Small and Medium Enterprise in Bangladesh

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The Small and Medium Enterprises worldwide are recognized as engines of economic growth. The commonly perceived merits often emphasized for their promotion especially in the developing countries like Bangladesh include their relatively high labor intensity, dependence on indigenous skills and technology, contributions to entrepreneurship development and innovativeness and growth of industrial linkages. Out of 11% employment of the civilian labor force provided by the manufacturing sector, about two thirds are estimated to be provided by the small and cottage industries sector. Again, development of small industries facilitates the effective mobilization of capital and labor resources. They also help in raising standards of living.

Definition:
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- Service Concern- Having an investment of Tk. 50,000 to Tk. 50, 00,000 excluding land & building and / or employing up to 25 workers. Business Concern - Having an investment of Tk. 50,000 to Tk. 50, 00,000 excluding land & building and / or employing up to 25 workers. 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- Service Concern- Having an investment of Tk. 50,00,000 to Tk. 10,00,00,000excluding land & building and / or employing up to 50 workers. 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. 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.

Table-1: Contribution of Large and Small Industries to the GDP (%)

| 1999-00| 2000-01| 2001-02| 2002-03| 2003-04|
Large Industry| 11.01| 11.13| 11.16| 11.29| 11.47|
Small Industry| 4.39| 4.46| 4.60| 4.68| 4.78|
Total Industry| 15.40| 15.59| 15.76| 15.97| 16.25|

(Source: Economic Review, Ministry of Finance, GOB, 2004)

Special Initiatives of the Government
In the past, the government has attempted to provide SMEs with access to finance through targeted lending. There was a government directive that 5% of a bank’s loan portfolio be set aside for small and cottage industry financing.

(a) BASIC Bank:
BASIC Bank was established in 1989 to finance small and cottage industries. It is mentioned in its Memorandum of Articles that at least 50% of its loan-able fund should be invested in Small Scale Industries (SSI). In 2003, the bank lent Taka 51.29 billion to SSI sector to a number of 418 projects. The bank offers moderate interest rates on SME lending compared to other private commercial banks and foreign banks. For financing small and cottage industries in the private sector, the Bangladesh Bank has been providing refinance facility to this bank since 1999. A sum of Taka 250 million was disbursed to BASIC in FY 2004 under this scheme.

(b) Palli Karma-Sahayak Foundation (PKSF):
The Government established PKSF in May 1990 to work as an apex organization for the development of micro finance sector in Bangladesh. PKSF is distributing micro-credit among the poor through 225 large and small NGOs. Most of the beneficiaries are women. Government allocateed Tk 217 million in FY 2006-07 for this programme. In addition, in FY 2006-07, the allocation raised to Tk. 267 million by injecting Tk. 100 million in “Special Fund for the Employment of the Hardcore Poor” administered by PKSF. To provide Credit Assistance to Small Entrepreneurs in rural areas, Government...
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