Sme in Bangladesh

Topics: Bank, Economic growth, Economics Pages: 8 (2349 words) Published: February 12, 2013
1.1 Origin of the Report:
In recent days the Small and Medium Enterprise (SME) Financing has become animportant area for Commercial Banks in Bangladesh. To align its corporate policy withthe regulation of Central Bank, banks have become more concerned about SME andopened windows to conduct business in this particular area. This study has beenconducted to fulfill the requirements of sixth term MBM program and gain an insightabout the present condition of small and medium enterprise in the economy of Bangladesh and their financing scenario in light of Bangladesh Bank regulation. 1.2 Background of the Study:

After Liberation of Bangladesh, intensive efforts were undertaken to accelerate the rate of industrialization in the country. At the beginning, import substitution and subsequentlyexport-led economic growth strategy was pursued for industrialization. In order to attainthis objective, large amount of industrial credit was funneled to the industrial sector. Butthe whole exercise of industrialization came to a halt with the massive diversion of resources to other non priority sectors. Policy makers, of late, have come to recognize thecontribution of SME sector towards economic development in the country. Small andmedium enterprises have been recognized as one of the most important means for  providing better economic opportunities for the people of least developing countries likeBangladesh. A developing economy like that of ours suffers from many peculiar problemssuch as disproportionate pressure of population on agriculture due to lack of ruralindustrialization, unemployment and underemployment of human and materialsresources, unbalanced regional development etc. The contribution of small and mediumenterprises in the solution of these problems is beyond doubt, provided they are organizedand run on scientific basis.Small and medium enterprises are particularly suitable for densely populated countrieslike Bangladesh where SME sector can provide employment with much lower investment per job provided. Out of 11% employment of the civilian labor force provided by themanufacturing sector, about two thirds are estimated to be provided by the small andcottage industries sector. Again, development of small industries facilitates the effectivemobilization of capital and labor resources. They also help in raising standards of living  

of people in rural areas. Contribution of SME sector to GDP remained above 4% duringthe period from 1985-86 to 1999-00. Moreover, the present contribution of SME sector toGDP is approximately 5% and SME sector employs 25% of the total labor forces, thusthis sector is the present available sector for creation of jobs (Saha, Sujit R. 2007).Research papers developed by Bakht, Zaid (1998) and Ahmad, Salahuddin et al. (1998)described that the policy environment within which SMEs in Bangladesh operateaccompanies legal, regulatory and administrative constraints to employment creation bySMEs. The robustness of SME contributions to employment generation is a common phenomenon in most developing countries in that the magnitude varies between 70% to95% in Africa and 40% to 70% in the countries of the Asia-Pacific region (Ahmed, M.U.1999).Liberalization of industrial and trade regimes along with globalization are likely to havehad significant effects on Bangladesh’s SMEs (Ahmed, 2002; Bhattacharya et. al.,

2000).Various recent studies (Ahmed, M.U. 2001, ADB 2001, USAID 2001) show that SMEshave undergone significant structural changes in terms of product composition, degree of capitalization and market penetration in order to adjust to changes in technology, marketdemand and market access brought by globalization and market liberalization. Theofficial data show that the share of private investment in Bangladesh’s GDP in the late1990s, which may be considered as the post-reform era, has remained more of lessconstant at around 15% (Bhattacharya, 2002). This may be interpreted as an evidence...
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