitaland investment funding.

5. Seeking International Financing: Various international donoragency/bank extends financing to SMEs through NationalDevelopment Financing Institutions (NDFIs). It is found thatthey are not explored properly. The procedure of those donoragencies/banks for loan facilities to SMEs through NDFIs maybe reviewed and term and conditions may be examined in orderto make international financing more accessible to SMEs in thecountry.

6. E-Commerce: Electronic Commerce has also great potential fordevelopment around the country and abroad. Through thisdevice, matching of buyers orders to sellers can be done in suchproducts in which SMEs are dealing. Such exchange ofinformation about sellers and purchasers shall be most useful forAgro products, leather products, textiles and clothing, IT andmetal products as well as raw materials and intermediate goods.

7. Alleviating Poverty through SMEs Development: There is greatscope of alleviating poverty through SMEs development. Sopoverty alleviation strategies and policies for SMEs should bedeveloped, in order to provide job opportunities and enhanceliving standards for large segment of this poverty ridden country.

8. Expansion and Diversification of SMEs: Bangladesh’sindustrial sector needs expansion and diversification. For thispurpose, growth of SMEs is essential. However, SMEs have toequip themselves with modern technologies and effectively usethem to raise their production efficiency.

9. Inter-Firm Linkages: In order to develop sub-contracting amonglarge and small enterprises around the country and betweenBangladesh and other SAARC or OIC countries, SubcontractingExchange Schemes can be launched. Professionalassociations and National Chambers can set-up suchestablishment. They may collect information about engineeringindustries components, and what vendor industries can providesuch components. In this way, inter-firm linkages could beexpanded at home and abroad.

10. Credit Guarantee Scheme & Financing of SMEs: FinancingSMEs can be successful, if two arrangements can be undertaken:

              i.            Separate institutions dealing with SMEs loans should beestablished around the country. They can provide adequatevolume of finance, on less strict terms and can supervise the loan repayment process as well.

                   ii.            Credit guarantee schemes. Credit guarantee schemes for SMEs can be an effective means of supporting small enterprises development, especially in our country where access to credit is constrained for small borrowers.

11. Sub-Contracting Exchange Schemes among Large and SmallEnterprises: In order to develop sub-contracting among largeand small enterprises among member countries, Sub-Contracting Exchange Schemes can be launched. ProfessionalAssociations can set-up such an establishment. They maycollect information about engineering industries components,and what vendor industries can provide such components. Thisway inter-firm linkages can be expanded around the country.

12. Technology Transfer: Technology transfer is of vital importancefor development of SMEs. Technology transfer through various means and reverse engineering to be arranged throughGovernment and private levels.

More parts of this post-

SME Banking Scope In Bangladesh.(Part-1)

SME Banking Scope In Bangladesh.(Part-2)

SME Banking Scope In Bangladesh (Part-3)

SME Banking Scope In Bangladesh (Part-4)

SME Banking Scope In Bangladesh (Part-5)

SME Banking Scope In Bangladesh (Part-6)

SME Banking Scope In Bangladesh (Part-7)

SME Banking Scope In Bangladesh (Part-8)

SME Banking Scope In Bangladesh (Part-9)