Well deserved supports for SMEs

The small and medium industries (SMEs) ideally meet the employment strategy in Bangladesh where capital intensive large enterprises would create employment for a lesser number of people. The SMEs, by contrast, are labour intensive in character and can be considered as employing a greater number of workers. The smaller enterprises also enjoy better exit conditions from business. If they fail to run viably, then the enterprises can be given up or remodelled for something else and the costs to the entrepreneurs are not so great compared to what happens when a large enterprise decides to close down or turns obsolete and needs recapitalisation.
Thus, the SMEs appear to be suitable for the Bangladesh economy in all respects. But the promotion of the SMEs is seen to be lagging behind. Bangladesh Bank (BB) has been provisioning substantial resources for the establishment of SMEs in far greater number. But the funds have been lying idle in many cases because the scheduled banks have not been able to form effective policies or to implement the same efficiently for supporting the SMEs. It is so important that the banks should be more dynamic in both forming and implementing their SME policies.
According to reports, the SMEs are yet to benefit from Bangladesh Bank’s (BB’s) refinance scheme for SMEs. The central bank in 2004 introduced a SME refinance scheme with Taka 1 billion to increase SMEs’ access to bank finance at lower interest rate. Later the fund was increased to 3 billion in fiscal year 2006-7 and to 5 billion for 2007-8. BB at the outset imposed 4 per cent interest rates on its refinance scheme which was later raised to 6 per cent. But none of the banks followed the rate and BB was finally compelled to withdraw the imposed interest rate on SME loans and allowed the banks to decide the rate on their own. Ever since this facility was extended, the banks started charging the entrepreneurs some 20 to 24 per cent interest on the loans. So, it should be clear to all why the SMEs are not cropping up at the desired number from the formidable debt servicing liabilities faced by their entrepreneurs.
A foreign private sector bank in alliance with the apex chamber body, FBCCI, declared a programme for giving awards to SME sector entrepreneurs. The purpose of it, no doubt, was to inspire the entrepreneurs in this field. This foreign bank, rather unusually, has been patronising an SME promotion plan and it claims to be on record for extending loans to the small producers and service providers. More conspicuous is the fact that it has been able to maintain a viable credit programme for the SMEs at below 10 per cent interest rate charged on the loans. This contrasts sharply with similar loans given by many NGOs at 35 per cent. The NGOs are able to do this because they are often near at hand to the borrowers and because of the insufficiency of banking sector support for this sector.
The solution can be no other than banks extending their services wider across the country, particularly into rural and semi-urban areas. Specially, the banks need to be guided by policies of lending at reasonable rates of interest to the SMEs. If a foreign bank can do this without making a loss making operation of it, there is no reason why the local banks– which are more in number– cannot do the same. In fact, several reliable surveys showed that institutional credits can be given to SMEs ‘profitably’ by charging the latter 6 or 7 per cent rates of interest. Then, where is the difficulty ? The local banks are particularly expected to do well in the SME sphere because of their generally longer experiences about local conditions.
The SME sector also needs official supports in the form of availability of selective subsidies, scaling down of duties on their raw materials, advisory and technical services, better supply of energies, etc. It needs ample recognition that the SMEs are currently employing nearly 87 per cent of the country’s industrial labour force and 90 per cent of the exported industrial products are also derived from this sector. Considering these aspects, the SME sector would be highly deserving supports it can get from any source under fair terms and conditions.