Chapter- Two: Small and Medium Enterprise (SME) O ENTREPRENEUR and ENTREPRENEURSHIP: According to George Bernard Shaw, people fall into three categories: (i) those who make things happen; (2) those who wateh things happen, and (3) those who are left to ask what did happen. Generally, entrepreneurs fall under the first category. O Meaning and Definition of Entrepreneur: ‘An entrepreneur is ordinarily called a businessman, He is a person who combines capital and labour for the purpose of production. He organizes and manages a business unit assuming the risk for profit. He is the artist of the business world In the words of J.B. Say, “An entrepreneur is one who brings together the factors of production and combines them into a product”. He made a clear distinction between a capitalist and an entrepreneur, Capitalist is only a financier. Entrepreneur is the coordinator and organizer of a business enterprise. Joseph A Schumpeter defines an entrepreneur as “one who innovates, raises money, assembles inputs and sets the organization going with the ability to identify them and opportunities, which others are not able to fulfill such economic opportunities”. He further said, “An entrepreneur is an innovator playing the role of a dynamic businessman adding material growth to economic development”. Thus, we cau say that entrepreneur is a person who takes risk for establishing a new venture or business in order to create utility for the welfare of man being as well as for himself or herself. She or he is always a person who seeks out opportunities and takes on challenges. O Meaning and Definition of Entrepreneurship: Entrepreneurship is considered as the act of assuming the risk and the tasks of an entrepreneur Entrepreneurship is the process of identifying opportunities in the market place, marshalling resources to pursue the opportunities, and committing actions and resources necessary to exploit the opportunities for long term personal gain. Tt is the transference of vision into plans and then into reality. According to Natheal H. Leff, Entrepreneurship is the capacity for imovation investment and expansion in new markets product and techniques. Webster highlights entrepreneurship as economic venture organizing and risk taking capabilities. From the functional view point, entrepreneurship is defined as the combination of activities such as perception of market opportunities gaining command over scarce resources purchasing input producing and marketing of product responding to competition and maintaining relation with political administration and public bureaucracy for concession licenses and taxes ete. 1 | Page Dr. Md. Bokitiar Hasan, Associate Professor, Finance & Banking, TU, KushtiaChapter- Two: Small and Medium Enterprise (SME) O Characteristics of an Entrepreneur: ‘An entrepreneur is a person who initiates a business venture. The following are the basie characteristics identified by scholars. However, it is not necessary to have all the characteristies with an entrepreneur. 1 Kc taking capability: One of the most important characteristics of entrepreneurs is risk taking. That is, who are prepared to take risk of their time, money and future on an. idea in which they believe? They are the initiator of production who take the seed in the form of idea, nurture it with their skills and provide the human and financial resources needed for the seed to grow into enterprise. That is why he/she has to possess the capability to calculate the uncertainty. 2. Creativity and innovation: In general, Creativity is concemed with idea origination; Innovation is concemed with idea implementation. Anyway, C & I are important characteristics of entrepreneurs. C & I are the ability to generate something new, which consists of utility. Entrepreneurs are innovators as they devise new goods, services, or process to satisfy a demand, C & I may occur in many ways like- ~ introduction of new products = new method of production ~ new sources of raw materials ~ opening a new market 3. Need for achievement: The entrepreneur has strong desire to achieve the goal of business. He is always driven by the needs for achievement. 4. Need for autonomy: An entrepreneur does not like to be under anybody. It is the need for autonomy which drives a person to be an entrepreneur 5. Locus of control: Locus of control (LOC) is of two types - Internal and external = Internal: Those who believe that they are control by themselves. So they have absolute confidence on their work and decision. = External: Those who think that they are controlled by extemal environment, So they have minimum confidence ou their work and decision. 6. Self confident: Entrepreneur has to be self-confident to do his work. He also needs to have firm determination to bring success. Anyway, self-confidence depends upon education, experience, capability of convincing others, hard working, ete Leadership capability: An entrepreneur must have leadership capability to lead works under him. 8. Industriousness: Entrepreneurs starts new venture, new venture requires hard works. Further as entrepreneur works in a complex environment (competitive conditions), he has to overcome barriers. 9, Decision making capability: The entrepreneur has capability to take quick decision 10, Adaptability: He has the capacity to adapt with any kind of situation that arises in the enterprise. 11. Foresightness: The entrepreneurs have a good foresight to know about future business environment. Others; the other feature are dynamism, ambition, education and training, long term involvement, future orientation. 2| Page Dr. Md. Bokhitiar Hasan, Associate Professor, Finance & Banking, IU, KushttaChapter- Two: Small and Medium Enterprise (SME) O Qualities of a successful Entrepreneur: To become a successfull entrepreneur in its business life, a businessman should possess a number of essential qualities. Those are noted below: 1. Moderate risk raking: An entrepreneur always takes calculated risk to operate the organization. Hard work: An entrepreneur is very much hard worker, he or she always busy with various types of work, 3. Accountability: A successful entrepreneur is accountable well as his associates always accountable to him, 4, Educated in real sense: Successful entrepreneur is educated. In real sense, he tries to implement his organizational objectives through his education 5. Analytical mind: A. successful entrepreneur is analytical minded. He scrutinizes every activity on the organization, 6. Dynamic leadership: A successful entrepreneur is always dynamic to operate the organization. 7. Presence of mind: A successful entrepreneur is always at present of mind he is always aware of activities that to happening in the organization and around him. 8. Accommodative: A good entrepreneur has the capacity to make his own place at every sector 9. Courageous and tactful: Corsages and techniques is very much essential for a successful entrepreneur. 10. Maker of right decision: A successful entrepreneur makes right decision in right time in right place. 11. Foresighted: Successful entrepreneur foresights the future and take decision accordingly. 12. Right perception of things: A successful entrepreneur things in a right way 13. Enjoy simple life: A successful entrepreneur always deals a simple life a general people of the society. 14. Strong desired to success: A successful entrepreneur have a strong desire to success. He is driven by the desire to success 15. Innovation: Innovation is the process of making new something. A successful entrepreneur is innovative. 16. Self confidence: A successful entrepreneur is self confident. He does not rely on other for decision or fate 17. Goal seiting: A successful entrepreneur set the goal. 18. Keen observation: A successful entrepreneur always observes the origination. 19. Sociable: A successful entrepreneur is sociable person 20. Loves to work: A successful entrepreneur is very much addicted to work. 21. Loves new ideas: A successful entrepreneur loves new ides of the organization 22. Team builder: A successful entrepreneur builds a suitable team. 23. Clean understanding: A successful entrepreneur clearly understands everything. 24. Ability to conceptualize: A successful entrepreneur is able to conceptualize the reality. 25. Osher: The other qualities are patience, optimistic, strategist, ete 3| Page Dr. Md. Bokhtiar Hasan, Associate Professor, Finance & Banking, TU, KushtiaChapter- Two: Small and Medium Enterprise (SME) O Distinction between an entrepreneur and a manager: Sometimes, the words ‘entrepreneur’ and ‘manager’ are used as synonyms. In fact there are some differences between them. They are described below — Entrepreneur Vs Manager 1. Motive Thinking function: His main motive is to start a new venture by setting up an enterprise. Doing function: His main motive is to render service to the organization already established. 2. Status Entrepreneur is the owner of the enterprise. Manager is the service holder or servant of the enterprise. 3. Risk bearing Owner of the enterprise assume all risk and uncertainty involved in the enterprise. ‘As the servant, managers don’t take or bear risk and uncertainty involved in the organization. 4. Reward Reward is profit which is highly uncertain. Get salary as a reward which is fixed and certain. 5. Innovation An entrepreneur is an innovator. ‘A manager is not an innovator in that sense he implements the plan prepared by the entrepreneur 6. Qualification They are not highly qualified but have extraordinary experience of forecasting. ‘They are highly qualified (iastitutional education), After the above discussion we can say that at a time an entrepreneur can be a manager but a manager cannot be an entrepreneur. C1 Different Types of Entrepreneurs: On the basis of nature Clarence Danhof classified entrepreneurs into four categories. These are — 1. Innovative entrepreneurs: They are generally aggressive on experimentation and cleverly put attractive possibilities into practice. An innovative entrepreneur is one, who introduces new goods, inaugurates new method of production, discovers new market and recognizes the enterprise. It is important to note that such entrepreneurs can work only | Page Dr. Md. Bokhtiar Hasan, Associate Professor, Finance & Banking, IU, KushtiaChapter- Two: Small and Medium Enterprise (SME) when a certain level of development is already achieved and people look forward to change and improvement. 2. Imitative entrepreneurs: These types of entrepreneurs creatively imitate the innovative technical achievement made by another firm. Imitative entrepreneurs are suitable for underdeveloped countries as it is hard for them to bear the high cost of imovation. Imitative entrepreneurs do not innovate the changes themselves, they only imitate techniques and technology innovated by others. They copy and learn fiom the innovating entrepreneurs. While innovating entrepreneurs are creative, imitative entrepreneurs are adoptive. 3. Fabian entrepreneurs: Fabian entrepreneurs are characterized by very great caution and skepticism to experiment any change in their enterprises. They usually do not take any new challenge. These entrepreneurs are traditionally bounded. They neither introduce new changes nor adopt new methods innovated by others entrepreneurs. They are shy and lazy. They try to follow the footsteps of their predecessors. They follow old customs, traditions, sentiments ete. They take up new projects only when it is necessary to do so. 4. Drone entrepreneurs: They are characterized by a refusal to adopt any change even at cost of severely reduction of profit. Drone entrepreneurs are those who refuse to adopt and use opportunities to make changes in production. They would not change the method of production already introduced, They follow the traditional method of production. They may even suffer losses but they are not ready to make changes in their existing production methods sme other types of entrepreneus 1. Solo operators: These are the entrepreneurs who essentially work alone and if needed at all employ a few employees. In the beginning most of the entrepreneurs start their enterprises like them. 2. Active partners: Active partners are those entrepreneurs who start or carry on an enterprise as a joint venture. It is important that all of them actively participate in the operations of the business. 3. Innovators: Such entrepreneurs with their competence and creativity innovate new products. Their basic interest lies in research and innovative activities 4. Buyers’ entrepreneurs: These are the entrepreneurs who do not like to bear much risk. They do not take the risk of production but take the risk of marketing a product ie wholesaler and retailer 5. Life timers: These entrepreneurs believe business as an integral part of their life. These entrepreneurs actually inherit their family business i.e. goldsmith, potter etc. 6. Challengers: These are the entrepreneurs who initiate business because of the challenges it presents. They believe that ‘No risk, No gain’. When one challenge seems to be met, they begin to look for new challenges. Beside these, there are Govt. and Non-govt entrepreneurs, S| Page Dr. Md. Bokhtiar Hasan, Associate Professor, Finance & Banking, TU, KushtiaChapter- Two: Small and Medium Enterprise (SME) There are some groups of people whose activities have connectivity with those of entrepreneurs, but they are not called entrepreneur; such as; Copreneurs, Infrapreneurs, and Ultrapreneurs. = Copreneurs: Copreneurs are entrepreneurial couples who work together as co-owners of their business. They are creating a division of labour that is based on expertise as opposed to gender studies show that companies co-owned by spouses represent one of the fastest growing business sectors. Marcia Sherrill with her husband William Kleinberg (USA) runs Kleinberg Sherrills, a leather goods and accessories business. She says, “There is nothing more exciting than nurturing a business and watching it grow with someone you love.” + Intrapreneurs: The term ‘intrapreneur’ was coined in USA in the late seventies. Many senior executives of big companies in America left their jobs and started small business of their own. They left the organization because they did not get any opportunity to apply their own ideas and innovative ability. These entrepreneurs become successfil in their own ventures. Some of them caused a threat to the corporations they left. This type if entrepreneurs have come to be called intrapreneurs. They believe strongly in their own talents. They have desire to create something of their own, They want responsibility and have a strong drive for individual expression and more freedom in their present organizational structure. When this freedom is not forthcoming, they become less productive or even leave the organization to achieve self actualization elsewhere. + Ultrapreneurs: Now-a-days, new products and services are conceived, create, tested, produced and marketed very quickly and with great speed. Therefore, today’s entrepreneur needs to have a different mindset about establishing and operating a business. This mindset is called ULTRAPRENEURING. An entrepreneur with this mind set is known as Ultrapreneur. The concept of Ultrapreneuring is to identify a business opportunity, determine its viability and form a company. It requires assembling a super competent management team, who then develop, produce and markets the product or service in the shortest optimum time period. They create business and then sell out, merge or combine, O Factors Determining Growth of Entrepreneurship: Entrepreneurship is the outcome of the interaction between several social, demographic, economic and political variables. These variables may be classified as follows: 1. Family background and other economic factors 2. Personality characteristics 3. Economic factors 4. Socio-cultural factors 5. Political support 6. Psychological factors 1. Family Background: People belonging to mercantile families and communities can more easily enter industry. For example, children in Marwari families are brought up in an environment which develops in them entrepreneurial qualities at an early age 6 | Page Dr. Md. Bokiitiar Hasan, Associate Professor, Finance & Banking, TU, KushtiaChapter- Two: Small and Medium Enterprise (SME) 2. Personal characteristics: Personality and personal skill developing are treated as a critical factor in self development and growth of the organization. Young person lend to be more optimistic in facing the challenges of life. Being exposed to latest developments in science and technology, they are expected to be more innovative Education provides these and thereby improves the competitive strength. It also serves as contact factor to the new entrepreneurs without much social base and resources. Personal experience also contributes fo efficiency in entrepreneurship. Such experience is very important for small scale entreprenews who have to perform most of the funetions themselves. Past experience reduces dependence on hired employees and provides an edge over un-experieuced people. 3. Economic factors: Since entrepreneurship is essentially the promotion of economic change, the same factors that promote economic growth and development account for the emergence of entrepreneurship. Market incentives, available capital, financial institutions that provide capital to entrepreneurial projects, etc. help to promote entrepreneurship. Socio-cultural factors: In countries like the United States, entrepreneurs and entrepreneurial behavior enjoy a legitimacy they do not have in the Soviet Union; Political and economic ideologies and legal structure in some countries encourage free enterprise and protect the rights of individuals. Another factor that affects entrepreneurship is social mobility. Political support: In order to build up such contacts it is necessary to work with prestigions groups individually or through relatives, friends and associations. Political affiliation, social participation and such other linkages serve as an important factor contributing to entrepreneurship. Favorable Government policy and social recognition influence a person to become an entrepreneur. 6. Psychological factors: Need for achievement is acting as an important psychological factor in determining the supply of entrepreneurs in country. O Entrepreneurial Environment Entrepreneurship docs not emerge and grow spontaneously. Rather it is dependent upon several economic, social, political and psychological factors. These environmental factors many have both positive and negative influences on the growth of entrepreneurship. Positive influences imply facilitating and conducive conditions whereas negative influences refer to factors inhibiting the emergence of entrepreneurship. Various environmental factors influencing the emergence of entrepreneurship are given below: 1. Economic Conditions: Economic envizoument exercises perhaps the most direct and immediate influence on entrepreneurship Markets, Capital, Labor, and Raw Materials are the main economic factors * Markets: The size and composition of market both influence entrepreneurship in their own way practically, monopoly .in a particular produet in the market becomes more influential for entrepreneurship than a competitive market. However, the disadvantages of competitive market can be cancelled, to some extent, by 7 | Page Dr. Md. Bokhtiar Hasan, Associate Professor, Finance & Banking, TU, KushtiaChapter- Two: Small and Medium Enterprise (SME) improvement in transportation, system facilitating the movement of raw materials and finished products and increasing the demand for producer goods © Capital: Availability of capital facilitates the entrepreneur to bring together the labor of one, machine of another and raw material of yet another to combine them to produce goods © Labor: Division of labor as an important element in economic development. According to him division of labor which itself depends upon the size of the market leads to improvement in tin productive capacities of labor due to an increase in the dexterity of labor. Notwithstanding, it appears that the labor problem clearly does not prevent entrepreneurship from emerging. * Raw Materials: In the absence of raw materials, neither enterprise can be established nor an entrepreneur can emerge. Of course, in some cases, technological innovations can compensate for raw material inadequacies. The Japanese case, for example, witnesses that lack of raw material clearly does not prevent entrepreneurship from emerging but influenced the direction which entrepreneurship took place 2. Social Factors: Social environment in a country exercises a significant impact on the emergence of entrepreneurship. The main components of social environment are as follows: © Social Mobility: Social mobility is crucial for entrepreneurial emergence is not common. Some hold the view that a high degree of mobility is conductive to entrepreneurship. Both need for ‘openness’ of a system and need for flexibility’ in role relations imply the need for the possibility of mobility within a system for entrepreneurship development. © Security: Entrepreneurial security is an important facilitator of entrepreneurial behavior. lusecurity does not hinder entrepreneurship, but rather that different kinds of insecurity will result in different kinds of entrepreneurship. ‘* Legitimacy of Entrepreneurship: In professional vocabulary, such system is referred to as the legitimacy of entrepreneurship in which the degree of approval or disapproval granted entrepreneurial behavior influences its emergence and its characteristics if it does emerge 3. Psychological Factors: Many entreprenenrial theorists have propounded theories of entrepreneurship that concentrate specifically upon psychological factors. We consider these theories separately for that reason. 4. Governmental Influence: Any interested goverment in economic development can help, through its clearly expressed Industrial policy, promote entrepreneurship in one way or other. By creating basic facilities, utilities and services and by providing incentives and concessions, the government can provide the prospective entrepreneurs a facilitative socio-economic setting. Such conductive setting minimizes the risks which the entrepreneurs are to encounter. 8| Page Dr. Md. Bokhtiar Hasan, Associate Professor, Finance & Banking, TU, KushtiaChapter- Twer Small and Medium Enterprise (SME) 0 Contribution of Business Entrepreneurship in Economic Development Bangladesh is a developing Country. As per Bangladesh Economic Review -2010, 50% of our national income comes from service, 20% comes from agriculture and 30% comes from industry, Industrial sector plays a vital role for the development of any country. The development of all the sectors including industrial sector is possible through development of business entrepreneurship. Business entrepreneurship can contribute to our socio economic development in the following way: 1. Proper utilization of resources: Business entrepreneurship ensures the uses of natural resources and human resources of our country. Increase of investment and proper utilization of resources is possible through establishing new industry. 2. Increase of national Income and Production: The national income increases through, business entvepreneusship. As a result achievement of government target for national income becomes possible. 3. New employment generation: Entrepreneurs establish industry, operate and expand it along with government. As a result new employment generation becomes possible. 4, Development of Efficient Human Resources: Bangladesh is a populous country. This large population can become our asset. Because, a successful entrepreneur turns the inefficient people to efficient through engaging them into productive works. 5. Reduces Dependability on others: We can reduce dependability on others through business entrepreneurship. We can become economically self sufficient with proper utilization of business entrepreneurship. O Favorable Environment for Developing Business Entrepreneurship If we observe the developed countries, then we will see that the main reason for their advancement is the positive environment for establishing business, operation and expansion. In our country we do not have deficiency in brilliance, mentality and efficiency. Our advancement is hindered only for the lack of positive environment, The following. positive environment is necessary for development of business entrepreneurship: 1. Developed Infrastructural Element: There are some necessary facilities for operating business such as electricity, gas, comnnmnication etc, These elements are necessary for existence of positive environment for business entrepreneurship, 2. Government Assistance: With the help of business entrepreneurship, the business of the country can grow more and be enriched. Various government decisions like tax rebate, supplying capital with or without interest, ete can make a positive environment for business entrepreneurship. 9| Page Dr. Md. Bokitiar Hasan, Associate Professor, Finance & Banking, TU, Kushtia4. Chapter- Two: Small and Medium Enterprise (SME) Socio-Economic Stability: Economic, Social and Political stability has a positive impact over creating positive business environment; the instability works in the opposite creates a negative impact. Supportive Law and Order Situation: Establishment and operation of business is easier, if the law and order situation of the country is positive. On the other hand negative law and order situation is a threat to business entrepreneurship development Arrangement of Sufficient Capital: To successfully implement any kind of business entrepreneurship, sufficient capital is necessary. In this regard, the banking system of the country to be developed so that supply of capital to the entreprenes is ensured. Opportunity of Training: Sometimes correct steps cannot be taken though opportunity prevails only because of lack of training. Through training positive elements for business environment can be created, The opportunities or prospects of entrepreneurship development _in Bangladesh: As a third world country a considerable number of entrepreneurs has not been developed. Nevertheless, there is a great possibility of developing entrepreneurship in Bangladesh. Following are the prospects and opportunity of entrepreneurship development in Bangladesh. 1. 2. 4. Availability of human resources: Bangladesh has its vast population of about 150 uuillion. So there is a great possibility of developing entrepreneurship aud entreprenewss in Bangladesh. HR is the fundamental factors of production that is available in vast amount. Therefore, entrepreneurs can easily use them with 1 on payment that may encourage them to be entrepreneur. Therefore, abundance of HR is the great opportunity in creating entrepreneurs in Bangladesh. Industrial innovative sensation: People of Bangladesh have industrial innovative sensation. They may get involved largely in industrial initiative if they get favorable opportunity. Already they established many small and cottage industries with the help of NGOs and other financing institution, Mobility of profession: A considerable number of villagers now replaced their agriculture-based profession into petty businesses aud many other sunall and cottage industry. Many of them tansferred into city area. Thus, it creates a mobility of profession. That is another prospect of developing entrepreneurship in Bangladesh. No religious hindrances on mobility of profession: In Bangladesh, there are any religious and cultural hindrances on mobility of profession. Most of the people are changing their work, profession day by day. In past, certain religious people belong to certain profession, But now people get engaged in their desired profession without religious and cultural hindrance. That is another prospect of creating entrepreneurs. Large number of educated unemployed: In our country, there are many educated unemployed people, but there is a limited scope of employment. For this reason, educated unemployed people will take new initiative to do something new themselves 10| Page Dr. Md. Bokhtiar Hasan, Associate Professor, Finance & Banking, 1U, KushitiaChapter- Two: Small and Medium Enterprise (SME) ‘As there is a close connection of education and entrepreneurship there is a possibility of developing entrepreneurship. 6. Tendency toward industrial work: Industrial work bears more salary, status, facilities for living in city area and so on, For this reason, people tending towards industrial work. Thus, industrial sector will be developed in future. Such mentality and tendeney are helpful in developing entrepreneurs. Therefore, it is another prospect of developing entrepreneurs, 7. Preference in establishing agro-based industry in Government planning: As our country in agro-based, there is a greater possibility of establishing agro-based industry, Besides, most of the raw materials of industry come from agricultural sector. So our resourceful agriculture sector is helpful in developing entreprenewship. Nowadays, Govt. announces preference in agro-based industry that is also greater opportunity to develop entrepreneus. 8 Liberalization of Govt, industrial policy: With the aim of rapid industrialization, govt adopted liberalization in industrial policy and encourages entrepreneurs to come ahead in industrial sector with their large capital. For this reason, investors are investing their capital in industiial sector. That is another prospect of developing entrepreneuts in Bangladesh 9. Disbursement of micro-credit by different NGO's: In our country there are large numbers of NGOs providing micro-credit to the village poor people. That is helpful in. forming small and cottage industry. NGOs also provide training facilities, advice, investment consultancy, raw materials ete to its loaner. That is another prospect of developing entrepreneurs in Bangladesh. From above mentioned discussion, we observed that there is a greater possibility of developing entrepreneurs in Bangladesh. O Obstacles of entrepreneurship development in Bangladesh: As a third world county, in Bangladesh there is uo abundant facilities for developing entrepreneurship rather exist a large number of obstacles, which are liable for not developing entrepreneurs in Bangladesh described in below: 1. Improper publicity of Govt, facilities: For developing entrepreneurs in limited basis Those have not informed properly to the remote villagers. Therefore, these facilities cannot work well. Some urban centered people accept the facilities that are not enough for developing entrepreneurs over the country. So this is one of the fundamental obstacles. 2. Lack of Proper Planning: For entrepreneurship development planning to be adopted in a disciplined way and gradually. Though it is a matter of regret that in our country there is huge lack of such good planning, 3. More Interest towards Job: People of our country are dependable on agriculture since the immoral time. As a result we have less interest in industry and business. Traditional 11| Page Dr. Md. Bokhtiar Hasan, Associate Professor, Finance & Banking, 1U, KushtiaChapter- Two: Small and Medium Enterprise (SME) educational system in our country makes them more interested towards employment. For entrepreneurship development itis one of main obstacles. 4. Lack of Technical and Vocational Education: Geueral education system in our country is based on memorizing and theory. Since long this system has been continuing Though there is separate technical and vocational education system, meritorious students are not interested for this. On the other hand, there is no clear idea about the technical and vocational education and the student fails to get a good idea about this. As result, habit does not grow for business entrepreneurship Lack of Campaign: To implement any steps, campaign plays a significant role. Lack of sufficient campaign for various private and public steps regarding business entreprenemsship development, lots of meritorious students from towns and villages, unemployed people remains ignorant about it. As a result, business entrepreneurship development activities remain unsuccessful. 6. Lack of Financing Arrangement: This is the fimdamental problem of developing entreprenesship in Bangladesh. Here, entrepreneurs face problem in collecting required working capital and fixed capital, most of the financing organization demand for supporting papers and apply rigid conditions. As a result, most of the entrepreneurs cannot get rise capital to operate their activities smoothly. Working capital, fixed capital and capital for expansion of business. 7. Scarcity of raw materials and other factors of production: In our country, there is an immense shortage of basic raw materials to operate industrial activities smoothly such as skilled manpower, technology, capital and so on. For this reason, they have to import basic raw materials and supplementary factors of production that increase the cost of production. As a result, entrepreneur can't take initiatives to establish industrial organization smoothly. 8. Lack of training: Training is essential to work efficiently and effectively in any field ‘Training is a practical experience regarding job that is necessary to increase efficiency and productivity. In our country, there is no available training centre to provide training in developing entrepreneurs. As a result, people cannot come ahead to take initiative that is an obstacle to develop entrepreneurship. 9. Political Instability: Political instability is a major obstacle for the economic development and growth of any country. Because of political instability, law and order situation in the country deteriorates and business activities get obstructed. As a result, potential entrepreneurs mislay their interest for doing something new. These are the obstacles or problem in developing entrepreneurs and entrepreneurship in Bangladesh. 0 Ways to Overcome the Obstacles Entrepreneurship Development in Banglades! 12| Page Dr. Md. Boktiar Hasan, Associate Professor, Finance & Banking, IU, KushtiaChapter- Two: Small and Medium Enterprise (SME) 1. Making specific policy: To perform any activities some policies should be maintained. We all shall recognize that some effective policies should be made to develop entrepreneutship in Bangladesh, Relating organization and officials should make some specific policies for developing it. 2. Involving entrepreneurial knowledge in text book: As our education system is theoretical based so entrepreneurial knowledge should be included in textbook. So that students can achieve entrepreneurial knowledge that will be beneficiary for developing entrepreneurship in future. In text book following matters should be involved or suggested to be included. 3. Offering package help: After providing training, trainee should be provided necessary help for developing industrial sector. Necessary help including fixed capital, working capital, technical men, technology, and raw material and so on. This is helpful in creating entreprenewship. 4. Formal arrangement of training: people who are engaged in entrepreneurial work or people who are willing to take new initiative have suggested providing training in the respective field that will be helpful for them to take initiative and operates industry smoothly. Govt. and uon-govt, organization can arrange this program. . Increasing govt. facilities and its extensive publicity: Govt. facilities for developing entrepreneurship are not sufficient. So govt. should provide abundant facilities for developing entrepreneurship. Govt. should also arrange extensive publicity of it’s given facilities. So that rural centered people can get these facilities. That will be very helpful in developing entrepreneurship in Bangladesh 6. Encouragement in industrialization: Govt, and nou govt. organization may encourages people towards industrialization by providing different facilities including tax redemption or tax holiday, EPZ facility, BSCIC industrial state, providing raw material, capital, technical assistance etc. with unqualified condition, 7. Establishment of supplementary industry: Eutsepreneurship may be developed be establishing supplementary industry extensively. Some of them produce industrial product that are reproduced large industry and some of them use by prodnet of large industry, They are also essential to develop large-scale industry 8. Increasing loan facilities: Most of the people establish small or large-scale industry with loan facility. Financing institution should provide sufficient loan to the entrepreneur with flexible condition and supporting paper. This program will be helpful in establishing and operating new industries and businesses. 9. Exhibition of industrial product: To increase demand for industrial product govt. and non- govt. organization may arrange exhibition. Industrial fair in domestic country will be helpful in creating demand for industrial product. Industrial product may introduce in abroad. It is an important recommendation to develop entrepreneurs and entrepreneurship. 10, Reduction of tax and duty: Govt, may encourage industrialization by lessening duty rate of industrial product, That will also lessen cost of industrial product, which is helpful in capturing market. Thus, way industrialization or entrepreneurship will be developed duty on importing bank raw materials have suggested to reduce. a 13| Page Dr. Md. Boktiar Hasan, Associate Professor, Finance & Banking, 1U, KushtiaChapter- Two: Small and Medium Enterprise (SME) 11. Favorable import and export policy: Most of the basic raw materials used in industry have been imported from foreign countries. Some industrial produets have produced to export as a whole. So for developing industialization and entrepreneurship proper authority should make obvious and flexible export-import policy. O Institutional or organizational sources of assistance for entrepreneurship development There are two types of organizational source of assistance for “Entrepreneurs Development in Bangladesh”. They are as follows: 1. Government agencies 2. Non-Government or private agencies 1, Government Agencies: Board of Investment (BOI) Bangladesh Development Bank Limited (BDBL) Investment Corporation Of Bangladesh (ICB) Nationalized Commercial Bank Of Bangladesh Bangladesh Krishi Bank (BKB) Rajshahi Krishi Unnoyon Bank (RKUB) Bangladesh small and cottage industries corporation (BSCIC) Export promotion bureau (E.P.B) ‘Trading Corporation of Bangladesh (TCB) Bangladesh industrial and technical assistance center Bangladesh standard testing institute (BSTD) Bangladesh institute of management (BIM) Bangladesh institute of bank management (BIBM) Jnstitute of cost and management accounting of Bangladesh (ICMAB) Support, supply agencies for water, gas, electricity Small and cottage industry training institute Bangladesh Sadharon Bima corporation Public universities of Bangladesh Bangladesh council for scientific and industrial research VY VY VY VYVVY vVvvvY vv ¥ 2. Non- government Agencies Grammeen Bank Micro industrial development assistance and service (MIDAS) Private commercial Bank Private insurance companies Leasing companies Federation of Bangladesh chamber of commerce and industries (FBCCD) Bangladesh rumal advancement committee (BRAC) vVvVVY ~. v 14 | Page Dr. Md. Bokhtiar Hasan, Associate Professor, Finance & Banking, 1U, KushitiaChapter- Two: Small and Medium Enterprise (SME) Private Universities Proshika Association for social advancement (ASA) ‘Thangamara Mohila somoby songstha (IMSS) Rangpur Kinajpur Rural Sangstha (RDRS) Other NGO's vv ¥ vy > Enterprise may be segmented based on its capital investment, size, and production volume aud so on. Egypt defines SMEs as having more than 5 and fewer than 50 employees, Vietnam considers SMEs to have between 10 and 300 employees. The World Bank defines SMEs as those enterprises with a maximum of 300 employees, $15 million in annual revemme, and $15 uuillion in assets. The Inter-American Development Bank, meanwhile, describes SMEs as having a maximum of 100 employees and less than $3 million in revenue. ‘Under European Union definition: “The category of micro, small and medium-sized enterprises is made up of enterprises which employ fewer than 250 persons and which have an annual tumover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million euro.” Small and medium enterprises are thus defined as firms with 10 to 250 employees, and more than 10 million euro turnover or annual balance sheet total. 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: Fixed Asset other than | Employed Manpower Serlal No. Sector Land and Building (Tk.) (not above) 1 Service 50,000-50,00,000 25 2 Business 50,000-50,00,000 25 3 Industrial 50,000-1,50,00,000 50 Defini fedium Enterpri ‘Medium Enterprise refers to the establishment/finm which is not a public limited company and complies the following criteria: 15| Page Dr. Md. Bokhtiar Hasan, Associate Professor, Finance & Banking, IU, KushtiaChapter- Two: Small and Medium Enterprise (SME) Seo. | sear ah Anat tan) Etre nove 1 Service 50,00,000-10,00,00,000 50 2 Business 50,00,000-10,00,00,000 50 3 Industrial 1,50,00,000-20,00,00,000 150 OD Scopes of SMEs: The structural arrangements of Bangladesh's industries show that jute, textiles, paper, steel and engineering, cement, chemical, fertilizer and pharmaceutical industries are under the big and medium scale industries. In contrast, specialized textile industries (including garments), backward linkage industties, hand-operated welding, food processing and food linkage industries, leather, ceramics, light engineering including automobiles, basic metal engineering, small scale chemical engineering, rubber industries, paper printing and publishing industries, small fabrication industries, non- metal mineral products, batteries, electrical, electronics, handicrafts, agro-based industries, multilateral jute goods, silk industries, fiuit processing, poultry farming, fisheries, tea gardening and processing, vegetable seed farming, floriculture and agro-forestry, and printing industries, ginning and baling, construction industries, transportation (inchiding automobiles), cinema and photography, pathological laboratories, cold storage, furniture, computer industries, fast food, frozen food, etc, under service industries, and many other sectors are included in the SMEs. But, there are 17 booster sectors of SMEs in the Industrial Policy 2005 which are as follows: 1. Electronics and Electrical Software Development 3. Light Engineering 4, Agro-processing and related business 5. Leather and Leather goods 6. Knitwear and Ready Made Garments 7. Plastics and other synthetics 8. Healthcare and Diagnostics 9. Educational Services 10. Pharmaceuticals’ Cosmetics! Toiletries 11. Fashion-rich personal effects, wear and consumption goods 16| Page Dr. Md. Bokhtiar Hasan, Associate Professor, Finance & Banking, 1U, KushtiaChapter- Two: Small and Medium Enterprise (SME) CO Objectives of SME Loan in Bangladesh: > Promote and encourage entrepreneurship through the use of micro-entrepreneurial natural and creative talents. > Needs a relatively lower capital investment, lower capital-output ratio. > The greater likelihood that SMEs will utilize labor intensive technologies and thus, has an impact on employment generation. > Need shorter time frame to start-up and put into operation to produce quick returns. > Requires lower infrastructures and consumption of utilities is also minimal > SME development can encourage the process of both inter and intra regional decentralization. > SMEs may well become the countervailing force against the economic power of larger enterprises. i Innovative SMEs can add more value to the production, which may not be possible by the traditional enterprises or industries > SME development stimulates the use of personal savings and promotion of agroindustrial linkages. > SMEs can help provide the intermediate inputs or raw materials under subassembly operations of large industries through cooperatives or joint industrial agglomeration through backward and forward linkages. O Sources of Capital for SMEs: + Debt Financing: For almost all the existing and upcoming SMEs of Bangladesh, neither unsecured commercial credit nor debentures equity capital in the form of publicly traded shares and private placements, nor NGO micro-credit could be considered as the viable sources to finance. It has been found fiom previous surveys and observations that Banks, development financial institutions (DFTs) and non -bank financial institutions (NBFIs) such as insurance and leasing companies require real estate and tangible securities, as collateral, for loans in almost every cases. Rather, soft loans are extended to large firms with long standing client relationships with the banks or firms that are benefiting from either through political nexus or having a close relationship with officials who hold high positions representing the lending institutions, both private and public. 17| Page Dr. Md. Bokhtiar Hasan, Associate Professor, Finance & Banking, 1U, KushitiaChapter- Two: Small and Medium Enterprise (SME) > Loans from friends and fami In fact, the main source of financing for SMEs in Bangladesh is through informal sources like members of the family, friends and close acquaintances. These loans often take time to mobilize and are therefore not helpful in times of emergency. In many cases, it has been found that SMEs due to significant operating capital constraint during early years of operation become “sick” or face “shut-down” when facing bankruptey. > Loans from financial institutions: Formal credit through bank and non-bank financial institutions comes at a high price for SMEs, since the use of security in credit agreements is highly inefficient, and non-real estate (movable and intangible) security is largely ineffective. Loans that are obtained from financial institutions are mainly to cover the working capital needs. > Trade credit: Trade credit is the second most important source for working capital to many small entreprenewss. Trade credit allows the importer/ buyer of equipments aud raw materials to defer cash payments to the suppliers in exchange for the promise fo pay them in the future, according to the credit terms. Using trade credit to purchase goods or services from the suppliers creates an account payable In essence, trade credit is actually a short-term loan with interest-free financing. The amount of the loan is equal to the purchase price of the goods or services that the SME importer’ buyer purchased. The loan's due date is the date the importer/ buyer required to pay the suppliers bill. ‘Asan added benefit, no interest is charged on this short-term loan, as long as the buyer pays the bill off according to the supplier's terms, Unfortunately, trade credit in the country is provided, especially to SMEs, at a much higher rate of interest than loans from the banks. > Back to back letter of credit: Back-to-back letters of credit are two individual letters of credit that together offer an altemative to a transferable letter of credit. The back-to-back letter of credit allows exporters (sellers or middlemen) who do not qualify for unsecured bank credit to use a letter of credit as security for a second letter of credit in favor of @ supplier. In other words, if a foreign buyer will issue a letter of credit to an exporter, certain banks and trade finance companies will issue independent letters of credit to the exporter’s suppliers so that the required goods can be purchased. Even if the initial letter of eredit is not successfully completed, the second remains valid, and the issuing bank is obligated to pay under its terms. Although back-to-back letters of credit provide SMEs virtually unlimited working capital to finance their sales and complete more export transactions, many banks are reluctant to take on this type of arrangement. Because back-to-back letters of credit involve two separate 18| Page Dr. Md. Bokhtiar Hasan, Associate Professor, Finance & Banking, 1U, KushitiaChapter- Two: Small and Medium Enterprise (SME) transactions, it is likely that several participating banks will be involved and the risk of confusion and dispute is high. To protect itself, a bank generally will require that the exporter present all relevant documents that are part of the first letter of credit before issuing the second letter of credit. The second document is worded to conform precisely to the original and dated to expire at some date prior to the first, ensuring that the seller has sufficient time to present documents within the time limits of the first. In Bangladesh, back-to-back LCs though used frequently in the garments sector but it is not that popular in other sectors of SMEs. > Leasing: Leasing companies in the country do not look primatily to the lease assets itself for security, but to separate collateral in lands and buildings. The leased equipments bear less security value in most cases due to their relative illiquidity that arises for using reconditioned equipments on regular basis. Thus, their depreciation value is reduced. Due to the use of tangible assets as collateral securities (ie., lands and buildings) in providing loans, SMEs access to finance from formal sources do not mitigate even though there are good uuuber of medium and small leasing companies operating in the market > Life insurance companies: Unlike other developed and developing countries, life insurance companies operating the country failed to provide low-interest policy loans to SMEs in large scale to supplement conventional borrowing > Asset based financing: Unlike USA and other well-organized financial markets, asset based financing in terms of Accounts receivable and chattel paper is non-existent in the country. 2, Equity based financing: > Equity formation through IPOs and private placements: Due to lack of investors’ confidence in the capital market, which is devoid of an environment that encourages transparency, confidence, competition and innovation, SMEs are reluctant raise funds through the capital market. Though, recently Bangladesh Securities and Exchange Commission (BSEC) has taken some conerete steps to bring back the confidence in the bourses, it would need ample time to implement polices with sound and forward-looking planning prepared by the management team of the relevant entities. Thus, raising capital through initial public offerings (IPOs) and private placements in the capital markets is not considered as viable sources of finance for SMEs. > Employees Stock Ownership: Employee stock ownership plans that allow employees to own a piece of the business boost production and provide leverage for additional financing for new entrepreneurs or entrepreneurs who are already started their operations, done either formally or informally, has recently become to raise funds for SMEs. 19| Page Dr. Md. Bokhtiar Hasan, Associate Professor, Finance & Banking, 1U, KushtiaChapter- Two: Small and Medium Enterprise (SME) 1 Problems of access to finance for SMEs in Bangladesh: Supply and demand side problems in getting access to finance for SMEs are as follows: A. Supply Side Issues: ¥ Availability of fimds to the banks Y Lack of access to start-up finance Y Lack of appropriate equity finance ¥ Terms and conditions are not suitable for finance ¥ Limited experience of institutions in finaneing for SMEs B. Demand Side Issues: Y Lack of collateral Y Lack of / limited business experience ¥ Lack of information Y Lack of management knowledge ¥ Poor presentation of the business request for funding O Why is it difficult to get loans at low interest rate: 1) Insufficient collateral possessed by most SMEs. 2) Low inventories compared to large enterprises, which can be kept by banks in their warehouses or in separate warehouses controlled by Bank agents 3) Demand for highly secured and liquid government bonds. 4) Demand for high corporate securities / deposits. 5) Lack of feasibility study and proper business plan. ©) Lack of proper documentation; in fact, documentation requirements for all types of loans (but not leases) are onerous, raising fixed costs of borrowing for the SMEs. 7) Lack of legal enforcement of credit and securities agreements. 8) Low expectations of getting undue favor in the future and kickbacks from SMEs. 20| Page Dr. Md. Bokhtiar Hasan, Associate Professor, Finance & Banking, IU, Kushtia