201

SME Financing: present

RECENT
status
& Contribution to
MONETARY
our Economy.
POLICY- Declared
by BANGLADESH
P R E PA R I N G A N A N A LY T I C A L
OV E R V IBANK
EWS OF SME FINANCING
B A S E DReasons
O N B A&NConsequences
GLADESH BANK.

27th February , 2011

Department Of
Finance
Jagannath University,

Dhaka.

Jagannath University

6/2/2011

SME Financing: present status

& Contribution to our Economy.
SME ( Small and Medium Enterprises ):
SME business is a non-public limited companies but a business for self-employment or for social
welfare.
>According to the latest circular of BANGLADESH BANK (Date 26/05/2008),
the definition of Small & Medium Enterprise sector is given below:
Small Enterprises Small enterprises refer to those enterprises which
are not any Public Limited Companies and which fulfill the following criteria1.Service Concern- Having an investment of Tk. 50,000 to Tk. 50, 00,000
excluding land & building and / or employing up to 25 workers.
2.Business Concern - Having an investment of Tk. 50,000 to Tk. 50, 00,000
excluding land & building and / or employing up to 25 workers.
3.Manufacturing Concern - Having an investment of Tk. 50,000 to Tk. 1,50,00,000
excluding land & building and / or employing up to 50 workers.
Medium Enterprises Medium enterprises refer to those enterprises
which are not any Public Limited Companies and which fulfill the following
criteria1.Service Concern- Having an investment of Tk. 50,00,000 to Tk.
10,00,00,000 excluding land & building and / or employing up to 50 workers.
2.Business Concern - Having an investment of Tk. 50,00,000 to Tk.
10,00,00,000 excluding land & building and / or employing up to 50 workers.
3.Manufacturing Concern - Having an investment of Tk. 1,50,00,000 to Tk.
20,00,00,000 excluding land & building and / or employing up to 150
workers.

Partition of SME Enterprises: SMEs in Bangladesh are also defined for

purposes of industrial policies by Ministry of Industries (MOI). Historically,
this definition has been in terms of fixed investment brackets, and a dual
mode definition is in place, separate for manufacturing establishments, and
service establishments.

>According to the Industrial policy 2005, small and medium enterprises shall be
categorized using
the following definitions:

Manufacturing enterprise:
Small Enterprises

an enterprise should be treated as small if, in

current market prices, the replacement cost of plant, machinery and other
parts / components, fixtures, support utility, and associated technical
services by way of capitalized costs (of turn key consultancy services, for
example), etc, excluding land and building, were to be up to tk. 15 million;

Medium enterprise

- an enterprise would be treated as medium if,

in current market prices, the replacement cost of plant, machinery and

other parts / components, fixtures, support utility, and associated
technical services by way of capitalized costs (such as turn key
consultancy services), etc, excluding land and building, were to be up
to tk. 100 million;

Non-manufacturing enterprise:
Small enterprise an enterprise should be treated as small if it has
less than 25
workers, in full time equivalents;
Medium enterprise

- an enterprise would be treated as medium if it

has between 25
and 100 employees.

Brief Overview Of SME Financing:

There is a great interest in small and medium enterprises (SME) as a major

plank of poverty reduction in Bangladesh. The government has formulated a
comprehensive industrial policy 2005 by putting special emphasis for
developing SMEs as a thrust sector for balanced and sustainable industrial
development in the country to help deal with the challenges of free Market
economy and globalization.
Some data with a national scope that are pertinent to characterizing SMEs in
Bangladesh
as of 2001-2003. There are some 78,440 private sector establishments of
various sizes in Bangladesh with some 3.5 million workers employed in them.

Current Status of SME Financing by Banks in

Bangladesh:
BB Sets SME Financing Target at tk 625b for 2011:
(A Collected news about SME loan from Financial Express )
The central bank has set the target for disbursement of loans at over Tk 625
billion for the small and medium enterprise (SME) sector in calendar year,
2011, marking a 64 .56 per cent increase over that of the previous year.
The banks and financial institutions initially set the target at Tk 240 billion in
2010. But the SME financing target was later revised upward for the year - to
Tk 380 billion to meet the growing demand for such credits.
Sr l
no

Types of Banks name

Estimated

01.

Owned commercial banks and

financial institutions

Tk 134.99 billion

02

private commercial banks

Tk 451.76 billion

03

foreign commercial banks

Tk 15.93 billion

04

country's non-banking financial

institutions

Tk 22.65 billion

Total:

SME sectors:

Besides, The loans will be given to more than 60

categories of operations in the SME sector such as light engineering
handicraft,
flower,
fish processing,
handloom, rice-mill
Jamdani, Rajshahi silk,
Bank of Small Industries and Commerce Bangladesh Ltd. (BASIC) is entrusted
with the responsibility of providing medium and long-term loans for
promotion and development of small-scale industries. The memorandum and
Articles of Association of the bank stipulates that 50% of loanable funds shall
be used for financing small scale and cottage industries. The outstanding
credit of BASIC stood at Tk158.9 crore at the end of December 2001 for
small and cottage industries sector that rose to Tk178.7 crore by 12.46%
at the end of December 2002.

Comments of Analysts: "We've already taken a three-tier

monitoring arrangement to ensure growth of the SME sector in the country,"
the BB official said, adding that the central bank has advised the banks and
financial institutions to invest their funds on a cluster basis, along with an
area-approach method.
Under the monitoring arrangement, the head office of the central bank, its
nine branch offices across the country and head offices of all commercial
banks will regularly review the implementation of SME credit programmers.
"We've put emphasis on cluster and area-approach methods for
disbursement of such loans with the aim of easing inflationary pressures on
the economy through creation of jobs across the country," the BB official
noted.
Developing countries like China are getting 20 to 30 per cent of their GDP from
SMEs whereas this sector in Bangladesh is contributing 20 per cent to GDP with 60
per cent of total labour employed, Mr Aftab said.

SME: Thrust sector deserves appropriate

support:
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.

Prospects:
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 labor 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.

The government is considering a special package for the

SME sector:
Determining the economy growth government initiating to develop SME . The
government considers a further cut in bank interest rates, especially for small and
medium enterprises (SMEs) to help the sector grow faster, said the commerce
minister yesterday. ?We have already brought down the interest rate to support the
country's entrepreneurs. We are considering reducing the rate further to help
different sectors, especially the SMEs, grow faster,? said Faruk Khan. Now Analysis
SME loans through a graph based on 2010 fiscal policy.

In the first nine months of this year, the banking sector exceeded the whole year's
target for giving loans to small and medium enterprises (SME) -- but only thanks to
a new definition of SME loan, according to some bankers. The bankers said the
definition included existing non-SME portfolios as SME loans, helping raise disbursed
funds to Taka 382.83 billion (US$5.4 billion) against a target of Taka 239.95
billion. If a trader borrows Taka 100 million, it can be mentioned as medium
enterprise loan because of the definition," said an official with the SME credit
department of a private bank. He said many banks have shown their loans up to
Taka 150 million as SME credit, which exaggerated the disbursed figure.
Bangladesh Bank data shows less than Taka 150 billion was lent to the SMEs in
2009

SME From the speech of Budget 2010-11:

[183]. Considering the SME sector as one of the main agenda of economic development, for the first time
in 2010, we have fixed a target of Tk. 23,995 crore as SME loan to be disbursed by the banks and
financial Institutions. The banks and financial institutions will distribute loans to the SMEs and women
entrepreneurs in accordance with the ascertained target.
[184]. Under the SME Re-financing Scheme managed by Bangladesh Bank, an amount of Tk.1,541
crore has been refinanced from three funds up to April, 2010 to various banking and nonbanking financial
institutions. The beneficiary coverage of this scheme is 15,672 SMEs.
[185]. In order to create an equitable and well-organized development of the industrial sector, a directive
has been issued to establish a Women Entrepreneur Dedicated Desk in each bank and financial
institution to ensure better opportunity for the women entrepreneurs to receive loans on
easier terms and conditions.

Contribution of SMEs in the Economy:

In view of present economic development effort in Bangladesh the SME sector plays
an important role. These are reflected in the following performance /activities of this
sector:


During the Fourth Five year plan, a total of 0.35 million jobs were created
against
the target of 0.4 million.

Contribution of SME sector to GDP remained above 4.5% during the period
from2000-01 to 2004-2005 despite decline in the amount of advances by the
banking
sector to this sector.

SME sector employs 25% of the total labour force. As a result, this sector is
the
present available sector for creation jobs.

SME sector help alleviate poverty, increase income level of rural people and
promote agro-industrial linkage in Bangladesh.

SME sector requires lower energy supply, lower infrastructure facilities and
this
sector imposes less environmental risk. They contribute towards better utilization of
local resources and skills that might otherwise remain unutilized.

Small industries being labour oriented are capable of generating more

employment.

They are necessary to maintain and retain traditional skills and handicrafts.

They are the only medium for diversification of rural economy and for peaceful
and concurrent socio-economic development of all classes of people. From the
above discussion, we can say that SMEs are playing an important role in our
economy in various ways.

Conclusion:

At last we can say, SME financing plays a contribution in Bangladeshi economy. It is

a business which changes the traditional business successful to make employment
from unemployment. The importance of SME sector is well-recognized world over
owing to its significant contribution in achieving various socio-economic objectives,
such as employment generation, contribution to national output and exports,
fostering new entrepreneurship and to provide depth to the industrial base of the
economy. Bangladesh has a vibrant SME sector that plays an important role in
sustaining economic growth, increasing trade, generating employment and creating
new entrepreneurship in our country.