Assignment on

Contribution of SMEs in Bangladesh’s Economy

[Submitted to]
Rowshonara Akter Akhi
Lecturer

[Submitted by]
Shaikh Tawfique Ahmed
ID:1699 , Registration No: 45455
8th Batch

Date of Submission: March 05, 2020

Course: FNB 310- Small & Medium Enterprise

Department of Finance & Banking

Faculty of Business Studies
Jahangirnagar University
Savar, Dhaka-1342.
 Contribution of SMEs in Bangladesh’s Economy

Cottage, Micro, Small & Medium industries and the agricultural products play an important role
in achieving the recognition of Bangladesh as a developing country. The development of the
SME industry is considered more seriously, as a result of which Bangladesh Bank provided easy
terms and financial services to aid flourishment of the SME sector. Since 2010, BB provided
various financial services and implemented awareness programs through state -owned banks and
also private commercial banks under Dr. Atiur Rahman, former governor, and Mr. Fazle Kabir,
the incumbent governor. So the SME sector thrived in Bangladesh in the last one decade. A total
of 6.0 million business entrepreneurs are now running SMEs across the country.

There are several reasons for the emphasis on the SME sector. One of the main reasons is
employment generation. The literacy rate is increasing day by day in Bangladesh but the rate of
employment is not increasing in tandem with the efficiency. Besides, all entrepreneurs haven't
the ability to invest in heavy industries. So, the development of small and medium enterprises
will not only increase the number of entrepreneurs, but also create jobs for the unemployed
people. It will also help build a poverty-free Bangladesh.

Bangladesh is the 39th largest country in the world in nominal terms and 29th largest country in
terms of PPP and 3rd fastest growing country all over the world. At present contribution of SME
to GDP growth of Bangladesh is 25%, whereas in India, Singapore and Malaysia it is 40% -
50%. There is a huge scope for SMEs to contribute more profusely to GDP growth of
Bangladesh.

The contribution of small and medium enterprises (SMEs) to the economy is still negligible as
the sector has not developed fully for some challenges like scarcity of fiscal incentives,
management problem, access to finance and bureaucracy, according to a new study.
The SMEs are yet to be fully utilized in Bangladesh although they have the ability to create
numerous jobs and increase contribution to the gross domestic product (GDP).
The sector accounts for 35.49 percent of the total employment in Bangladesh, according to the
study, which was conducted by the International Cooperation Organization for Small and
Medium Enterprises in Asia (ICOSA), Japan.
Leaders of Japan Bangladesh Chamber of Commerce and Industry (JBCCI) shared the findings
of the report with journalists at a meeting held at the JBCCI office in Dhaka.
The share of SMEs in all enterprises is 80 percent in Bangladesh, according to the study. It
stands at 97.60 percent in India, 99 percent in China and 99.70 percent in Japan, the study
revealed.
The study found that Bangladesh has 17,384 micro enterprises, 15,666 small ones, 6,103 medium
and 3,639 large scale enterprises, where a total of 5.02 million people are engaged.
The SMEs constitute 50.91 percent of the total number of micro-economic units in Bangladesh,
the ICOSA study also found.
Currently, Japan is the best user of SMEs in the world, the study said.
The Fareast nation has only 19 big business groups, with more than 99.7 percent of the industrial
and services units being SMEs.
In Japan, 3.8 million companies, including 0.41 million manufacturing units, are SMEs.
According to the statistics of the Planning Commission of Bangladesh, at present SMEs account
for about 45 percent of manufacturing value addition, 80 percent of industrial employment, 90
percent of total industrial units and about 25 percent of the labor forces.
SMEs’ contribution to export earnings varies from 75 percent to 80 percent.
During the study, a 15-member delegation from ICOSA had visited Bangladesh in November
last year, which gave a very good opportunity for the SME Support Committee of Bangladesh to
get involved.
The study found that policy inconsistency is also a major challenge for the development of the
SMEs.
It recommended proper training and technological support for SMEs to improve the quality of
their products.
SMEs face problem when it comes for product standardization. So, the committee recommends
the government consider setting up a dedicated laboratory to certify the quality of SME products.
The committee of the ICOSA recommends a separate division in the ministry of industries for
dealing with SME affairs. In countries like India and Indonesia there is a separate ministry for
dealing with SMEs. It also called for a separate bank to facilitate lending to SMEs. If not, one of
the state-owned banks can be converted into an SME bank. India, Malaysia and some other
countries have set up dedicated banks to cater for the needs of the SMEs.
Bangladesh needs to develop SMEs as a lot of Japanese investments are coming here and
opportunities are being created, said Yuji Ando, president of JBCCI and country representative
of Japan External Trade Organization.
For instance, Honda has opened a manufacturing unit here. This company needs a lot of small
parts that the local small and medium companies can produce.
Similarly, Bangladesh has the opportunity to grow SMEs in areas like food processing, services
and consumer goods to serve the Japan markets and Japanese companies in Bangladesh.