Author Topic: Small and medium enterprise in Bangladesh  (Read 98 times)

Farhan Ejaj

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Small and medium enterprise in Bangladesh
« on: March 04, 2018, 12:33:31 AM »
It is not easy to define SME but for the Economic growth and industrialization, SME could play a vital role to enhance and development both the developed and developing countries. Today is for investment, savings, profit, employment creation, export, industrialization and development and economic stability and living standard of people SME play a vital role.
Definition of SME in around the world
According to the European Union (2003), SMEs are defined as enterprises, which have at most 250 employees and an annual turnover not exceeding 50 million Euros. Further, there is the distinction of small enterprises — they have fewer than 50 staff members and less than 10 million Euros turnover — and micro-enterprises (less than 10 persons and 2 million Euros turnover).
According to the World Bank (2006), medium enterprises are defined as enterprises, which have at most 300 employees and an annual turnover not exceeding 15 million US dollars. Further, there is the distinction of small enterprises — they have fewer than 50 staff members and up to 3 million US dollars turnover — and micro-enterprises have up to 10 persons and $100,000 turnover.
In the UK, sections 382 and 465 of the Companies Act 2006 define a SME for the purpose of accounting requirements. According to this a small company is one that has a turnover of not more than £5.6 million, a balance sheet total of not more than £2.8 million and not more than 50 employees. A medium-sized company has a turnover of not more than £22.8 million, a balance sheet total of not more than £11.4 million and not more than 250 employees. It is worth noting that even within the UK this definition is not universally applied.
In the USA, the definition of small business is set by a government department called the Small Business Administration (SBA) Size Standards Office. The SBA uses the term “size standards” to indicate the largest a concern can be in order to still be considered a small business, and therefore able to benefit from small business targeted funding. The concern cannot be dominant in its field, on a national basis. It must also be independently owned and operated. Unlike the UK and the European Union, which have simple definitions applied to all industries, the US has chosen to set size standards for each individual NAICS coded industry. This variation is intended to reflect industry differences in a better way. The most common size standards are
500 employees for most manufacturing and mining industries
100 employees for wholesale trade industries
$6 million of annual receipts for most retail and service industries
$28.5 million of annual receipts for most general & heavy construction industries
$12 million of receipts for all special trade contractors
$0.75 million of receipts for most agricultural industries
Source 2: www.about.com
In India the Small Scale Industries (SSIs) are industrial undertaking in which the investment in fixed assets in plant and machinery, whether held on ownership terms or on lease or by hire purchase does not exceed Rs. 10 million. The Small Scale Service and Business (Industry related) Enterprises (SSSBEs) are industry related service and business enterprises with investment in fixed assets, excluding land and building up to Ps. 1 million. (Ministry of trade and Industry, Government of India)
According to the SME bank of Pakistan, SME means an entity, ideally not a public limited company, which does not employ more than 205 persons (if it is manufacturing concern) and 50 persons (if it is trading/service concern) and also fulfils the following criteria of either ‘a’ and ‘c’ and ‘c’ or ‘b’ and ‘c’ as relevant; (a) A trading/service concern with total assets at cost excluding land and buildings up to Rs 50 million. (b) A manufacturing concern with total assets at excluding land and buildings up to Rs 100 million. (c) Any concern (trading, service or manufacturing) with net sales not exceeding Rs 300 million as per latest financial statements.
Source 1: Performance Evaluation of SMEs of Bangladesh, International Journal of Business and Management Vol.4, No 7, July 2009
Definition of SME in Bangladesh
Existing definition of SME is recommended by Better Business Forum and accepted as a uniform one by Ministry of Industry and Bangladesh Bank. Criteria of the definition of SME are given below:
Definition of Small Enterprise:
Small Enterprise refers to the firm/business, which is not a public limited company and complies the following criteria:
Serial No. Sector Fixed Asset other thanLand and Building (Tk.) Employed Manpower (not above)
01. Service 50,000-50,00,000 25
02. Business 50,000-50,00,000 25
03. Industrial 50,000-1,50,00,000 50
Definition of Medium Enterprise:
Medium Enterprise refers to the establishment/firm, which is not a public limited company and complies the following criteria:
Serial No.
Sector Fixed Asset other thanLand and Building (Tk.) Emplo Manpo (not above)
01. Service 50,00,000-10,00,00,000 50
02. Business 50,00,000-10,00,00,000 50
03. Industrial 1,50,00,000-20,00,00,000 150
Source 3: Small and Medium Enterprise (SME) Credit Policies & Programmes, SME & Special Programmes Department Bangladesh Bank Head Office, Dhaka (Browsing date 08-08-10)
Different countries and organizations define SME differently. The Government of Bangladesh has categorized SME into two broad classes
1. Manufacturing enterprise
2. Non Manufacturing activities
a. Manufacturing enterprise:
Manufacturing enterprises can be divided into two categories;
Small enterprise: an enterprise would 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 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 (of turn-key consultancy services, for example), etc, excluding land and building, were to up to Tk. 100 million;
b. Non-manufacturing activities (such as trading or other services) Non-manufacturing activities can be divided into two categories;
Small enterprise: an enterprise should be treated as small if it has less than 25 workers, in full-time equivalents;
Medium enterprise: an enterprise should be treated as small if it has between 25 and 100 employees. According to Bangladesh Bureau of Statistics different enterprises are defined as;
No. of employees
Micro 0-9
Small 10-49
Medium 50-99
Large Above 99
The Ministry of Industries, Government of Bangladesh has been identified following 11 booster sectors;
Electronics and electrical
Software-development
Light engineering and metal-working
Agro-processing/agro-business/plantation agriculture/ specialist farming/tissue-culture
Leather-making and leather goods
Knitwear and ready-made garments
Plastics and other synthetics
Healthcare & diagnostics
Educational services
Pharmaceuticals/cosmetics/toiletries
Fashion-rich personal effects, wear and consumption goods
Small and medium-sized enterprises: There are nearly 1.5 million SMEs5 in Bangladesh, 60%–65% of which are located outside the metropolitan areas of Dhaka and Chittagong. There is a very high density of SMEs in the industrial economy of Bangladesh. SMEs constitute over 99% of private industrial establishments and provide job opportunities to about 70%–80% of the nonagricultural labor force. The SME share in manufacturing value added to GDP varies at 28%–30%. The services sector is primarily composed of SMEs, which is responsible for the bulk of employment growth.6 SME contribution to national exports is significant through different industries such as ready-made garments, jute, and leather. SMEs are broadly segregated as follows:
(i) Small informal enterprises typically employ 5-9 persons and are largely family based.
Having grown from microenterprises,7 they use significant portions of their business revenues to invest in expansion. Typically, these enterprises lack access to formal credit and support services.
(ii) Small formal sector enterprises typically employ 10–50 persons and have well-established relationships with larger manufacturing and trading concerns. While significant growth potential exists, they face leadership and management challenges. Sources of finance are usually retained earnings and supplier credits.
(iii) Medium-sized enterprises typically employ 51–150 persons and serve as a link between the formal and informal economies through well-established supplier and buyer relationships with small formal and informal SMEs, as well as with large domestic and international corporate entities. Although professionally managed, there is a need to maintain competitiveness. Access to finance remains constrained even for this category of SMEs.
Source 1: Performance Evaluation of SMEs of Bangladesh, International Journal of Business and Management Vol.4, No 7, July 2009.
1.2 Sources of Funds of money for SME:
In general, the sources of funds for SME are that
1. I. Personal funds-saved or inherited of their own capital,
2. II. Loans from relatives and friends- It may be able to obtain some money at low or no interest from relative(s) or friend(s),
3. III. Trade credit,
4. IV. Loans of credit from equipment sellers,
5. V. Mortgage loans,
6. VI. Commercial Bank loans,
7. VII. Bangladesh Small and Cottage Industries Corporations (BSCIC) loans,
8. VIII. Enterprises Growth and Bank Modernization program (EGBMP),
9. IX. Small and Medium Enterprises Development Project (SMEDP),
10. X. Taking partners,
11. XI. Selling capital stock,
12. XII. Miscellaneous sources (Life Insurance policies, Amortized loans etc)
13. XIII.
1.3 Importance of SME in Bangladesh
Small and Medium Enterprises (SMEs) are the dominant form of business organization in all countries, typically accounting for over 95% of the business population. OECD recognized that SMEs constitute an important dynamic element in all economies as they drive innovation, especially in knowledge-based industries; and play a key role in driving sustainable economic growth, employment creation and poverty reduction, especially in developing countries. It also contributes to the social, cultural and environmental capital of nations.
In view of the rapid structural change in the world economy, especially in favor of increasingly weightless, paperless, knowledge-rich industries and services, to see structural change and remaining relevant as major imperatives for intervention by government and the civil society.
Acknowledging the importance of SMEs and entrepreneurship, the Government of Bangladesh reaffirming their commitment takes initiative to design a SME policies and strategies for its coherent growth. The Government of Bangladesh has constituted a National Taskforce on SME Development as Dr. Kamal Uddin Siddiqui, Principal Secretary to the Prime Minister as its chairman on 2003.