Published in The Independent on Sunday, 19 March 2017
Small and medium enterprises
An alternative ‘driving force’ of economic growth
Kaniz Fatima with Sharif Ahmed
The government and the central bank have taken various initiatives for small- and medium-sized enterprises (SMEs). But SME entrepreneurs, especially women, are still facing difficulties in running viable businesses, mainly due to difficult access to finance, high costs, and poor infrastructure and marketing facilities.
Zannatul Ferdous, a young SME entrepreneur who graduated from the US, recently started her company, D Wood. D Wood produces decorative wall panels made of wood and board. Ferdous is showcasing her products at the ongoing five-day SME fair at the Bangabandhu International Conference Centre, Dhaka, for the first time.
Talking to The Independent, she said, “Access to finance is a major problem in the SME sector since the loans that banks grant are not enough to run a sustainable business. “The current SME loan amount that banks pay ranges from Tk 5 lakh to Tk 20 lakh, which is not enough,” she added.
She emphasised, “The government’s initiative and support are needed to promote the SME product in the global market.” The demand for SME products is high outside the country and D Wood has already started exporting its products to European countries, she added.
Access to finance
The greatest challenge for women entrepreneurs in Bangladesh is access to finance. The International Finance Corporation (IFC), a member of the World Bank Group, recently conducted a study titled ‘Mapping the Market Potential and Accelerating Finance for Women Entrepreneurs in Bangladesh 2016’. It says that banks and non-bank financial institutions in Bangladesh met the credit needs of only around 40 per cent of the SMEs run by women.
With women representing half the labour force aged between 15 and 49 in the country, accelerating women’s entrepreneurship and facilitating their access to finance are pivotal to socioeconomic development.
Ismat Jerin Khan, another SME entrepreneur and the managing director of Jermatz Ltd, told The Independent, “It is true that women entrepreneurs don’t get loans easily from banks.” Khan explained the challenges of this sector: “We don’t have adequate design labs for producing innovative SME products, such as jute, leather, and handicrafts.”
Ferdous urged all the banks to lower their interest rates to 5 per cent. SME entrepreneurs should learn to make an accurate project or business profile to get loans easily from banks, she suggested.
When asked about the barriers for women entrepreneurs in getting bank loans, Salima Ahmad, the president of Bangladesh Women’s Chamber of Commerce and Industry, told The Independent that when a bank grants a loan to any entrepreneur, it scrutinises the documents submitted by the client. If they think the client is not eligible to get the loan, they don’t grant it.
Salima said in the case of women entrepreneurs, the banks should have some responsibilities. They should try to learn what the entrepreneur is lacking for which she has been denied the loan, and tell them how they can overcome the barrier. “Women entrepreneurs need to diversify their products,” she added.
Driving force
Prof Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), said, the SME sector has the highest opportunity to create employment. In a country like Bangladesh, the SME sector can play a major role, as it is a great force for the domestic market. But to play the due role, the sector has to provide enough facilities, he added.
Pointing out the problem, he said the SME sector has limited access to the global market. It needs to increase the SME market in the outside world. Besides, the entrepreneurs have to provide technological support to enhance productivity, Prof Rahman suggested.
The other major obstacles that SME entrepreneurs have been facing are a shortage of skilled manpower, inadequate training facilities, and inadequate access to online e-commerce platforms.
The recent data from the Bangladesh Bureau of Statistics shows that the contribution of the industrial sector in the country’s GDP was 31.54 per cent in 2015–16 while it was 30.42 per cent in 2014–15.
To boost the sector, the government and Bangladesh Bank have already taken several initiatives. SME Foundation was made a separate organisation. It is a good initiative, but the foundation must be strengthened with sufficient funds, said Prof Rahman. He emphasised the need for special facilities for women entrepreneurs.
Since its inception in 2007, the SME Foundation has been working with the SME division of Bangladesh Bank, the industries ministry, and the Bangladesh Small and Cottage Industries Corporation (BSCIC) to promote SMEs. Its target is to alleviate poverty, generate employment, and thereby accelerate economic growth.
Credit wholesaling
Talking to The Independent, the managing director (MD) of SME Foundation, Safiqul Islam, said the foundation was formed to serve as the central authority to guide both policies and actions designed to support SMEs.
“The SME Foundation has already made an agreement with 10 scheduled banks to grant small, collateral-free loans with simple conditions and a minimum single-digit interest rate,” Safiqul Islam informed.
In response to a question, he added that scheduled banks pay loans directly to the entrepreneurs on behalf of the SME Foundation. These are known as ‘credit wholesaling’.
So far, Tk. 60 crore has been given as a loan to SME entrepreneurs through the ‘credit wholesaling’ method. The SME division of Bangladesh Bank is following it up and monitoring the process, Safiqul Islam added.
Different estimates show that women entrepreneurs in the country form less than 10 per cent of the business enterprises in Bangladesh. This can be attributed to the many barriers that disproportionately affect women entrepreneurs, both when they start a business and when they try to scale it up. These include the legal and regulatory environment, the firm- or owner-specific characteristics, and cultural barriers.
The SME Foundation has taken an initiative known as ‘Matchmaking Programme’. Its objective is to coordinate with banks and entrepreneurs on one platform so that entrepreneurs can get easily familiarised about the bank’s rules and procedures, Safiqul Islam informed.
Matchmaking Programme
The Matchmaking Programme helps entrepreneurs get documents like verified national identity cards and trade licences for business and make proper business proposals, Safiqul Islam explained.
According to the recent report of the SME and Special Programmes Department, Bangladesh Bank, in the first nine months of the last year (January–September, 2016), banks and financial institutions disbursed Tk. 11,192 crore as SME loans. Out of that, women entrepreneurs got only Tk. 4,157 crore.
Non-Financial Activity is another programme initiated by the SME Foundation. This programme was especially designed for women entrepreneurs to build technical knowledge and managerial skills for doing business, Safiqul Islam described.
When asked about the prospect of this sector, the MD of the SME Foundation replied, “Bangladesh is a densely populated country. So, SMEs are the best tools to create more job opportunities and employment.”
“We are trying to negotiate with Bangladesh Bank to enhance the loan amount for the entrepreneurs of this sector,” Safiqul Islam highlighted.
Banks disbursed Tk. 141,935 crore to SMEs in 2016, of which only 3 percent went to women borrowers, Bangladesh Bank data shows. Some 42,000 women entrepreneurs got loans worth Tk. 5,346 crore in toto last year.
The central bank refinanced Tk. 6,200 crore to 54,000 SMEs as of February this year. But only 17,500 SMEs were owned by women entrepreneurs. Various estimates show that 10 per cent of Bangladesh’s businesses are run by women.
According to bankers, women begin businesses in a very small way and usually take loans from Tk. 5 lakh to Tk. 30 lakh, depending on the size of the initiative.
“This is the first time after the global economic recession in 2007–08 that we are seeing a lower growth in exports than in GDP. In the past, the country has recorded thrice as much growth in trade compared with the growth in GDP,” said Prof. Rahman.
“To overcome the situation, we have to depend more on our domestic market. In this respect, SMEs can play a significant role by producing more diversified products as an alternative to imported goods,” Prof. Rahman explained.