An academician said there is a lack of coordination among government agencies serving SME entrepreneurs
Specialised financial institutions with a focus on the SME sector can help overcome the financial crisis small entrepreneurs in Bangladesh face, among other major problems, in the development of the sector, experts have said.
They have also identified a lack of skilled workers, limited access to the market and a lack of management as the other major problems that hinders the growth of the small and medium enterprises (SME).
At a programme on Monday they advised the authorities concerned to take steps for expanding vocational education to build skilled manpower, introducing apprenticeship in higher education, formulating and implementing timely SME policies, and developing institutional skills.
The programme was organised to unveil a research report titled "Development of SMEs in Bangladesh: Lessons from German Experiences". The virtual programme was jointly organised by the SME Foundation of Bangladesh and Friedrich-Ebert-Stiftung (FES), a German non-profit.
The prime minister's International Affairs Adviser Gowher Rizvi, who was the chief guest at the event, said the government had rapidly invested a substantial amount of money to ensure development and employment in the country by prioritising the SME sector.
Describing achievements in the SME sector as disappointing, he said more than 99% of businesses in the country are in this sector, but they "contribute only 40% to the economy".
"It is important to focus on SME skills development," he added.
Professor Dr MA Baqui Khalily of the University of Asia Pacific, who headed the team that prepared the report, presented the summary at the event. He said more than 99% of businesses in Bangladesh are in the cottage, micro, small and medium enterprises (CMSMEs) sector.
More than 84% of enterprises in this sector are located in villages, and they account for 80-85% of employment in the industrial sector of the country, said Dr Baqui.
The report said the main obstacles to the development of the SME sector in Bangladesh include lack of financing and extra interest on loans.
It said 100% of production capacity in this sector is not being utilised due to the shortage of skilled and low-skilled workers and not utilising new workers.
Dr Baqui said the SME sector has no direct connection with technical educational institutions, and there is no effective business network.
He claimed there is a lack of coordination among government agencies engaged in serving entrepreneurs in the SME sector. "Production and marketing are also being hampered due to a lack of adequate information."
The report highlighted various limitations in 177 clusters identified by the SME Foundation for the development of this sector. It said there is a shortage of space in the SME clusters while the backward and forward linkage system is also inadequate.
Apart from that, the practice of sub-contracting in these clusters has become an obstacle to the development of the sector.
Highlighting the importance of the SME sector across the world, Dr Baqui said 99% of ventures in the Organisation for Economic Co-operation and Development (OECD) countries are SMEs.
About 70% of the labour force in these countries are employed in the SME sector and they contribute 50-60% to their national economies, he said.
Giving the example of Germany, the academician said 99.4% of the country's enterprises are in the SME sector, which employs 63% of the labour force and contributes 54% to the national economy.
He said more than 90% of German entrepreneurs think they will get loans from banks although most of the SMEs there were set up with personal funding.
"Less than 10% of the country's SME loan applications are rejected by banks. KfW, a state-owned bank specialising in lending to the SME sector, is the third largest financial institution in the country."
The report suggested using Germany's experience to keep Bangladesh's SME sector dynamic through policy support and action plans.
Dr Baqui recommended classifying the SME sector considering employment and the use of technology, separate policy support for different SME sectors, and introducing financial institutions supportive for the sector.
The report recommended cluster-based development in alignment with backward and forward linkages, investing in research and development to enhance technology, innovation and skills, introducing strong technical education and training systems as well as a universal wage system, and greater focus on micro and small enterprise development.
Md Mosharraf Hossain Bhuiyan, Bangladesh ambassador to Germany, said it was disappointing that only a quarter of the government announced incentives in the SME sector had been distributed.
He said even though the number of defaulters in the SME sector was low, unaccounted loans were being given to big entrepreneurs.
The envoy said it had been decided in the past to disburse 25% of loans in the SME sector without collateral but the decision had not been implemented.
Mentioning that the coronavirus pandemic had created a huge demand for nurses in Germany, Mosharraf called on the German ambassador to Bangladesh to send Bangladeshi nurses there after giving them advanced skills development training.
He also urged Germany to invest in the SME sector of Bangladesh, which he said could be a good centre for foreign direct investment (FDI) in the future.
Peter Fahrenholtz, ambassador of Germany to Bangladesh, said the garment industry and some other big industries had helped Bangladesh see tremendous development in the last 10 years but there had not been much improvement in production efficiency and innovation in the SME sector.
He said a German SME company was helping a Chinese contractor build the Padma bridge, adding the SME sector had become the main driving force of his country's economic development.
He also said further improvement in the business environment of Bangladesh had to be ensured to attract foreign investors.
Dr Muhammad Shahadat Hossain Siddiquee, professor of economics at the University of Dhaka, said although the SME sector was playing a major role in development, employment, production and innovation globally, there was a big lack of coordination among government institutions in managing the SME sector in Bangladesh.
To ensure sustainable development in this sector, he suggested formulating an effective policy involving coordination among all agencies and ensuring an improved market system.
Dr Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue (CPD), described the lack of skills and imported products as the biggest challenges in the SME sector of Bangladesh.
He suggested attracting foreign investment in this sector, producing high-quality products and enhancing institutional capacity to face the global competition.
SME Foundation Chairperson Professor Dr Md Masudur Rahman, who presided over the event, said the foundation was working to implement the SME policy 2019 and various government policies, and enhance the skills of entrepreneurs and technical development of their organisations for the development of the SME sector.