Chapter: Two Small and Medium Enterprise (SME)

Small and Medium Enterprise

Like other developing countries, the role of small and medium enterprises (SMEs) in the development process of the country is considered to be in the forefront of policy debates. Based on the Interim Poverty Reduction Strategy Paper (I-PRSP) to achieve the desired growth rates, major priorities are to move away from the near stagnant industrial growth path, maximizing wealth creation, exports and employment generation, and simultaneous development of SMEs, cottage industries as well as micro-enterprises. To reduce poverty level, there is an urgent need to create wider employment opportunities for the poor including the hard -core poor so that they would have the required purchasing power to develop and support the rural and cottage industries to provide the foundation for the long term development of SMEs.

2.1 Definition of SME in Bangladesh 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 criteriaService Concern Having an investment of Tk. 50,000 to Tk. 50, 00,000 excluding land & building and / or employing up to 25 workers. Business Concern Having an investment of Tk. 50,000 to Tk. 50, 00,000 excluding land & building and / or employing up to 25 workers. Manufacturing Concern Having an investment of Tk. 50,000 to Tk. 1, 50, 00,000excluding 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 criteriaService 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. 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. 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. 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 enterprise 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 turnkey 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 turnkey 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.

Several institutions define the SME several ways on the basis of capital and number of employee as follows: Policy/Institution Industrial Policy 1999 Capital Size Number of employees Fixed capital investment of Small industries: less than 50 or less Taka 100 million. Cottage Industries: Employing only family members Medium Industries: Fixed Capital investment Medium Industries: between Taka 50-99 workers 100 million and Taka 300 Large Industries: million. 100 or more workers Large Industries: Fixed Capital investment of more than Taka 300 million. Fixed capital investment of 50 or less less than Cottage Industries: Taka 250 million. Employing only family Cottage Industries: members Fixed capital investment of Medium Industries: less than 1 million 50-99 workers employing only family members. Medium Industries: Fixed Capital investment

Policy- 2002

IFC managed Small Enterprise Development Facility (SEDF) [for the purpose of the World Bank financed Investment Assistance Scheme]

Private Commercial Banks (PCBs)

between Taka 250 million and Taka 500 million. Large Industries: Fixed Capital investment of more than Taka 500 million. [US $ 52,500] Fixed capital: Small Scale: Between Taka 300,000 and Taka 10 million [between US $ 5,500 and US $ 185,000] Medium Scale: Between Taka 10 million and Taka 100 million [between US $ 185,000 and US $ 1.85 million] Varies based on loan components and risks associated with the business Ventures.

Table -2.1 Definition of SME from several policy and Institutions. Source: Industrial Policy 1999; DCCI (2003 paper); SEDF (2002). .

2.2 History of SME in Bangladesh 1978 that the BSCIC (Bangladesh Small and Cottage Industries Corporation), under the Ministry of Industries, conducted a survey to find out the number of cottage and small industries of the country. In spite of the question about the validity and dependability of the survey, in absence of any other effort by the Bangladesh Bureau of Statistics (BBS) or any other agency, this initiative did provide a useful benchmark but it was never updated. The International Consultancy Group (ICG) of the UK, in collaboration with the Micro Industries Development Assistance and Contribution to GDP By size of Enterprise Services (MIDAS), conducted in 2003 the National

Private Sector Survey of Enterprises in Bangladesh with funding from the Department of International Development (DFID) of the UK Government, the United States Agency for International Development (USAID), the Swiss Agency for Development and Cooperation (SDC) and the Swedish International Development Cooperation Agency (SIDA). The survey results drew the conclusion that there were approximately 6 million of micro, small and medium enterprises (MSMEs), which included enterprises with up to 100 workers employing a total of 31 million people, equivalent to 40 per cent of the population of the country of age 15 years and above. About three quarters or more of the household income in both urban and rural areas is provided by the MSMEs. From the Union parisad sarvey 1998 shows that the activity of the SME and its average funds and number of employee engagged with those activity as follows: Activity Average Average Average Annual Investment per employment per Production Value Enterprise Enterprise per Enterprise (in Taka) (in Numbers) (in Taka) Dairy 422 9 542 Engineering 1,055,210 16 32,87,275 Workshop 535,582 25 22,60,040 Handloom and 1,192,400 10 95,66,590 Dressmaking 2,623,624 19 59,36,545 Rubber, plastic and 976,720 24 1,46,49,333 polythene 1,455,450 9 8,19,250 Herbal & Chemicals 726,729 9 57,34,455 Shoe making 3,521,490 29 2,57,93,100 Hatchery & Fishery 1,772,550 7 4,00,000 Oil Mill 331,920 6 6,48,000 Food Products 674,600 13 80,00,000 Ice 1,032,230 16 28,20,600 Charcoal 262,100 15 7,47,900 Tannery 126,220 6 10,27,200 Rice Mill 244,800 8 10,45,000 Bamboo and Cane 12,747 5 28,060 Umbrella Making 295,500 6 3,74,750 Candle Making 1,566,680 8 32,00,500 Coir RCC pipe Book

Total Average 1,105,409 15 Table 2.2 : Average size of SMEs based on 1998 survey. Source: Bangladesh Unnayan Parishad (BUP), September 1998. 2.3 SME and Bangladeshi Economy at Present

49,47,581

In 2003 the International Consultancy Group (ICG) of the UK, in collaboration with the Micro Industries Development Assistance and Services (MIDAS), conducted the National Private Sector Survey of Enterprises in Bangladesh. The survey results drew the conclusion that there were approximately 6 million Small and Medium Enterprises (SMEs), which included enterprises with up to 100 workers employing a total of 31 million people, equivalent to 40 per cent of the population of the country of age 15 years and above. The survey also found that the industrial structure of SMEs consisted of primarily wholesale and retail trade and repairs (40 per cent), production and sale of agricultural goods (22 percent), services (15 percent), and manufacturing only (14 per cent). Thus the survey brought out the fact that the large untapped potential for expansion in manufacture and production could be exploited (or contributing more significantly to the national economy. Another vital findings of the survey under discussion was that SMEs contributed BDT 741 ($ 12.5) billion i.e. nearly 25 per cent of the GDP (BDT 2,996 billion) in 2003. It is reflected from this survey that enterprises employing 2-5 workers contribute 51 percent share of the total SME contribution to the economy, followed by 26

percent by those having only one worker and 10 per cent by those having 6-10 workers. For LDCs like Bangladesh, SMEs are a highly cost-effective route for industrial development. Contribution to GDP From sme sector by no.of worker.
60% 51% 50% 40% 30% 20% 10% 10% 0% % TO GDP 6% 5% 2% 51-100 2% 26%

% contribution

1 26%

2-5 51%

6-10 10%

11-20 6%

21-50 5%

Figure: 2.1 Contribution to GDP From SME sector on the basis number of worker. Source: ICG/MIDAS Survey, 2003 From the above figure the 2-5 numbers of worker Enterprise worker has the large contribution to the economy on the other hand 51-100 numbers employees enterprise has the least contribution to the total. SME has the Great contribution to the total manufacturing which is increasing year by year. The small, medium and large industries are also increasing along with the total manufacturing. So this indicator shows that the SME has a great contribution to the economy. It is observed that during 2006-2010 to 2008-2009 in every financial year the growth rate of SME is about 7%. In 2010-2011 the growth rate was 9.21%. The highest growth was in 20112012 i.e., 10.28% It is observed that the average growth during 1972 to 2005 was 6.4%. During 2006-2007 to 2008-2009 the highest growth was in year 2008 i.e., 11.19%. It is also observed that during 2003 to 2006 in every financial year the growth of manufacturing sector was more than 6%. In 2015 the growth is expected at 15%.