Press Release Details
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 labour 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.
Bangladesh is highly resourceful with so many seasonal fruits and also lots of agricultural products. Pineapple and mango are best used to produce jam/jelly/juice etc under SME. Tomato sauce and potato chips are popularly used all over the world. SME is most suited for processing the items. If we can add more quality to the products and ensure proper marketing, tremendous demand will be created in domestic and export market.
Within the purview of WTO the world is growing to turn into a single entity/state where movement of goods and capital has been made free. Hence, the country having advantages of producing any particular item over others should have monopoly market for the product. Availing the opportunity of WTO our entrepreneurs and government should come up to produce quality goods at a competitive cost where we have comparative advantages.
In RMG industries (knit) circular machines are used for knitting of the items. The circular machines can also be set at household level to perform job works to feed RMG industries for ultimate export of T/Polo Shirts etc. This is a subcontracting system where RMG industries supply yarns to the entrepreneurs having circular machines. The system has already been introduced in Dhaka and Narayangonj areas with growing demand.
Shoe making by small industries as job works of big shoe companies like BATA is a glaring example of SME product. BATA supplies raw materials to lots of small factories at household level in Dhaka city and gets the product (shoes) completed through subcontract system. This is a real kind of integration of small and medium industries with big ones and once such integration takes place, the pace of industrial growth of the country will automatically set in.
Lending in SME sector helps the banks to derive higher spread over corporate ones. Profit margin in corporate business houses is relatively getting lower due to stiff competition in the market. They remain in the profit track increasing the sales volume only, having the advantage of big investment.
Bangladesh Bank has fixed SME loan limit at Tk 2.00 lac to 50.00 lac and thereby risk is distributed among millions of customers which entails lower rate of classification than big loans where all eggs are put in a few baskets. As such, most of the banks have undertaken aggressive marketing policy to increase exposure in SME and Retail Credit to minimize lending risk through portfolio diversification.
However, the growth of SME is not exempted from the setback as appended below:
SME loan is basically term financing and repaid on installment basis, but historically the business people in our country are accustomed to and prefer continuous loan (cash credit-hypo, overdraft etc) causing slow pace of disbursement of SME loans.
A lion's share of SME loans (80%) is availed of for trading purpose, instead of manufacturing/service industries. Eventually, the purpose of SME loans to support the economic development of the country may not be served properly.
As per Bangladesh Bank policy, provision on unclassified SME loans is maintained at a higher rate (2%) than the corporate and commercial lending (1%) which appears to be contradictory to the spirits of the programme.
SME loan is predominantly supervisory credit and requires more manpower to conduct supervision, monitoring and recovery works and as such, big chunk of profit is not possible over night. Besides, the private sector banks are more profit oriented and prefer financing to big and corporate customers towards achieving year on year increased profit target.
As per Bangladesh Bank guidelines, SME is broadly categorized in 3 sectors: a) manufacturing, b) trading and c) service. While manufacturing and service sectors are prioritized allowing almost 100% re-finance but trading sector hardly gets 20% refinance, though it constitutes more than 80% of total SME portfolio. Besides, refinance has to be claimed on quarterly basis and replenishment is made after one month and above. As such, refinance package may not be so attractive to the banks.
Boosting of manufacturing and service sector no doubt is imperative for economic development of the country. If we look at the performance of manufacturing and service sectors the following weaknesses may be observed:
a) Marketing is a big problem for SME products caused for lack of competitiveness with large industries endowed with the advantage of strong marketing network and price competitiveness due to the big volume of production capacity.
b) Our workers lack technical knowledge to produce quality items. For example, jam/jelly/juice produced in our country has no qualitative match with the imported ones, even with the mango juice and jam/jelly of Bhutan though mango is not abundantly grown in Bhutan. Fortunately, various kinds of fruits are grown abundantly in different parts of our country but unfortunately, we cannot avail the opportunity to produce quality jam/jelly/juice from those produce.
c) Protection of infant industries should be the important criteria for industrialization in any country including Bangladesh. But unfortunately our infant industries lack such protection entailing slowed down pace of industrial development.
Extension of credit facility, no doubt, is a necessary condition to boost SME and Bangladesh Bank refinance scheme is also the timely approach. But these are not the sufficient conditions; rather promotion, facilitation, marketing supports and protection of infant industry are imperative in a state of merger and acquisition all over the world. Marketing of SME products should be facilitated and given highest priority where both private sector and the government should take the lead.
The traditional attitude of the bankers to earn more profit shall have to be changed to contribute to economic development of the country promoting SME. Bangladesh Bank may implement a 'one third' policy of lending i.e. one third of total credit exposures of a bank should be in corporate, one third in retail and one third in consumer. Refinance may also be allowed on monthly basis extending up to 50% for trading. The government may also help motivate the bankers to change their attitude from corporate to SME customers allowing tax rebate for financing in SME sectors.
Though, Bangladesh Small and Cottage Industries Corporation (BSCIC) has been established long back to promote small and cottage industries of the country, but could not be made so effective, rather the organization is now on the verge of closure. Since BSCIC has wide network all over the country with established set up, it may be well integrated with today's SME concept to start the journey of industrialization afresh and so to save both time and money in the process.
The government should also come up with pragmatic policies and take appropriate measures to support and patronize SME as a thrust sector with more incentive package like subsidy in water, gas, electricity, export benefits etc. Above all, the basic concept for industrialization which lies in the integration of SME with big industries shall have to be implemented with highest national priority.