1. 1 Beginning of the Report:In recent yearss the Small and Medium Enterprise ( SME ) Financing has become animportant country for Commercial Banks in Bangladesh. To aline its corporate policy withthe ordinance of Central Bank. Bankss have become more concerned about SME andopened Windowss to carry on concern in this peculiar country. This survey has beenconducted to carry through the demands of 6th term MBM plan and derive an insightabout the present status of little and average endeavor in the economic system of Bangladesh and their funding scenario in visible radiation of Bangladesh Bank ordinance.
1. 2 Background of the Survey:
After Liberation of Bangladesh. intensive attempts were undertaken to speed up the rate of industrialisation in the state. At the beginning. import permutation and subsequentlyexport-led economic growing scheme was pursued for industrialisation. In order to attainthis aim. big sum of industrial recognition was funneled to the industrial sector. Butthe whole exercising of industrialisation came to a arrest with the monolithic recreation of resources to other non precedence sectors.
Policy shapers. of late. have come to acknowledge thecontribution of SME sector towards economic development in the state. Small andmedium endeavors have been recognized as one of the most of import agencies for supplying better economic chances for the people of least developing states likeBangladesh.
A developing economic system like that of ours suffers from many peculiar problemssuch as disproportional force per unit area of population on agribusiness due to miss of ruralindustrialization. unemployment and underemployment of human and materialsresources. imbalanced regional development etc. The part of little and mediumenterprises in the solution of these jobs is beyond uncertainty. provided they are organizedand tally on scientific footing. Small and medium endeavors are peculiarly suited for dumbly populated countrieslike Bangladesh where SME sector can supply employment with much lower investing per occupation provided. Out of 11 % employment of the civilian labour force provided by themanufacturing sector. about two tierces are estimated to be provided by the little andcottage industries sector. Again. development of little industries facilitates the effectivemobilization of capital and labour resources. They besides help in raising criterions of life
of people in rural countries. Contribution of SME sector to GDP remained above 4 % duringthe period from 1985-86 to 1999-00. Furthermore. the present part of SME sector toGDP is about 5 % and SME sector employs 25 % of the entire labour forces. thusthis sector is the present available sector for creative activity of occupations ( Saha. Sujit R. 2007 ) . Research documents developed by Bakht. Zaid ( 1998 ) and Ahmad. Salahuddin et Al. ( 1998 ) described that the policy environment within which SMEs in Bangladesh operateaccompanies legal. regulative and administrative restraints to employment creative activity bySMEs. The hardiness of SME parts to employment coevals is a common phenomenon in most developing states in that the magnitude varies between 70 % to95 % in Africa and 40 % to 70 % in the states of the Asia-Pacific part ( Ahmed. M. U. 1999 ) . Liberalization of industrial and trade governments along with globalisation are likely to havehad important effects on Bangladesh’s SMEs ( Ahmed. 2002 ; Bhattacharya et. Al. . 2000 ) .
Assorted recent surveies ( Ahmed. M. U. 2001. ADB 2001. USAID 2001 ) show that SMEshave undergone important structural alterations in footings of merchandise composing. grade of capitalisation and market incursion in order to set to alterations in engineering. marketdemand and market entree brought by globalisation and market liberalisation. Theofficial information show that the portion of private investing in Bangladesh’s GDP in the late1990s. which may be considered as the post-reform epoch. has remained more of lessconstant at around 15 % ( Bhattacharya. 2002 ) . This may be interpreted as an grounds of dead private sector activities in the state. The recent private sector study estimates the part of the micro. little. andmedium endeavors ( MSMEs ) is 20-25 % of GDP ( Daniels. 2003 ) . While SMEs arecharacteristically extremely diverse and heterogenous. their traditional laterality is in afew industrial sub-sectors such as nutrient. fabrics and light technology and wood. cane and bamboo merchandises.
Harmonizing to SEDF beginnings quoted from ADB ( 2003 ) . nutrient and textileunits including garments history for over 60 % of the registered SMEs. Despite these parts in the economic system of the state. Banking sectors are notinterested in financing the little and average endeavors ; instead there is a diminution in theamount of progresss by the Banking sector. There are about 52 Banks runing in our state and all are functioning big endeavors instead than SMEs though merely thesmall enterprise’s part is 5 % in GDP of Bangladesh in 2007. But why? What are the causes for which Banks are non interested in financing this sector? Fromrecent statistical informations of Sonali Bank of Bangladesh. we see that the recognition recovery rate is51. 44 % in this sector. Why this recovery rate is non big plenty? Why the SMEs arefailing to payback their recognition to the loaners? We have tried to happen out the reply of thesequestions in this research paper. 1. 3 Aims of the Survey:
Based on the above treatment the undermentioned aims are set for the survey:To reexamine the function of SMEs in the economic system every bit good as current position of SMEsand their funding by Banks in Bangladesh.To happen out the ground why the Banks are non interested ( jobs ) to financethe SMEs.To reexamine the present function of Regulatory Authorities in SME funding anddevelopment.
1. 4 Methodology of the Survey:The survey was conducted chiefly based on secondary information although someinformation associating to enterprisers have been collected chiefly. The beginnings of datainclude Office Records. BIBM – Library. Different Research Paper sing SMEs. Different Publications on SMEs of different Bankss and some web sites. Sample Bankss of DNCBs. PCBs. and FCBs from the sample frame. was selected purposively sing the sum of loan size. involvement rate. loan processing fees. periodof loans. manner of finance and direction. Policies associating to SME funding such as financial policy. pecuniary policy and internal policies of commercial Bankss was examined exhaustively with a position to happen out theinfluence of bing policies on SME funding. Trend and form of bank funding toSME was analyzed by sorting the funding in footings of countries. rate of involvement. types. class. and Bankss. 1. 5 Restrictions of the Survey:
Since this research is merely for academic intent. there were some restrictions in thisstudy. These are mentioned below:1. Discussion about the Small and Medium Enterprises is a huge topic. but onlysome selected countries are covered in the research paper. 2. The survey is fundamentally based on secondary informations. 3. Time was plenty but it was non possible to give full concentration in this regarddue to uninterrupted force per unit area from other classs. 1. 6 Organization of the Report:
This paper is divided into 10 chapters. The first chapter is the debut of the study. The 2nd chapter focuses on the current position of SMEs in the economic system. The thirdchapter explains the current position of SME funding by Bankss in Bangladesh. The fourthchapter explains why Bankss are non interested in financing the SMEs. The 5th chapter shows minimal demands for SME financing harmonizing to Bangladesh Bank. Thesixth chapter contains prudential ordinances for SME funding by Bangladesh Bank. Theseventh chapter shows guidelines by Bangladesh Bank for SME funding. The eighthchapter describes other developmental activities for SME funding. The 9th chapter explains restraints of SME funding. The last chapter contains the concluding remarksof the study.
Current Status of SMEs in the Economy2. 1 Brief Macro-economic Reappraisal:Bangladesh. chiefly backed by the growing of fabrication. building and servicesector has achieved a year-upon-year GDP growing of 6. 51 % in 2006-07. as comparedwith the 6. 63 % in FY 2005-06. and 5. 38 % in 2004-05. Per capita GDP late surpassed $ 500. From 1 % during the 1970s. growing rate of GDP per capita has ramped up to over 3 % since the early 1990s and. since 2003-04. even higher. to 4 off per centum. Growth has been more stable excessively ; Bangladesh among the smattering of states that sustained positive per capita growing in each twelvemonth since the early 1990s. This public presentation has beenunderpinned by lifting agricultural and non-farm rural end product and a rapid enlargement inexport of readymade garments ( RMG ) . Faster economic growing has helped Bangladesh to cut down the poorness rate by about 1 ( one ) per centum point per twelvemonth since 1990. Poverty fell from 60 % in 1990 to 50 % in2000. Although the latest poorness informations are still being collected. proxy indexs suggestthat good advancement on poorness decrease and societal development has continued in recentyears. Many MDGs are besides on path for being met. ( World Bank 2005 )
The rate of gross investing in GDP in 2007-07 is 24. 33 % . The comparative portion of privatesector in gross investing. which has been turning secularly. is 18. 73 % in 2006-07. Between 2005-06 and 2006-07. recognition to the private sector grew by 11. 2 % . The population growing rate averaged 1. 5 % or so ; the literacy rate has averaged at 62 % duringthis decennary. Growth rate of fabricating end product of Bangladesh is on an increasing tendency. Manufacturing growing during 1992-96 averaged 8. 21 % . In the following four old ages. thecorresponding growing averaged more than nine per centum yearly. Service sector grew atan mean rate of 4. 9 % . which is lower than that of industries ( fabricating ) sector. The quantum index of SMEs has grown by 5. 4 % . The export of readymade garments ( RMG ) both woven and knitwear has picked up a applaudable manner of growing. whichearns over 76 % export net incomes
2. 2 Current Status of Small and Medium Enterprises in Bangladesh: The Small and Medium Enterprises worldwide are recognized as engines of economic growing. The normally perceived virtues frequently emphasized for their publicity particularly in the underdeveloped states like Bangladesh include their comparatively high labour strength. dependance on autochthonal accomplishments and engineering. parts to entrepreneurshipdevelopment and innovativeness and growing of industrial linkages. 2. 2. 1 Definition:
Harmonizing to the latest handbill of BANGLADESH BANK ( Date – 26/05/2008 ) . thedefinition of Small & A ; Medium Enterprise sector is given below: Small Enterprises – Small endeavors refer to those endeavors which are non anyPublic Limited Companies and which fulfill the undermentioned criteria- Service Concern–Having an investing of Tk. 50. 000 to Tk. 50. 00. 000 excludingland & A ; edifice and / or using up to 25 workers.Business Concern
– Having an investing of Tk. 50. 000 to Tk. 50. 00. 000 excludingland & A ;edifice and / or using up to 25 workers.Manufacturing Concern
– Having an investing of Tk. 50. 000 to Tk. 1. 50. 00. 000excluding land & A ; edifice and / or using up to 50 workers. Medium Enterprises
– Medium enterprises refer to those endeavors which are notany Public Limited Companies and which fulfill the undermentioned criteria- Service Concern
Having an investing of Tk. 50. 00. 000 to Tk. 10. 00. 00. 000excluding land & A ; edifice and / or using up to 50 workers.Business Concern
– Having an investing of Tk. 50. 00. 000 to Tk. 10. 00. 00. 000excluding land & A ; edifice and / or using up to 50 workers.Manufacturing Concern
– Having an investing of Tk. 1. 50. 00. 000 to Tk. 20. 00. 00. 000 excepting land & A ; edifice and / or using up to 150 workers. SMEs in Bangladesh are besides defined for intents of industrial policies by Ministry of Industries ( MOI ) . Historically. this definition has been in footings of fixed investing brackets. and a double manner definition is in topographic point. divide for manufacturingestablishments. and service constitutions.
Harmonizing to the Industrial policy 2005.little and average endeavors shall becategorized utilizing the undermentioned definitions: a. Manufacturing endeavor:Small endeavor– an endeavor should be treated as little if. in current market monetary values. the replacing cost of works. machinery and other parts / constituents. fixtures. supportutility. and associated proficient services by manner of capitalized costs ( of bend keyconsultancy services. for illustration ) . etc. excepting land and edifice. were to be up to tk. 15 million ; Medium endeavor –
an endeavor would be treated as medium if. in current market monetary values. the replacing cost of works. machinery and other parts / constituents. fixtures. support public-service corporation. and associated proficient services by manner of capitalized costs ( such as prison guard consultancy services ) . etc. excepting land and edifice. were to be up to tk. 100million ; b. Non-manufacturing endeavor:
Small endeavor– an endeavor should be treated as little if it has less than 25workers. in full clip equivalents ; Medium endeavor –an endeavor would be treated as medium if it has between 25and 100 employees. 2. 2. 2 Overview of the SMEs in the economic system of our state: There is a great involvement in little and average endeavors ( SME ) as a major board of poorness decrease in Bangladesh. The authorities has formulated a comprehensiveindustrial policy 2005 by seting particular accent for developing SMEs as a push sector for balanced and sustainable industrial development in the state to assist cover with thechallenges of free Market economic system and globalisation. Some informations with a national range that are pertinent to qualifying SMEs in Bangladeshas of 2001-2003 are presented in Table – 1. The high spot of this tabular array is the undermentioned: There are some 78. 440 private sector constitutions of assorted sizes in Bangladesh withsome 3. 5 million workers employed in them. The urban Bangladesh histories for some
60 % of units and 76 % of employment in the private-sector endeavors. Rural Bangladeshaccounts for the remainder. 93 % of all units in Bangladesh belong in the SME class. i. e. have between 20 and 99 employees. However. SMEs history for merely 44 % of the totalemployment of the endeavor sector. Private companies limited by liability history for purely a really little proportion of thetotal figure of SMEs in Bangladesh. Table – 1: Number of units and degrees of employment in little and average endeavors. 2001-03
( All Numberss are in 1000s )Description
Beginning: BBS Census of Enterprises. 2001/2003.Table – 2 shows the mean employment per constitution within each of the little andmedium categories for urban and rural Bangladesh in 2001/2003. The undermentioned consequences areworth foregrounding. Let it be noted that these are leaden norms. First. the mean employments per constitution for little constitutions have values of between 17 and 20 workers across all industries. We find a similar a narrow scope of between 65-69 employees for mean employment size for medium endeavor. Table – 2: Average head-count per constitution across Bangladesh’s industries. 2001-03 8
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