SME

Higher growth of the Small and Medium Enterprises (SMEs) can help reduce poverty to a marginal level by eliminating various prejudices against labor intensive and creating employment for the skilled manpower in the SME sector.

This was discovered in the Bangladesh Bank annual report for fiscal 2006-07.

The report said, the main reasons behind the SMEs are not entering into manufacturing are financial constrains, technology and policy discriminations. Bank and others financial institutions generally choose large enterprise clients because of lower transition costs and greater availability of collateral.

The Bangladesh Bank report said that the SMEs also fall outside the reach of micro finance schemes and thus compelled to depend on formal sources of funds at much higher interest rates.

The BB report, however, said that other interconnected problems like shortage of short and long term finance, lack of modern technology and lack of promotional support services are main barrier in the way of development of the SMEs sector.

Considering these barrier, the report said, Bangladesh Bank has taken a preferential lending policy to promote the SME sector with the government development policies.

An amount of Taka 2.27 billion was refinanced through different banks and financial institutions under some projects during the fiscal 2006-07.

In Bangladesh, the annual report said, financing small and medium enterprises (SMEs) from banking sector is a long-standing need that has been high on the agenda of the economists and the policy makers.

In Bangladesh the SMEs account for about 45 percent of manufacturing value addition. They account for about 80 percent of industrial employment, about 90 percent of total industrial units and about 25 percent of total labor force. Their total role to export earnings varies from 75% to 80% based on the Economic Census 2001-2003.

The report observed that the SMEs need for bank loan especially medium and long term loan.

The Banks are reluctant to expand loans especially term loans to SMEs and the reasons for banks' reluctance to expand loans to SMEs are perception that the current legal system is unable to defend their interests, funding costs are comparatively high, shortage of access to long-term capital, inability to conduct proper due diligence and the current unavailability of information.