Developing Small & Medium Business for Greater Wealth

Creation : Forward looking activities of Bangladesh Bank

Sukamal Sinha ChoudhuryGeneral Manager

SME & Special Programs DepartmentBangladesh Bank, H.O, Dhaka

Bangladesh Bank[The Central Bank of Bangladesh]

Commonwealth Business Forum 201311-14 November, 2013

Srilanka

Contents

• Why SMEs are so important?– SMEs and Wealth Creation

• Overview of SME sector in Bangladesh

• Policy Interventions for SMEs– BB’s Initiatives

• Access to Finance of SMEs– Bangladesh Perspective

• Internationalization of SMEs

Why SMEs are Important?

• Positive association between importance of SMEs and GDP per capita Growth.(*)

• Small firms exhibit higher net job creation rates than large ones [OECD-2002]

• Advanced Economies succeeded in achieving sustainable economic growth because SMEs form a fundamental part of their economies. In advanced economies-

– SMEs comprise 98% of total establishments– Contribute 65% of Employment– Contribute 50% to GDP (**)

* Beck & Kunt, 2005 (WB) ** DailyFT 28 June, 2013

SMEs recognized as the backbone of economy. Therefore, Promoting a viable SME sector is essential.

Bangladesh SME sector-A Brief

SMEs comprise about 99% of private industrial establishments

Total workforce employed in SMEs over 3.5 million

Of the total share of manufacturing value added to GDP, SMEs contribution is estimated at 28-30%

SMEs jobs are about 80% of total industrial labor force

Large demand supply gap for SME credit

SME Definition in Bangladesh

In Bangladesh, SMEs are defined on the basis of fixed assets excluding land & building and/or number of persons employed.

SME comprises of Cottage, Micro, Small and Medium Enterprises.

CriteriaFixed Asset excluding land and Building

(million BDT)# of Manpower employed

Size Manufacturing Service Trade ManufacturingService

Trade

Cottage < 0.5 ≤10 [including family members]

Micro > 0.5 - ≤ 5.0 < 0.50 < 0.50 10-24 < 10 < 10

Small > 5.0- ≤ 100.00

> 0.50 - ≤ 10.0

> 0.50 - ≤ 10.00

25- 99 10-25 10-25

Medium>100.00-≤300.00

>10.00- ≤ 150.00

>10.00-≤150.00

100-25026-100

26-100

1 USD= BDT 78.00

BB’s Initiative for SME Sector Development

• Bangladesh Bank (BB) is the Central Bank of Bangladesh.

• A paradigm shift in the BB’s policy regime in recent years.

• The policy has skewed in favor of the financially excluded and unbanked mass of the country specially towards the– SME entrepreneurs and women entrepreneurs– Traditionally developed industry clusters.

• A milestone decision was taken in December,2009– A new department named “ SME & Special Programs

Department (SMESPD)” was created in BB to regulate and supervise SME financing activities of the whole country

BB’s Initiative for SME Sector Development

All the Banks and NBFIs working in Bangladesh are involved in SME financing under supervision of Bangladesh Bank.

All the Banks and NBFIs are taking self indicative target each year (January-December) and on the basis of the target disbursing SME credit.

Bangladesh Bank has formulated a policy namely “SME Credit Policies and Programmes which is being followed by all the financial institutions.

Banks are financing to SMEs from their own sources.

Bangladesh Bank is helping SMEs through refinance schemes being implemented by SMESPD, BB.

BB’s Initiative for SME Sector Development

ADB, JICA, WB are cooperating by refinance schemes.

IFC, DFID and other international Organizations are cooperating in financial and non-financial training, and capacity building of Financial Institutions and Entrepreneurs.

Special emphasis is given to- Small, Micro and Cottage Enterprises Manufacturing and Service Sectors Women Entrepreneurs

Product development and marketing activities are also being undertaken by BB for the development of SME sector.

BB’s Initiative for SME Sector Development

Communication and Collaboration with all national and international organizations are in momentum; and BB is doing such initiatives with top priority.

Cluster financing approach is given much emphasis.

Lots of Programs and Initiatives are undertaken for cluster approach.

What is Industrial Cluster?

A cluster may be defined as a local agglomeration of enterprises which are producing and selling a range of related and complementary products/services.

Definition

Types:

Type-I: Cluster that characterized by dominance of SMEs Common in Bangladesh

Type-II:

Pyramidal type: One assembler many sub-contractors Example: Toyota

Cluster Promotes-

Market and Innovation Enterprise-Enterprise and Enterprise-Trader transactions Increase Productivity Build new business opportunities

Clusters in Bangladesh

• Ministry/Organization responsible for SME cluster Development-– Ministry of Industry– SME Foundation (SMEF)– BSCIC

SMEF identified 177 clusters countrywide, but has not taken any fruitful strategies for the development of such clusters.

BB’s Clusters Approach

Bangladesh Bank (the Central of Bangladesh) has taken over the responsibility for the development of clusters with- Emphasizing cluster based financing strategies in

SME Credit Policies & Programmes, 2010 Engaging all Banks and NBFIs in cluster financing Advising all banks and NBFIs to take at least one

cluster countrywide for their development Frequent field level visit to the clusters

Banks/financial institutions will inform BB after adopting cluster development policy to flourish SME sector.

BB’s Cluster Development Activities

SMESPD, BB has advised alb Banks & NBFIs to choose at least one cluster for their development .

SMESPD, BB directly contributed to develop around 50 clusters countrywide with the help of 30 banks.

Examples:– Light Engineering Cluster : At Bogra– Agricultural Machineries Cluster : At Sherpur, Bogra– Monipuri Tat Cluster : At Kamalgonj, Moulavi Bazar– Agar Cluster : At Baralekha,Moulavi Bazar– Khadi Cluster : At Chandina, Comilla– Bamboo-Cane Cluster : At Munshigonj– Leather and Footwear Cluster : At Bhairav, Kishoregonj– Small Garments Manufacturing Cluster : At Syedpur.– Handicrafts Culture : At Jamalpur– Tant Cluster : At Ulipur, Rangpur– Tant Cluster : At Shirajgonj– Soya bean cluster : At Laxsmipur– Flower Cluster : At Jessore– Jamdani Cluster : At Demra, Dhaka– Salt Cluster : Cox’s Bazar– Dry Fish Cluster : Cox’s Bazar

BB’s Cluster Approach

The objectives of this policy are to strengthen the existing cluster, development of new clusters in special sector, development & expansion of sustainable and competitive technology, skill development of entrepreneurs, development of marketing channels, reduce credit risk and enhance overall product development.

Strategies for cluster development :– Identification of the cluster;– Formation of committee for cluster development;– Conduct baseline survey & diagnostic study;– Fixation of action plan;– Implementation of action plan;– Review & monitoring.

Identification of SME Cluster

• SME Foundation conducts cluster mapping• SMESPD, BB collects sectoral credit disbursement

information and prospective industrial or business concentration through Banks/NBFIs/other organizations

• Frequently visits countryside for identifying industrial clusters

• Arrange Banker-Entrepreneur meeting for cluster financing and development.

• Help entrepreneurs in a cluster community for marketing of their products.

• Follow up continuously for their progress.

Clusters around Bangladesh

• Light

Engineering

Bogra

Monipuri Handloom

Moulavi Bazar

Shoe

Bhairab

Flower

Shrimp Salt Dry Fish

Cox’s Bazar

Jessore

Satkhira

Problems

• Lack of financial and skill training of entrepreneurs;

• Lack of product development and marketing knowledge;

• Proper access to finance especially for cottage and micro entrepreneurs due to lack of collaterals;

• Inadequate Financial Institutions outreach in the rural cluster areas;

• Flaws in product quality assurance to gain competitiveness in overseas market;

• Bottlenecks in the supply chain process;• Absence of SME friendly people who can take the

role of proper leadership and drive.

Remedies

• Entrepreneurship and skill level training may be imparted in the cluster areas;

• Improvement of delivery channel and supply chain mechanism;

• Ensuring Financial Institutions involvement in rural cluster areas collaborating with NGOs/MFIs;

• Government and regulatory support in favor of the cottage, micro and small entrepreneurs;

• Engaging suitable governmental and non-governmental institutions to enrich product development and marketing knowledge of the entrepreneurs.

TCI Bangladesh Chapter

• TCI Bangladesh Chapter was formed in 2013• TCI Bangladesh Chapter consists of members from-

– Bangladesh Bank– SME Foundation– Bangladesh INSPIRED– Karigar & Board of Bangladesh Women Chamber &

Commerce Industries– USAID (PRICE)– BUILD, DCCI– BAG & Leather Technologist Small Entrepreneurs (LTSE)

Coop President– Trust Bank Limited– Bank Asis Limited– Mott MacDonald/ INSPIRED– IDLC Finance Limited

• an extended product life cycle, economies

• of scale, sector and geographic diversification and greater competitiveness by the

• company.